Big Picture Economics: How to Navigate the New Global Economy

Chapter 7

When to Spend, When to Cut, and When to Scratch Your Head Over the Federal Budget

Putting together a budget may sound easy: you try to balance what you make with what you spend. Then, there is the U.S. budget.

The last time the fiscal affairs of the U.S. government were in the black was 2001. That makes some politicians see red, and they want to cut, cut, cut. Others see the budget as an opportunity to help provide jobs in their districts so the deficit isn't so bad.

In this chapter, we look at the importance of context in determining what to do about government spending. What is the state of the economy when the president sends his version of the budget to Congress? What are the dynamics needed to keep investors interested in buying U.S. Treasury bonds? And how does a government make significant changes if it won't touch entitlement spending such as Medicare, Medicaid, and Social Security?

Every year, government accountants, legislators, and their staffs and analysts pick through the budget, examining its nooks and crannies. But sometimes even the experts don't understand what's going on. As we will see in this chapter, a fog hangs over one of the most critical segments of the U.S. budget—the spending for health care, which represents about 25 percent of federal spending.

Impact of Health Care on the Budget

In the summer of 2013, the government needed Sherlock Holmes to help solve a mystery about one of the largest U.S. government expenses: health care. Something unusual ...