1. Chapter 11 Federal Spending

2. Chapter Outline A Primer on the Constitution and Spending Money
Using our Understanding of Opportunity Cost
Using our Understanding of Marginal Analysis
Budgeting for the Future

3. Federal Spending as a Percentage of GDP

4. The Budget Process
“No money shall be drawn from the treasury, but in consequence of appropriations made by law;..”
Both houses of Congress must pass identical bills
President must sign or have veto overridden
President sends Congress a proposed budget
Congress passes its version of the budget (the president does not have to sign or veto)
Congress passes Appropriations Bills
President signs or vetoes Appropriations Bills
Tax Law changes must originate in the House of Representatives

5. Shenanigans in the Process
Pork-Barrel spending guided by important committee chairs.
Conference committees meet to settle differences between House and Senate versions of the appropriations bills.
Members of conference committees often add provisions that were not in either bill to help their constituents.
Logrolling occurs when Members of Congress agree to support spending programs in each other’s districts. This vote trading increases spending.

6. Dealing with Disagreements
When dealing with a disagreement
Congress can give in to the president
The president can give in to the Congress
They can stalemate and shut the government down
They can pass a Continuing Resolution
Continuing Resolution: a bill passed by Congress and signed by the president that allows the government to temporarily spend money in a fashion identical to the previous year

7. Using Opportunity Cost
Crowding Out: the opportunity cost of government spending is that private spending is reduced
Money spent on one government program can not be spent on another

8. Mandatory vs. Discretionary Spending
Mandatory Spending: those items for which a previously passed law requires the money be spent
Examples (Medicare, Medicaid, Social Security, variety of welfare programs, interest on the debt)
Discretionary Spending is on those items for which a previous law does not exist.

9. Spending in FY2011

10. Mandatory vs. Discretionary

11. Non Defense Discretionary
Category
2012 in Billions
Science and Space 33
Natural Resources and the Environment 37
Agriculture 17
Transportation
144
Education and Training
102
Veterans
129
Justice 56

12. Federal Spending by Category

13. Real Health Spending

14. International Comparisons of Defense Spending
Country
Defense Spending/GDP 2005
United States
4.0
France
2.4
United Kingdom
2.6
Germany
1.5
Japan
0.8

15. Using Marginal Analysis
The question of the size of government
The optimal size of government is where the marginal benefit of the last dollar taken from the private sector and placed in the public sector equals its marginal cost.
The question of the distribution of government
The optimal distribution of government spending is where the marginal benefit of spending on one program equals the marginal benefit achieved in all other programs.

16. Budgeting For the Future
Baseline Budgeting: using last year’s budgeted figure to set this year’s budgeted figure
Current Services Budgeting: using an estimate of the costs of providing the same level of services next year as last

17. Obama Stimulus Plan

18. Obama Stimulus Plan

19. Obama Stimulus Plan