The Great Budget Balancing Interview
In a recent post I asked for a worthy volunteer to be interviewed on the topic of balancing the U.S. budget by expense cuts alone, without making things worse. (Full disclosure: I believe this to be impossible.) The most qualified volunteer, and the person with the most votes from readers of this blog, is Phil Maymin.
Borrowing from the bio on Phil's website at http://philmaymin.com/about-phil...
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Dr. Phil Maymin is Assistant Professor of Finance and Risk Engineering at NYU-Polytechnic Institute. He is also the founding managing editor of Algorithmic Finance.
He holds a Ph.D. in Finance from the University of Chicago, a Master's in Applied Mathematics from Harvard University, and a Bachelor's in Computer Science from Harvard University. He also holds a J.D. from Northwestern California University School of Law and is an attorney at law admitted to practice in California.
He has been a portfolio manager at Long-Term Capital Management, Ellington Management Group, and his own hedge fund, Maymin Capital Management.
He is also an award-winning journalist, a policy scholar for a free market think tank, a Justice of the Peace, a former Congressional candidate, a columnist for the Fairfield County Weekly and LewRockwell.com, and the author of Yankee Wake Up and Free Your Inner Yankee. He was a finalist for the 2010 Bastiat Prize for Online Journalism.
His popular writings have been published in dozens of media outlets ranging from Forbes to the New York Post to American Banker to regional newspapers, and his research has been profiled in dozens more, including USA Today, Boston Globe, NPR, BBC, Guardian (UK), CNBC, Newsweek Poland, Financial Times Deutschland, and others.
His research on behavioral and algorithmic finance has appeared in Quantitative Finance, Journal of Wealth Management, and Risk and Decision Analysis, among others, and his textbook Financial Hacking is due to be released by World Scientific in 2011.
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I should disclose my own biases on this topic. I have described my philosophy as "Libertarian, but without the crazy stuff." Libertarians are for personal freedom, small government, and a defensive-sized military. That sounds good to me. But I think a better objective is something along the lines of maximizing the public's long term happiness. So while a libertarian might favor allowing his suburban neighbor to operate a bazooka firing range in his back yard, I'd be against that, even if it required a slightly larger government to prevent it.
Furthermore, I believe that if you identify with any political group or philosophy that has a name, you are far more susceptible to confirmation bias than someone who doesn't. And as a general rule, I don't trust anyone with a strong opinion on a complicated topic.
On the topic of the U.S. budget, my current suspicion is that the problem has grown so large that there is no practical way to eliminate the deficit by cuts alone, without making things worse. But I assure you that I want to be wrong because being right means my taxes will go up substantially.
Let's begin our interview.
Adams: Phil, thanks for agreeing to an interview with a professional humorist who holds an opposing viewpoint. I don't see how this could possibly go wrong for you. Let's start by setting the stage. In round numbers, what is the size of the total U.S. budget, and how large is the gap?
Maymin: The federal government spent $3.5 trillion of our money last year. That's about the same as the total value of all the stocks in the Dow Jones Industrial Average. In other words, if we liquidated thirty of the largest American companies, including Home Depot, Microsoft, Intel, Coke, McDonald's, Kraft, and Disney, that would barely cover just one year of federal spending.
That's some budget.
Where did the feds get all that money? They took $2 trillion from us through taxes last year and they took another $1.5 trillion from us by borrowing on our good names. The "budget gap" is the $1.5 trillion that the government borrowed, adding to its $14 trillion debt. But in terms of the effect on the average person, borrowing money is the same as taxing.
Adams: Okay, so just to be clear, you're saying we need to find $1.5 trillion to cut from a budget of $3.5 trillion, for a 43% reduction. And that's just this year. Would it be fair to say government expenses will double in about twenty years as the baby boomers retire and healthcare costs continue their upward march?
....continued.....(In real time, so it will stretch over a number of days)
Borrowing from the bio on Phil's website at http://philmaymin.com/about-phil...
-------------------------------------------------------------------------------------------------------------------------------------------------------
Dr. Phil Maymin is Assistant Professor of Finance and Risk Engineering at NYU-Polytechnic Institute. He is also the founding managing editor of Algorithmic Finance.
He holds a Ph.D. in Finance from the University of Chicago, a Master's in Applied Mathematics from Harvard University, and a Bachelor's in Computer Science from Harvard University. He also holds a J.D. from Northwestern California University School of Law and is an attorney at law admitted to practice in California.
He has been a portfolio manager at Long-Term Capital Management, Ellington Management Group, and his own hedge fund, Maymin Capital Management.
He is also an award-winning journalist, a policy scholar for a free market think tank, a Justice of the Peace, a former Congressional candidate, a columnist for the Fairfield County Weekly and LewRockwell.com, and the author of Yankee Wake Up and Free Your Inner Yankee. He was a finalist for the 2010 Bastiat Prize for Online Journalism.
His popular writings have been published in dozens of media outlets ranging from Forbes to the New York Post to American Banker to regional newspapers, and his research has been profiled in dozens more, including USA Today, Boston Globe, NPR, BBC, Guardian (UK), CNBC, Newsweek Poland, Financial Times Deutschland, and others.
His research on behavioral and algorithmic finance has appeared in Quantitative Finance, Journal of Wealth Management, and Risk and Decision Analysis, among others, and his textbook Financial Hacking is due to be released by World Scientific in 2011.
---------------------------------------------------------------------------------------------------------------------------------------------------
I should disclose my own biases on this topic. I have described my philosophy as "Libertarian, but without the crazy stuff." Libertarians are for personal freedom, small government, and a defensive-sized military. That sounds good to me. But I think a better objective is something along the lines of maximizing the public's long term happiness. So while a libertarian might favor allowing his suburban neighbor to operate a bazooka firing range in his back yard, I'd be against that, even if it required a slightly larger government to prevent it.
Furthermore, I believe that if you identify with any political group or philosophy that has a name, you are far more susceptible to confirmation bias than someone who doesn't. And as a general rule, I don't trust anyone with a strong opinion on a complicated topic.
On the topic of the U.S. budget, my current suspicion is that the problem has grown so large that there is no practical way to eliminate the deficit by cuts alone, without making things worse. But I assure you that I want to be wrong because being right means my taxes will go up substantially.
Let's begin our interview.
Adams: Phil, thanks for agreeing to an interview with a professional humorist who holds an opposing viewpoint. I don't see how this could possibly go wrong for you. Let's start by setting the stage. In round numbers, what is the size of the total U.S. budget, and how large is the gap?
Maymin: The federal government spent $3.5 trillion of our money last year. That's about the same as the total value of all the stocks in the Dow Jones Industrial Average. In other words, if we liquidated thirty of the largest American companies, including Home Depot, Microsoft, Intel, Coke, McDonald's, Kraft, and Disney, that would barely cover just one year of federal spending.
That's some budget.
Where did the feds get all that money? They took $2 trillion from us through taxes last year and they took another $1.5 trillion from us by borrowing on our good names. The "budget gap" is the $1.5 trillion that the government borrowed, adding to its $14 trillion debt. But in terms of the effect on the average person, borrowing money is the same as taxing.
Adams: Okay, so just to be clear, you're saying we need to find $1.5 trillion to cut from a budget of $3.5 trillion, for a 43% reduction. And that's just this year. Would it be fair to say government expenses will double in about twenty years as the baby boomers retire and healthcare costs continue their upward march?
....continued.....(In real time, so it will stretch over a number of days)
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