The fact that Americans are not terribly overtaxed is shown quite clearly in the following table that is constructed from the data in the CIA World Factbook.

Healthcare accounted for 30% of the federal budget in 2019 where   Medicare accounted for 56% of these expenditures.  Medicaid (which lies at the very core of our social safety net) accounted for 30% of these expenditures, 9% of the budget, and less than 2% of our gross income in 2019.  According to the Census Bureau's Table 151. Medicaid—Beneficiaries and Payments: 2000 to 2009, some 75% of its beneficiaries were either poor Children, indigent Blind/Disabled individuals, or indigent elderly adults age 65 and over, and over 85% of Medicaid's expenditures went to these individuals.  In addition, Medicaid is today an essential part of the Affordable Care Act in that it makes it possible for able bodied adults who cannot otherwise afford private insurance to be to be insured. Thus, it would appear that there is very little room to cut this 9% of the budget without causing a great deal of hardship and misery through the denial of medical services to poor children or indigent disabled or elderly adults if private insurance rates are to be kept low for people with pre existing conditions.

That leaves the remaining 6% of the Human Resources budget that went to the Other Healthcare programs in 2019. Here we are talking about 4% of the federal budget and, again, less than 1% of our gross income. Of that 6%, 47% went to veterans (Hospital and medical care for veterans and Uniformed Services retiree health care fund), 9% to Children's health insurance, and 2% to Indian health, 25% to Refundable Premium Tax Credit and Cost Sharing Reductions to subsidize health insurance for low income families, 5% went to Health resources and services (a program that is designed to meet the healthcare needs in underserved, mostly rural areas), 2% went to Substance abuse and mental health services (a program that is severely under funded given the extent of the substance abuse problem in our country), and 8% (less than 0.1% of our gross income) went to medical research and other federal healthcare programs.

Veterans certainly have as much right to their medical benefits as Medicare recipients, and the rest of these programs play an important role in our social safety net.  In addition, since the rest of these programs took up only 1.0% of the entire federal budget in 2019 there is virtually nothing to be saved in taxes by eliminating these programs.

The leaves but one category to examine in Figure 7: Other Human Resources.

What Real-World Economics is About

This is the situation that actually exists in the real world, and this is what Real-World Economics is about.  It’s about cutting through the rhetoric, the spin, the propaganda, and all of the other nonsense that exists in the imaginary world many, if not most people have come to believe in, and looking at the facts as they actually exist in the real world, the world in which we actually live.  It is hoped that looking at the facts in this way will introduce a degree of rationality into the otherwise hopelessly irrational debate we have been subjected to over the past forty years. After all, facts do matter, or at least they should.

Many of the papers on this website, including this introduction, have numbers in them. I realize that many people have an aversion to numbers, but I make no apology for including them here. For the past forty years we have lived in a world in which one end of the political spectrum has insisted that two plus two is six and demonized anyone who argued otherwise. Those who argued that two plus two is four have been ignored while the vast majority of the population, including our political leadership, has come to the conclusion that this sum must be five.  Our nation’s economic policies have been guided accordingly with results that are totally consistent with the logic involved.  This is the kind of arithmetic that got us into the mess we are in today, and it is not going to get us out. The time has come for people to look at the numbers and learn how to add.

This is particularly so when it comes to trying to understand our economic system. It is impossible to understand the economy without looking at numbers. The reason is no one can actually see the economy. The economy is made up of some 329 million people, 114 million households, 27 million business firms, 89 thousand governments, innumerable goods and services, and it is spread throughout the land and has tentacles that stretch all over the world. All we can actually experience of the economy is the very tiny part we personally interact with, and our personal experiences tell us virtually nothing about the whole.

The only way we can come to grips with the whole is to look at numbers. Output numbers. Employment numbers. Government numbers. Production numbers. Price numbers. Money supply numbers. Income numbers. International numbers. Debt numbers. Numbers! Numbers! Numbers! There are often very real problems in obtaining the numbers needed to understand the economy, and often the numbers we have don't measure what we want them to measure or think they measure, but, in the end, all we can actually know about the economic system is numbers. Everything we think we know about the economic system is just speculation unless it is supported by numbers, and everything we think we know about the economy that is contradicted by the numbers is just hot air in the absence of an explanation as to why the numbers are wrong.

In searching for ways to cut the federal budget it is important to understand that cutting a small amount from a large portion of the budget or a large amount from a small portion of the budget may yield a lot of money in absolute terms, but it doesn't yield a lot of money relative to the size of the total budget. It only reduces the total budget by a small amount. To reduce the total budget by a large amount we have to cut a large amount from a large portion of the budget. That's just grade school arithmetic.

When we look at the actual expenditures in the federal budget over the past forty years we find that it is not possible to cut a large amount from a large portion of the budget without cutting defense, Social Security, Medicare, or the programs that make up our social safety net because that's where the money is. The rest of the budget has already been cut to the bone since 1980, and there simply isn't enough money in the rest of the budget to make a difference even if we cut a large amount from this small portion of the budget.

At the same time, when we look at the actual numbers that exist in the real world we find there is no reason to believe we can reduce the size of the federal government by increasing our efforts to target specific instances of waste, fraud, and abuse, because there simply aren't enough specific instances of waste, fraud, and abuse in the budget that are of sufficient magnitude to make a difference in this regard. At best, all we can hope to do by expanding our efforts in this area is cut a small amount from a large portion of the budget, and doing this could actually cost us more to do than we can save by doing it. (See Waste, Fraud, and Abuse in the Federal Budget.)  This doesn't mean we should ignore this problem. It only means that we should not expect to see a substantial reduction in the size of the budget as a result of our efforts to solve it. Those who think otherwise have a problem with arithmetic. Their numbers just don't add up in the grand scheme of things. (Cf. Coburn, Sanders, and St Luis Fed.)

It is also worth noting that attempting to address deficit problems by simply cutting the budget—which is what we have been trying to do over the past thirty years—is a recipe for disaster.  When we do this we risk increasing malnutrition and death rates among poor children or indigent disabled/elderly adults and forcing people who can’t find work—for whatever reason—to become desperate which is what we can expect to happen when we simply cut the funds to those programs contained in Other Payments for Individuals in Figure 6. (Lindert) We also risk impairing the government’s ability to protect the public from poisonous food, dangerous drugs, harmful consumer products, fraud and predatory practices in our financial system, unsafe work environments, potential environmental catastrophes or to maintain our transportation systems and educate our population which is what happens when we arbitrarily cut funds to those programs contained in All Other Outlays in Figure 5.  (Amy)

A fundamental, real-world truth that has been almost completely ignored in the otherwise hopelessly irrational debate we have been subjected to over the past forty years is that there are certain things that only the government can do. One is provide a system of national defense. Another is provide legal, law enforcement, and legislative systems that set and enforce the rules in a fair, efficient, and effective way. Another is provide the public education and infrastructure that makes possible such things as an educated labor force and an efficient transportation system. Yet another is to provide a social insurance system that makes possible such things as unemployment insurance, efficient healthcare and retirement systems, and a welfare system, an efficient healthcare system, all of which provide ordinary people some insurance against the devastation caused by the vagaries of our economic system. (See Amy, Lindert, and Ideology Versus Reality) Simply cutting the budget arbitrarily hinders the government's effectiveness in performing all of these functions.

It seems to me quite clear that these are all things the vast majority of the people want the government to provide. (Pew) This does not mean the vast majority of the people expect the government to take care of their every need. It means the vast majority of the people realize that, in the real world, only the government can perform these kinds of economic goods in a fair, efficient, and effective way. These are not the kinds of economic goods that can be performed fairly, efficiently, or effectively by the private sector of the economy. (Amy Lindert)

The response from those who are waging their own private war against the federal government is that we must cut the budget—especially Social Security, Medicare, and the rest of our social welfare system—because deficits and the national debt are out of control. But if we really do want to balance the budget and at the same time provide the government that the vast majority of the American people seem to want, balancing the budget through mostly tax increases makes much more sense than trying to do so through mostly spending cuts. National income in the United States amounted to $18,269 billion in 2019, and total federal outlays came to $4,546 billion. This means that the total tax liability created by a 21.6% hole in the federal budget amounted to only 5.4% of our national income.  Does it really make sense to make dramatic cuts in Social Security or Medicare or to dismantle a major portion of the rest of the federal government rather than pay the extra 5.4% of our income needed to fund a government that can function?

If we want the government to provide the essential services that only government can provide we have to pay for those services, and the way we pay for them is by paying taxes. It's just that simple. (Well, not quite. There are economic crises to deal with, but since I have dealt with that in excruciating detail in Where Did All the Money Go?, I won't get into it here.)

But we live in a democracy. I don't get to decide. This is something a majority of the American people must decide, and the first thing we as a people must decide is whether we want to keep the government we have, as an overwhelming majority of the people seem to want to do, or dismantle that government in an attempt to balance the federal budget, as an equally overwhelming majority of the people also seem to want to do. We can't do both, and if we want to keep the government we have we must first accept the fact that we have to raise the taxes needed to pay for it!

Finally, I freely admit there is no reason anyone should agree with everything I have to say in the essays on this website, and constructive criticism is more than welcome. If you find a mistake, I will fix it immediately and will be ever so grateful when you point it out to me. If you can convince me I am wrong, I will change my mind. If not, we can agree to disagree. What's important is that we establish the facts as they exist in the real world, not that we agree on the interpretation or meaning of those facts.

I am convinced that it is what people "know for sure that just ain't so" that has brought us to where we are today. I also believe that if we are to find solutions to the seemingly insurmountable political, social, and economic problems we face today we must begin by leaving the imaginary world that is created by rhetoric, spin, propaganda, and all of the other nonsense and face the facts that exist in the real world, the world in which we actually live. Real-World Economics is my contribution toward the effort to make this possible.