Chapter 1Spending $400 Million an HourIn the cold predawn darkness ofMonday, February 13, 2012, Robert Friedlander walked into a Starbucksthree blocks from the White House. As they had been instructed bye‑mail the night before, a half dozen reporters were waiting forhim--one each from Dow Jones, Bloomberg, Reuters, Associated Press,Politico, and the Washington Post. With no ceremony and not muchconversation, the young White House budget office aide slipped each ofthem a CD in a plain, square white envelope. The contents: PresidentBarack Obama's budget for the coming fiscal year. "It'sembargoed until 11:15," he said. Friedlander'sinside-the-Beltway shorthand meant the reporters had about five hoursto scour the documents before publishing stories on newswires andWeb sites. At 11:15 a.m., the president was to begin speaking aboutthe budget at a northern Virginia community college.Every presidentsince Warren Harding has been required by law to send an annual budgetto Congress. It's the only time that the chief executive of theUnited States has to make his promises add up. The modern version comesin three formats: free online, $27 for the CD, or $218 for the printedfour-volume paperback set. The budget is one part rhetoric by the partyin power that highlights--depending on the times--the government'slargesse or its tightfistedness. A second part details how the presidentwould, if Congress went along, spend a sum equal to the value of allthe goods and services produced by the 82 million people of Germany,the world's fourth-largest economy. And in its modern form, a thirdpart is dire prediction, a collection of uncomfortable, indisputablefacts showing the unsustainable fiscal course the U.S. government ison.The budget doesn't record what might have been. The documentObama released in February did not, for instance, acknowledge intensesummertime talks the president had with Republican House Speaker JohnBoehner that failed to end a stalemate over spending and taxes. And forall its excruciating detail, the president's budget doesn'tultimately settle anything; the Constitution gives Congress the powerto tax and spend. But neither is "presbud"--as it'sknown to insiders on congressional committees that decide how to spendtaxpayers' money--irrelevant. The budget is the starting point foran annual round of maneuvering that ranges from high-minded debate aboutnational priorities and "hard choices" to big-money lobbyingand small favors for home-state constituents. The details buried init--which programs should live and which should die, which shouldget more and which should get less--often become law.Ultimately, thefederal government's power comes in three forms: its physical force,both foreign and domestic; its ability to make and enforce rules thatgovern our lives; and its power to tax and spend. The budget--and thisbook--is about the third form. With far more precision than thirty-secondsound bites or campaign stump speeches, the president's budget andalternatives crafted by the opposition in Congress reflect contrastingvisions for the size of government in America and the role it plays in theeconomy. How strong and generous a safety net should government provideto the poor? How much should taxpayers invest in medical research? Howhard should government lean against market forces that are widening thegap between winners and losers in the economy? How much should spendingbe cut to rein in the deficit, and how much should taxes be raisedif at all?Anyone in Washington who is serious about trying to steerthe government to the right or to the left understands the power andimport of decisions on taxes and spending embodied in the budget. Amongthem are Jack Lew and Paul Ryan, both steeped in fiscal details big andsmall. The two illustrate the competing visions for government and the useof the budget as an important, perhaps the only important, way to achievethem. As director of the White House Office of Management and Budget, Lew,fifty-six, put the finishing touches on Obama's February plan justas the president named him White House chief of staff. Ryan, forty-two,a Republican congressman from Wisconsin and the chairman of the HouseBudget Committee, promptly criticized the Obama budget--"brokenpromises, failed leadership and a diminished future," he said--andset to work on an alternative.Jacob "Jack" Lew got his startin politics in 1968, at age twelve, as a volunteer for anti-Vietnam Warpresidential candidate Eugene McCarthy. Lew has never run for office,but he has been at the elbow of influential Democrats from the lateHouse Speaker Tip O'Neill and New York congresswoman Bella Abzugto Secretary of State Hillary Clinton and President Obama. An OrthodoxJew who avoids working on Friday nights and Saturdays except when dutycalls, Lew is truly convinced of the government's power to dogood. When he took over the budget office, he replaced the portrait ofAlexander Hamilton that had been hung by his predecessor, Peter Orszag,with paintings of his native New York City done by artists working forthe government's Works Progress Administration in the 1930s.Lewis tall and lanky, his thick black hair just beginning to gray and hisoval wire-rim glasses exactly what one would expect of a budget wonk. ButLew, who also was budget director for Bill Clinton, is the sort of wonkwho can say sincerely: "I have a soft spot for Medicaid"--thegovernment health insurance program for the poor funded jointly by stateand federal governments--"because it's the thing that'seasy for the political system to mischaracterize."For the most part,it's a lot of people who don't have insurance, who arepoor. Slashing it would mean we'd be in a world where the mostvulnerable were getting sicker and sicker and ultimately showing up in thehospital."Jack Lew believes in government. The budget is a means tothat end. "The purpose of power is to get things done," he oncesaid. "Budgets aren't books of numbers. They're a tapestry,the fabric, of what we believe. The numbers tell a story, a self-portraitof what we are as a country."Paul Ryan is wiry, intense, energetic,and just as sincere as Lew--in the opposite direction. His quest: tolimit the size of government, including spending less on Medicaid andalmost everything else. His weapon of choice: the budget. In 2007, hevaulted over more senior congressmen to become the ranking Republicanon the House Budget Committee, which is charged with crafting an annualbudget blueprint for Congress. He became chairman in 2011 when Republicanstook control of the House.Like Jack Lew, Ryan came to politics young,as a college intern with the foreign policy adviser to Senator RobertKasten from his home state of Wisconsin. Later he worked for a thinktank organized by influential conservative Republicans Jack Kemp andBill Bennett and for Sam Brownback, then a Republican senator fromKansas. Eleven days after turning twenty-eight, Ryan announced he wasrunning for Congress from southeastern Wisconsin--and ended up with astunning 57.2 percent of the vote in 1998, a stunning margin in a districtthat, as Ryan notes frequently, went for Democrats Bill Clinton, Al Gore,and Barack Obama. He has won even bigger majorities ever since.Withconviction and clarity that have conservatives salivating over him as afuture presidential candidate, Ryan says, "I do believe governmenthas a role in making sure we have a safety net to help people who cannothelp themselves or are temporarily down on their luck, but I don'twant to see government turn that safety net into a hammock."UnlikeJack Lew, Paul Ryan doesn't wear glasses. He had Lasik surgery in2000. The surgery isn't generally covered by insurance; the patientpays cash. Ryan has built that into his stump speech on why free marketscan cure the health care cost of disease. "It cost me $2,000 aneye. Since then, it's been revolutionized three times and nowcosts $800 an eye," he says. "This sector isn't immunefrom free-market principles."Ryan stands out among conservativeRepublicans in Congress: he puts numbers behind his vision of a smallergovernment, spend less on almost everything and turn federal health andother benefit programs into vouchers. "We've defined ourselvesby putting our cards on the table with our budget. And we added morespecificity than most budgets have had in the past because I think thetime demands it and the numbers require it," he says. That'smade him as big a target for the left as he is a hero to the right. Oneliberal group in 2011 ran an ad showing him pushing an old lady in awheelchair off a cliff. Ryan has had personal experience with the safetynet. At age sixteen, he collected Social Security survivor benefits afterhis dad died. Critics charge that makes him a hypocrite for pushing toscale back Social Security. He answers that, without change, the programis headed for certain collapse.Off and on for the past thirty years,the federal budget and the budget deficit--the difference between whatthe government takes in and what it spends--have pushed their way ontonewspaper front pages and widely read blogs, into presidential debatesand congressional hearings, into AARP ads and Business Roundtable pressreleases, into calculations of traders on Wall Street and strategies ofthe secretive managers of China's foreign-exchange hoard estimatedat a staggering $3 trillion. Occasionally, talk about spending andtaxes and deficits and debt even pops up in the kitchen-table andbar-stool conversations of ordinary Americans--the ones who pay thetaxes, count on Social Security and Medicare, and elect the members ofCongress who have, so far, been unable to fix what ails the nationalgovernment's finances.The Washington jargon of budgeteers like Lewand Ryan excludes rather than informs the citizenry. It is pepperedwith words like baseline, authorization, appropriation, entitlement,and tax expenditure, and phrases like "Byrd droppings" and"changes in mandatory program spending," or CHIMPS. The scaleof the budget is overwhelming, the numbers so huge they are impossibleto comprehend. As humor columnist Dave Barry once wrote, the dimensionsof the federal budget are hard to grasp because millions, billions,and trillions sound so much alike. One has to think about golf balls,watermelons, and hot-air balloons to get an idea of the magnitudes.Infiscal year 2011--from October 1, 2010, to September 30, 2011--thefederal government spent $3.6 trillion, $400 million an hour, morethan $30,000 per American household. By any measure, that's alot of money. In chapter 3, I'll look more closely at where themoney goes. But for now, a few observations:Nearly two-thirds of annualfederal spending is on autopilot and doesn't require an annual voteby Congress.Congress does have to pass legislation every year to keepthe government operating. When it delays until the federal fiscal yearbegins on October 1, as it has lately, scares percolate about a governmentshutdown in which workers deemed "nonessential" would be told tostay home, national parks would be closed, and bureaucrats' phoneswould go unanswered. But much of the money the government spends--nearly63 percent in 2011--goes out the door every year without any affirmativevote of Congress. Social Security benefits get deposited. Health carebills for Medicare for the elderly and disabled and Medicaid forthe poor are paid. Food stamps are issued. Farm subsidy checks arewritten. Interest payments are dutifully made to holders of Treasurybonds. Congress can alter these programs, but if it does nothing, themoney is spent. As Eugene Steuerle, a Treasury economist in the Reaganyears who is now at the Urban Institute think tank in Washington, putsit: "In 2009, for the first time in the nation's history,every dollar of revenues had been committed before Congress walked inthe door." The government's total take was only enough to payfor promises that had been made in the past--interest, Social Security,Medicare, Medicaid, and so on. For everything else, the governmenthad to borrow.The U.S. defense budget is greater than the combineddefense budgets of the next seventeen largest spenders.The UnitedStates spends about $700 billion a year on its military. That'smore than the combined military budgets of China, the United Kingdom,France, Russia, Japan, Saudi Arabia, Germany, India, Italy, Brazil,South Korea, Australia, Canada, Turkey, the United Arab Emirates, Spain,and Israel. Generals and admirals counter that the United States asks itsmilitary to do more than the forces of all those countries combined aswell--to keep sea lanes open for international trade, for instance, and tobe prepared to deploy almost anywhere. In all, $1 of every $5 the federalgovernment spent in 2011 went to defense, and about 20 cents of that $1was spent on the wars in Iraq and Afghanistan.For every dollar the UnitedStates spends on the military, it spends another nickel on foreign aid,international development aid, and humanitarian assistance. Yet in a CNNpoll in March 2011, the typical respondent estimated about 10 percentof the entire federal budget goes for "aid to foreign countriesfor international development and humanitarian assistance." Thereality: about 1 percent. That's another problem with budgeting:the public makes woefully wrong assumptions about virtually every aspectof it.Firing every federal government employee wouldn't save enoughto even cut the deficit in half.Wages and benefits for everyone from thepresident to air force pilots to postal service clerks cost $435 billionin 2011. In all, the federal government employs 4.4 million workers,measured as full-time equivalents. About 35 percent are uniformed militarypersonnel and another 29 percent are civilians working for the departmentsof Defense, Veterans Affairs, and Homeland Security. Wages and benefitsaccount for $1 of every $8 the government spends, not an insignificantsum. But eliminating the federal workforce entirely would have pared thefederal budget deficit in 2011 by only one-third.Where does the restof the money go? A lot of what government does is siphon money fromsome and give it to others, or occasionally to the same people. About$2.3 trillion, two-thirds of all federal spending last year, wentto benefits of some sort for individuals: Social Security, Medicare,Medicaid, food stamps. Another $220 billion went for grants to stateand local governments for everything from schools in poor neighborhoodsto sewage-treatment plants."It's the things that people wantthat are causing the problem," Jack Lew says. "People havethis feeling that others are getting the benefit, but when you look atwhat's driving the deficit, it's Social Security that peoplevery much want. It's Medicare that people very much want. It'sMedicaid, which is the long-term care program that means that peopledon't have their eighty-year-old mothers and fathers living in theguest room when they need round-the-clock care."About $1 of every$4 the federal government spends goes to health care today, and thatshare is rising inexorably.