Dear Congress: “expense” is not “investment”, and that’s OK

When proposing his budget in the Joint Session of Congress, President Obama used the words “invest” or “investment” 11 times – to support energy research, healthcare and education.  Since then, “investment” is the new budgetary buzzword.  Every government proposal is an “investment”.  Are they really?

Investment is when capital is committed with the intent of getting more capital back.  And when is an “investment” really just an “expense”? When it doesn’t pay back.

There are clear investments, like a toll road that will collect money to pay for itself and then some over time.

There are questionable investments, like a toll road that will collect money that WON’T pay for itself over time.

There are long-term investments, like education, healthcare, and energy, that eventually lead to better citizens, jobs, and more tax dollars.  It is difficult to calculate the return on these investments in both dollars and timing, but one could build an excel spreadsheet that would argue for a positive return, eventually, to the US Treasury.  Plus, they  have a clear “social benefit”:  they make our citizens happier and better off.

Then there are things that we call investments that are really only expenses and social benefits.  Like rebuilding levees in New Orleans.  This is absolutely necessary, and can avoid costs down the road.  But this is an expense, with a social benefit of the well-being of a city.  It will not generate a positive financial return on investment for the Federal government.

Likewise Social Security, which is designed to provide a more comfortable life for our senior citizens.  It is a noble and proper decision we’ve made to provide benefit for our elders.  But to be clear, it is an expense.  The federal government will not see that money multiplied and returned.

When I mention this, people want to argue.  Because the word “investment” is so much more palatable than “expense”.

Expense isn’t a bad word.  It’s OK to spend money.  Cultures and economies decide where to spend their resources.  It’s the fruits of success.  Sometimes it’s on noble ideals and just causes like New Orleans levees and Social Security.

Sometimes we re-invest the fruits of our success – on capital goods and people that will generate more resources for the government in the future, refilling the coffers.  Let’s keep the two separate, lest we begin to believe our fiscal coffers will be re-filled with difficult to spend social benefits like happiness and joy.

California has a budget. Too bad.

I’m delighted to know that I will not be getting my California tax refund in the form of an IOU.  California has a budget.

My only issue with the entire empasse is a simple one.   It’s not really a “Budget” problem.  It’s a “Spending” problem.  Even before the current economic problems, the California legislature was growing expenses by 5 times inflation.

The 2008-2009 budget is 35% larger than the 2004-2005 budget.  Accumulated inflation over that time period accounts for only 7%, leading to an increase in real dollars of over 25%.  So despite the fact that revenues have grown by 22%, more than three times inflation, we’re still faced with the problem.

The problem is we can’t stop bribing ourselves with our own money.

The state deficit is only part of the bigger self-bribery picture.  More on the Federal Debt later, but suffice it to say that it currently stands at $37,851 for every man, woman, and child in America as of February 19th, 2009.  It’s also over 75% of GDP.

But to make it more real, the average household has 2.59 members, making the Federal Debt per Household $98,034.  Hey, let’s just say you owe $100,000.  Your average yearly income per household is $50,233.  So, you owe twice as much as you make in a year.  Just send it in over the next two years, please.  Because the latest stimulus package is going to add another $10,000 to your bill.