Foreign Aid as a percent of US budget

How much does the US spend on foreign aid?  Before you read on, answer the question for yourself.  Really, give it a shot.  Think of a percentage of the US budget.  The rest of this post will wait.  No problem.

While you’re coming up with your guess, I’ll give you some data on other people’s guesses.  In a December poll performed by the University of Maryland, the average answer among Americans was 25%.  In the minds of Americans, that places foreign aid above Medicare and social security in terms of dollar cost.

The real answer is less than 1%.  Yep, less than 1% of the US budget goes to foreign aid, including the State Department and USAID.  In dollar value that’s still more than any other country.  As a percentage, it’s less than places like Sweden.

Here’s the pie chart of the US budget if you’re curious.  Remember, to balance the budget, you need to take about 35 of those percents out of the chart.  It’s a fun game to play if you don’t touch programs like Medicare/Medicaid, social security, welfare or defense.  In fact, you have to eliminate EVERY program besides those to become balanced.  That includes not just foreign aid, but Education, Veterans Affairs, Health and Human Services, Agriculture, Justice, NASA, Treasury, Transportation, Interior, Labor, EPA, NSF, and the costs of the three branches of government.

If you dip into Medicare, you can probably save the post office and the President’s Physical Fitness award.

Impact Investing no. Impact Finance yes

At a recent panel discussion at Santa Clara University in support of John Kohler’s excellent “Coordinating Impact Capital“, I had a sudden thought.

I was arguing as I often do for making money in impact investment.  And I’m a venture capitalist.  Investing is what I do.  But is investing what impact needs?

Investing implies return, and it also implies the vehicle.  Investors in the US can invest in the public market, in debt instruments, in private companies, and in weird alternative structures like VC and their 100 times larger hedge funds.  Are these really the what the impact sector needs?

I want to instead talk about “Impact Finance” instead of “Impact Investing”.  Finance includes all of the above plus savings, banking services, insurance products, guarantees, and more.

Given how much open space there is for innovation and entrepreneurs in addressing these new markets, let’s not narrow things down to just high risk, high touch, illiquid venture type fund structures.  Impact Finance is what is needed.

Congress doesn’t have the background to cure debt ills

Curious why we are in a budget mess?  It’s because Congress doesn’t know much about budgets, according to their backgrounds.

Of 435 congressmen and 100 senators in the 111th Congress:

• There are as many musicians and sports stars (5) as there are accountants (5)
• There are more veterinarians (2) than there are economists (none)
• The dominant prior profession is lawyer (225)

Lawyers create and debate laws, not budgets.

Combine this with the size of the budget.  It’s big.  $3.4 trillion dollars big (that’s $3,400,000,000,000.00 in old style money).  If each member were allowed to focus on just their pro rata share, which of course they aren’t, their share would be about $6 billion.  That’s still as big as a Fortune 400 company’s budget.  Of course, a Fortune 400 company is filled with business people to sort through the budget.  A U.S. Congressman, with a staff of just 30, has to cover all political issues PLUS the budget.

Finally, why should these understaffed, busy Congressmen even care about small parts of the budget?  Consider:  your average American household income is about $45,000.  Let’s say you debate $100 purchases but not ones below that.  If Congress, with a $3.4 trillion pie, had similar sensitivities, they wouldn’t debate anything below $6.8 billion.  I call this the “care threshold” and it’s a true phenomenon across many organizations.  Still, a billion here and a billion there start to add up.

With little experience and limited staff, it’s no wonder Congress struggles to master a behemoth like 2012’s 2,403 page budget.  That’s about 8 average length best selling novels, nearly as many books as the average American reads in a year (9)

Reasons for political paralysis

In the S&P downgrade of US debt, mention was made of our troubled political process.

Whether you believe that the S&P’s downgrade had merit (after all, investors fled to T-bills when the stock market slid on announcement that T-bills were less safe), here is a good talking point for you:

The U.S. political system is more polarized than it has ever been since 1879.

Hope you can read that.  If not, realize that it’s even worse than the polarization between Justin Bieber fans and humans.

Stock market: time to buy

This is the first in a series of short posts over the next few days. This one could also be entitled “don’t panic”.

The decline in the US equities market has those equities looking fairly attractive versus historical levels.

The S&P 500 index is trading at a PE of 11.6. That’s the “Price Earnings” ratio and it’s an indicator of how many dollars you must pay for each dollar of earnings. The average PE since 1926 (and also the average since 1985) is 14.5.

What that means is — if you have some cash — consider investing in the stock market. After all, if you had invested in 2008 when the Dow Jones was at 7062, you’d still be up over 50% despite last week’s downturn.