James Kwak deceives us

Of the $3.8 trillion in outlays in President Obama’s proposed FY 2012 budget, more than half comes in one door and immediately goes out another door back to ordinary people, the vast majority of whom are or were previously taxpayers. $742 billion gets paid out in unrestricted cash by Social Security; another $762 billion goes to pay for people’s health care expenses. Other entitlement programs such as retirement benefits for federal employees (civilian and military), food stamps, and unemployment insurance add up to another $716 billion.* There’s no way to reduce this spending without directly hurting “taxpayers.” You can argue that some of these programs should be eliminated, but you can’t argue that you can eliminate those programs without hurting ordinary people.Baseline Scenario

If it were the case that this part of Congressional spending is in one door and out the other to ordinary people, then why pay the transaction costs? Why not let ordinary people keep their money in the first place?

The answer is that these are transfers from one group to another. If that is the case, then Washington had better have an accurate democracy to prevent theft and inefficiency. But Washington does not have an accurate democracy, Senate representation varies from one group to another by five fold, depending upon the state one resides in.

What Kwak calls simple movements of money really amounts to an inflexible production system in the Senate. The system is so distorted that folks in California, who have 1/5 the proper representation, are not really obligated to pay taxes. And that problem leads to the political quandary of who really should pay taxers in a distortionary government which is designed for unfairness.