Sunday, October 16, 2011

The problem with fiscal crash diets

First of all, sorry that I haven't been blogging very much here in the past couple of months. I've been quite busy, and I keep forgetting to post my articles at this blog too (I'm nowadays blogging for another site as well). Anyway, so the subject of today is why we can't balance the budget in 2013 and how it kind of resembles extreme crash diets.

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Have you ever been on a diet? Have you ever had one of those moments when you step on the scale, discover that you’ve gained five pounds since you last checked, and decide that enough is enough: You’re going to diet, and you’re going to do it now!

So you search the internet for ways to lose weight, and you find this really good diet plan promising 15 pounds of weight loss in the first month. Of course, doctors don’t recomment you lose more than 4-8 per month, but the point of dieting is to lose weight, right? And so, by default, 15 is better than 4-8.

That kind of diet is called a crash diet. It makes you lose a lot of weight in a short time by limiting calorie uptake – often to as little as 600-800 calories a day (recommended minimum intake is around 1300). Sure, you lose weight – but a lot of that weight loss won’t be fat, but muscle tissue. In the end, losing muscle tissue is not a good thing and not a way to get lasting weight loss.

I am myself overweight and like I’d say 95 % of all overweight people, I’ve tried a crash diet or two. The big problem with crash diets, except the fact that you lose muscle tissue, is that they’re not sustainable. After just a couple of weeks, you’ll feel incredibly hungry and since celery – while healthy – isn’t really filling, you’ll soon find yourself with a big mac in front of you. And a coke, a large bag of fries, and why not an apple pie for desert? Then, you’ll get depressed and decide that since you obviously don’t have the necessary willpower to lose weight, you might just as well keep eating the way you did before you began the crash diet and come to terms with getting diabetes and dying an early death from heart disease. This is completely unnecessary as if you had only made real, stable lifetime changes, you could well have avoided all of that.

Also, crash diets are rarely based on scientific studies, instead the creaters promote them using case studies and personal testimonies from a few unrepresentative men or women (who may or may not exist – there’s no way for a consumer to check).

Finally, and this is a problem with all diets really: They have an end date. They may last for 1 month, 3 months or even half a year. But they all end at some point. However, life goes on. Without a diet to follow, after the last day of the diet plan, many people fall back into their old habits and all their efforts were then in wain. Too many diet plans lack a “maintenance” plan – what to do once the goal has been reached, in order to maintain the new, healthy weight. Also even more tend to treat symptoms, but not the cause. The (main) cause behind obesity is the attitude we have towards food: We use it as a reward, because we “deserve” it (even if we can’t “afford” it from a health perspective), and we view diets as a way of punishing ourselves.

I imagine a lot of you must be asking: What has gotten into John? Why is that crazy Swede writing a dieting post on a political blog? And what exactly is a fiscal crash diet?

It is simply the fiscal equivalent to a crash diet (“oh, really” I hear you say). We are all aware of that America (as well as a lot of European countries) has massive fiscal problems. The deficit is high, the national debt is growing, and something has to be done. In the midst of all this, some presidential candidates have promised to balance the budget in their first year as president. While an honorable goal, I don’t think it’s practially possible

Here are some problems with the libertarian/talk radio, “balance-the-budget-immediately” approach to budgeting. Notice the similarities between these and issues there are with crash dieting:

1) It’s hard to stay motivated. If you cut too much at a time, you’ll slash the budget deficit – but then, after a year or two, people will be tired of the austerity measures and vote you out of office. Politicians will be tired of saying no to their constituents when they ask for various kinds of spending increases, and in no time, we’ll be back at Obama’s Mickey D.

2) It doesn’t deal with the cause. The reason why there is a deficit in the first place is because of entitlement syndrome – the feeling that you “deserve” to have social security in its current form, because you’re a god-fearing law-abiding citizen. Just like you deserve your doughnut, for the same reason. We may agree that yes, we deserve to be punished and therefore we should cut the budget, but what we really need to realize is that a balanced budget is a reward in itself – it’s not a punishment! Crash diets don’t work because you’re punishing yourself, and in the long run, no-one wants to go through life punishing themselves every single day. It’s the same when you balance the budget: Unless you can reinforce why a balanced budget is a goal worthy of pursuing, and focus on the benefits of doing so (rather than have much we all suck for allowing the budget to be unbalanced in the first place), you won’t be able to keep it up. If the US is ever to become a healthy economy again, it has to change its fundamental attitude towards spending.

3) There’s a lot of water weight in an unbalanced budget. Initially at the start of every diet, everyone can lose weight really fast. This weight that we all lose when we start a diet is called water weight. That’s why it’s possible to lose 4 pounds in the first week of a diet, but then the weight loss slows down as you begin to actually burn fat, not just water. That’s also why crash diets are so successful in the short run – you’re getting rid of your water weight. Similarly with a budget, it will initially be very easy to find programs to cut and examples of federal waste (Planned Parenthood, NPR…) but as you move along, it becomes trickier: Exactly what parts of exactly what programs should you cut, once you’ve cut out all the obvious ones? This is when the “weight loss” starts to slow down, as you are now rid of your water weight and are facing the tough task of burning fat. You may now have to be more careful when you reduce spending, or else, you might suffer from…

4) Loss of muscle tissue. As I mentioned before, not all weight loss is good. When you lose too much too fast, you’re guaranteed to lose muscle tissue along with the fat. In budget terms, what this means it that you cut out programs that are actually productive and that are actually good for the economy (yes, there are a few examples of positive government spending), just for the sake of balancing the budget. This is like a bride who just wants to go down in weight before her wedding, and doesn’t care how it happens. But as a country, we need to be more responsible than that. Every government expenditure must be evaluated based on how it impacts society, and we need to make sure if we privatize anything that there will be private actors to take over and make the transition smooth. Sometimes, if you reduce spending in the wrong areas, you can end up with less revenue than you otherwise would have had. For instance, investments in education can sometimes be profitable (although I agree that should be more of a state than a federal issue – but bear with me) because those with college degrees will make more and hence pay more taxes than those without. We need to become lighter, without becoming weaker.

5) Negative calorie foods – a theoretical concept. A couple of years ago something called negative calorie foods were very popular. The idea was that there were some foods (like celery) that would actually reduce your weight, because the body consumed more calories digesting than there was in the food. So celery might have like 1 calorie/100 gram, and it would take the body 5 calories/100 gram to digest it. So by eating celery, you could actually lose weight. Of course, if it sounds too good to be true, it probably is. There is no scientific evidence that negative calorie foods actually exist. In budget terms, a negative calorie food would be a tax cut that leads to an increase in revenue. While theoretically possible (and contrary to NCF, there has been examples of tax cuts that have been followed by revenue increases), it’s not a reliable way to balance the budget. Cutting taxes in general does not lead to any net increase in revenue. That’s not to say we shouldn’t do it – just like eating celery isn’t necessarily a bad idea – but if we set our expectations too high, we’re setting ourselves up for failure. And even if there are some really inefficient taxes that if lowered might increase revenue, those are few and far between and so whatever revenue increase there might be would not be enough to cover the enormous deficit the US is currently running.

6) Scientific methods are better than cherrypicked testimonies. Crash diet proponents use personal testimonies to support their claims. In nearly every ad you’ll see a man or a woman talking about how she lost 15 pounds in only one month using this new revolutionary diet plan. Science is scoffed at – if it worked for her, surely it will work for you too? No follow-up is needed (I’ve always wondered what happened to all these people who supposedly lost so much in such a short time). Similarly, politicians and economic advisors have a tendency to believe that just because a solution worked for one country once upon a time, it will work just as well again. There’s nothing wrong with looking at what other countries have done, but let’s not be blinded by others success. Use sound economic reasoning, starting with the law of supply and demand, and from that create a solution that will work for you.

7) Don’t forget maintenance. When we make budget plans, we typically plan for how to reduce or eliminate the deficit over the next 5-10 years. But then what? What’s the “maintenance” plan? This goes back to 2), we’re not dealing with the original problem behind the deficit. Instead of aiming for a parciular weight, one should always aim for a healthy lifestyle. The weight will drop automatically once you’ve made permanent, healthy lifestyle adjustments. The same goes with budgets: What’s most important is that we get a fundamental shift in our spending habits and our attitude towards spending. A balanced budget will follow automatically.

The dilemma – or; Does the US need a gastric bypass?

After spending all this time bashing crash diets, I figure it’s time to acknowledge that there is a dilemma: There are people who are so obese that they could drop dead just about any second. For them, maybe it’s worth taking the risk of a “crash diet”, rather than the risk of a sudden stroke or heart attack. That’s an interesting debate for sure – I personally would imagine that the more overweight you are, the harder it is to break with your habits – so the bigger incentive there is for you to start slow and carefully weed your bad habits out, rather than risk losing motivation and quitting half-way through.

In fiscal politics, some people would probably argue that with the deficit at 1.6 trillion dollars, there’s nothing to think about: We need to eliminate it now. Maybe one day we’ll get to that point, but I don’t think it’s there yet. We can still afford to think before we act, in particular considering what got us here was not thinking before we acted before.

Continuing my weight loss/deficit reduction analogy, if really nothing else works out, some people opt for a surgical procedure known as gastric bypass. It means you reduce the size of your stomach, making it physically impossible for you to eat as much as you used to. The procedure is not without risk, and it can certainly be inconvenient not being able to eat more than just very small portions – remember this thing about small portions applies to everything; you can only eat small portions of healthy as well as unhealthy foods. Many who go through with the procedure develop vitamin deficits.

A balanced budget amendment would act kind of like a gastric bypass: We would never be able to go on a spending binge again. The problem though is the same as with the gastric bypass: A balanced budget amendment would force us to never spend more than we take in, no matter the circumstances. Yes, I know if you get a 2/3 majority you can make an exception, but how often does that happen? And how much time wouldn’t it take to form such a majority? And how watered down wouldn’t any proposal which got a 2/3 majority be? Sounds like the BBA would mostly make congress more inefficient.

I do support some form of BBA though, although I don’t think the current proposal cuts it. It’s better to force the budget to be balanced over a certain period of time – let’s say, 5-10 years, than to force it to be balanced very year. One simple reason for this is that you never know exactly how much revenue you’ll get in a given period of time. You may expect revenue to be 2.2 trillion, pass a supposedly balanced budget with 2.2 trillions worth of spending, and then end up with 2.1 trillion actual revenue.

President Obama does not take budget issues seriously. He deals with the deficit only if he’s got no other choice. There are a million topics he’d rather talk about (I bet he’d prefer to discuss his experiences with pot in college rather than the deficit). Because of the Republican wave in the past election, and because of the “awakening” that we’ve had among the general population with regards to the national debt issue, he’s had no choice. For the past three years, Republicans have done little else than whine and complain about the US turning into a socialist banana republic. But the fact is that, looking back, we’ve been quite a good opposition. We’ve made progress, more than anyone could ever have imagined when Obama was elected. I don’t think we could have asked for more.

What I’m trying to say is: Let’s not screw this up! Obama is a failed president, and unless we push too hard and overreach our mandate (that we’ll get once elected in 2012), we can easily put the democrats out of power for the next 8-12 years.

We’re not going to balance the budget in 2013. Not in 2014 either. If we promise to do such a thing, or ever so slightly imply that we’re going to do such a thing, then the democrats will have perfect attack ad material once the 2014 midterm elections roll around. Of course, they won’t have any solutions – but since when are solutions necessary to win elections?

And now, before anyone asks: At the rate we’re going right now, the budget will never be balanced. The debt ceiling deal and the agreement that was made then, while better than what I would have expected, was not enough. It still adds about 7 trillion dollars in debt over the next 10 years. As if it wasn’t enough, most of the cuts are postponed to the future. Instead, since it’s easier to find areas of waste today than it will (hopefully) be in a couple of years time, it would make more sense to get serious today and eliminate obviously unnecessary programs and subsidies.

Yet, as responsible conservatives, we shouldn’t fall for the feel-good, extreme fiscal crash diets that are promoted by the likes of Gary Johnson. We’re not trying to fit into a wedding dress or a tuxido – we’re trying to run a country. We’re not trying to get ready for the beach – we’re trying to steer a country onto a sustainable path. We have to be the adults in the room, because if we’re not, there won’t be any adults in the room.

Thank you for reading. Feel free to leave a comment below with any questions or feedback you might have.

John Gustavsson


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7 comments:

Ohio JOE said...

While I do not always agree with you, I like your articles and I think that you are one of the best posters. Haha, not being a drinker, a smoker or a druggie, I have to admit, food is my vice and I should lose some weight. Budgeting weight and budgeting and budgeting money is comparing apples to oranges, but they are both still fruit. Both have their challenges. It is difficult to loose weight and one is married to a good cook (I actually was not overweight just prior to getting married) and when there is food in front of one. Similarly, it is not easy to balance the family budget when one need house repairs and when food, transportation, taxes and FICA already take a bite out disposable income. Nevertheless, we need to work towards these goals.

To use your food example, While I eat all kinds of food, I do not eat beef and potatoes. This helps keep my cholesterol down. So, while I am a bit over-weight, I am in overall good health. Similarly, governments (and households) should watch what they spend on, not just how much they spend on. You might say cutting a few million here and there on a multimillion dollar budget won't solve things. And yes, you have a point, cutting cholesterol does not in and of itself help one lose much weight. However, cutting several million dollars on a variety of stupid Obama program will help to put the country in better fiscal health overall. It will restore consumer confidence and the world would soon be willing to invest in America again. Pissing money down a black hole does not instill fiscal health.

Getting back to the meat of your article, I hope we do avoid a gastric bypass operation. However, if we do not get serious, we will be forced into something even more fiscally serious with more fiscal pain. SS would be cut automatically if it is not addressed now for example.

No, just like a household, the government cannot balance the budget over-night. However, it is a bloody disgrace that Congress and the President failed to make much of a start. A household that is in overall fiscal shape can afford a little temporarily over-spending here and there to get through a difficult period, but a household that does not have any fiscal control in the first place can easily go bankrupt. Thanks largely to Mr. Obama and Mrs. Pelosi, we are now that second household.

Terrye said...

That was interesting. And I agree with you. I think it would be a mistake for Republicans to promise that they can balance the budget in short order. That will only set people up for unrealistic expectations and lead to disappointment and anger. But they can change the spending curve and begin the process of cutting spending and reforming entitlements.

John said...

Terrye, that's exactly what I was trying to say. We need to focus on changing the attitude towards spending and take the first steps, realizing it's going to be a long long way back to a balanced budget.

OJ, I'm glad your enjoying my writings. And I agree with you, in particular about social security which might just stop working quite suddenly unless it's adressed. I did write a post on social security on the other blog I'm participating on. Maybe I should repost it here.

/John

Massachusetts Conservative said...

Very thoughtful post, and a great analogy.

John said...

Thanks MassCon, doing my best :) Will publish my post on Social security here on RightSpeak as well, I wrote it like a week ago.

/John

DanL said...

John, this amuses me a lot. You are a supporter of the Fair Tax and that is the ultimate crash diet.

John said...

DanL, the FairTax is revenue-neutral and so is not a crash diet of any kind. It doesn't even concern spending, spending is separate from revenue collection.

Contrary to any of the candidates' plans, the FairTax was developed by reputable economic scientists. It wasn't developed for political purposes but in the interest of science, which to me is a strength.