Worrying about China

Ian Talley at the Wall Street Journal's Real Time Economics blog draws our attention to new numbers on just how much US debt China actually owns. A recent revision takes into account China's practice of routing its purchases of US securities through other countries, especially the UK. China's holdings were revised upwards by $268.5 billion, while the UK's holdings were revised downward by $269.2 billion.

The revised numbers for the largest holders of US debt can be found here. China owns $1,160.1 billion, even after the recent revision. The "Grand Total" of foreign holdings of US securities is $4,439.6 billion, near the bottom of the table. Total US federal debt is about $14,193 billion.

Compare that total to China's mere $1,160.1 billion. China's portion might sound like a lot, but it's only 8.17% of the total. I often hear complaints that China owns the US, but this could hardly be further from the truth. If you owed $100 to a bunch of different people, would you be very concerned with the one guy you owed $8.17 to?

To put it another way, US GDP in 2010 was $14,657.8 billion, meaning total federal debt is about 97% of the country's total income in 2010. If you started on January 1st, and took every dollar of income in the country to pay back the debt, starting with China, you would have paid back China by January 29th. But you'd still be paying off the rest of the debt until December 20th! Still think we need to worry about China?

Not Nearly Enough

No matter how you look at it, the GOP's budget proposals just don't cut it. Before being elected, they promised $100 billion in cuts. Now that they're in office, that number has fallen to $74 billion. But that's $74 billion in cuts from the planned 2011 level of spending. When compared to 2010 (you know, back when they were running for office and promising to cut $100 billion), the new cuts are just $35 billion less than we spent last year.

Even so, that's $35 billion with a B. That has to be a significant cut, right? Not so fast. The federal deficit in 2010 was $1,555.6 billion (with a B). The GOP's $35 billion cut lowers the deficit by 2.25%. Let's put that in perspective.

In the graph to the left, the blue bar is the 2010 deficit. The red bar is the 2011 deficit with the GOP's cuts enacted. Huge difference, right?

To put this another way, think of yourself cruising along the debt highway at 65 mph, when you see there's a roadblock up ahead. If you're a normal person, you'd stop the car completely (in other words, eliminate the deficit). But if you're the GOP, you'll slam on the brakes and slow down to... 63.5 mph. Were these really the best people to put in the driver's seat?

You might also have noticed the rather smaller green bar in the graph to the left. That bar represent's Rand Paul's cuts, about $500 billion. In order to reach that level, Rand Paul had to propose dozens of cuts, including eliminating the departments of Energy, Housing and Urban Development, and Education (except for Pell grants), a three-fourths cut to the Department of the Interior, a one-third cut to the Judicial Branch, and a one-fifth cut to the Legislative Branch, along with others. It's a bold plan, but even with all these cuts, the green bar on the graph is still above one trillion dollars. Even if Rand Paul's cuts are all enacted, we will still face a deficit this year greater than $1,000,000,000,000. Remember the roadblock on the debt highway? Rand Paul would slow the car down to 44 mph. He's a lot better than the rest of the GOP, but it's still not nearly enough.

To be fair, Rand Paul says his plan is just the beginning, and he's willing to make much deeper cuts to eliminate the deficit. That would be comforting, if I thought for a moment that his current plan had any chance of success. Unfortunately, the GOP leadership isn't even aiming for the green bar; they're aiming for the red bar, the $35 billion cut, and that's before the inevitable process of compromise with the Democrats begins. Once it's over, we may end up with a bigger deficit in 2011 than we had in 2010-- and the politicians will still say how successful they were in cutting the budget.

Follow the Money, Alcohol Edition

Both 24 Hours and The Province published stories yesterday about the rise of alcohol-related deaths caused by private liquor stores. The Centre for Addictions Research of B.C. has released a study which links the two. In particular, they find "a 27.5 per cent increase in alcohol-related deaths for every extra private liquor store per 1,000 British Columbians."

The Province has some concrete numbers for us (emphasis mine):

The number of government stores dropped from 222 in 2003 to 199 in 2008 while the number of private stores increased from 727 in 2003 to 977 in 2008. Restaurants (3,849 in 2003 to 4,163 in 2008) and bars (1,833 in 2003 to 1,812 in 2008) remained relatively stable.

Meanwhile, the number of alcohol-related deaths rose. There were 1,937 in 2003; 1,983 in 2004; 2,016 in 2005; 2,086 in 2006; 2,074 in 2007; and 2,011 in 2008.

But those numbers don't account for population growth. In 2003, the population of BC was 4,122,396; it grew steadily to 4,383,860 in 2008. That's a 6.3% increase, meaning deaths per capita actually fell over these five years. So the number of private liquor stores per capita rose, the number of alcohol deaths per capita fell, and the study concludes that more private liquor stores leads to more alcohol deaths? What's going on here?

Adjusting for population growth

Year	Population	Private stores per 100k	Deaths per 100k
2003	4,122,396	17.64	46.99
2008	4,383,860	22.29	45.87
Change	6.3%	26.4%	-2.4%

According to the paper's abstract, the authors reached their conclusions by studying BC's 89 local health areas. To be fair, there could be an effect at the local level. But when the overall death rate is going down, what made the authors think such a study would be necessary?

It helps to ask who exactly the Centre for Addictions Research of B.C. is. According to their website, they were started in 2003 as a joint venture between the B.C. Addiction Foundation and the University of Victoria. In turn, the Addiction Foundation was founded in 2001 by the Provincial Government.

Why is this relevant? In a nutshell, we have an organization established by an arm of the Provincial Government, funded in large part by that Provincial Government, performing research into ways to raise more revenue for that Provincial Government. Does anyone else see a possible conflict of interest?

The BC Provincial Government is facing a $1.7 billion deficit (PDF) this year, and the BC Liquor Distribution Branch is estimated to bring in about $1 billion per year. With almost five times as many private liquor stores as government-run stores in 2008, taking over a sizable chunk of those private stores would go a long way towards eliminating the deficit. All they need is a plausible-sounding reason (private stores are killing people!), supported by "independent" researchers. Coincidence?

Welcome to the Committee Committee

Here's another one from the I-wish-I-could-make-this-up file. Ohio Democrats think the state has too many boards and commissions (and I can't help but agree). The obvious solution is to make a new commission to study the problem. Except there already is a nine-member commission doing exactly that:

Ohio House Democrats say the state has too many boards and commissions and could save money by eliminating or combining about 100 of them.

Lawmakers who proposed a bill to prune some panels on Thursday say many are no longer necessary or duplicate work done elsewhere in state government. Their targets include the Foreign Language Advisory Council, Ski Tramway Board, Ohio Beekeepers Task Force and the Task Force to Eliminate Health Services Duplication.

But some Republicans say the Democrats' effort itself is overlapping work already being done by a nine-member committee. It has been hearing testimony from scores of state boards and commissions and plans to recommend cutting some later this year.

A Huge Insurance Company with an Army

I wish I was clever enough to make this stuff up. Paul Krugman today said the U.S. federal government is really just "a huge insurance company with an army." And yes, he thinks that's a good thing.

The basic picture of the federal government you should have in mind is that it’s essentially a huge insurance company with an army; Social Security, Medicare, Medicaid — all of which spend the great bulk of their funds on making payments, not on administration — plus defense are the big items.

I mean honestly, a huge insurance company with an army? What could go wrong with that?