Attempting to Comprehend Discretionary Spending in the Federal Budget

This morning, I hopped on facebook and found a message waiting for me there.  A friend of mine, having seen a pie graph about discretionary spending floating about in FB land, asked me if the pie graph was skewed or not.  Off I went to the source data as provided by the US Office of Management and Budget, where I was able to relatively quickly ascertain that yes, the pie graph was indeed accurate and made my own version of it using the very source data.  Although I had finished the requested task, the numbers that I was seeing within the spreadsheet were grotesquely fascinating.  I was hooked.  I apologize in advance for the quick and dirty graphs but when I started doing this, I was thinking in terms of accuracy and haste.  After all, this wasn't something that I was going to get graded on or paid for to do.  It was purely out of sheer curiosity.  The second caveat is that, although the OMB states that "to the extent feasible, the data have been adjusted to provide consistency with the 2013 Budget and to provide comparability over time",  it doesn't say how far back and whether the numbers have been adjusted for inflation.  Comparability over such a length of time would, however, require some form of inflationary adjustment so I am tentatively assuming that the data has been adjusted for inflation with a nod to the possibility that I could be wrong.  With that being said, let's see what I found.

US Federal Discretionary Spending 2011 (as percentages)

This was the initial pie chart that was asked to be recomputed and redone.  This pie chart shows the discretionary spending of each program as a percentage of the total discretionary spending for the year.  For programs showing 0%, that doesn't necessarily mean that there was no discretionary spending.  It simply means that the amount was less than 1% of the total. The total discretionary spending for 2011 was a little over $1.3 trillion so we're talking about a whole lot of change with National Defense being the largest component of it.  96% of that "National Defense" is DoD-military discretionary spending and the other 4% is simply listed as "Other Defense".  The information within the spreadsheet goes back all the way to 1962 so I thought that would be rather interesting to see as well.




Federal Discretionary Spending in 1962

Even from a distance, you can guess that yep, that big grey Pac Man is for "national defense".  Surprisingly enough though, the percentage of national defense as a portion of total discretionary spending has actually decreased considerably between 1962 to 2011.  But, before we all can start waving peace victory banners, what needs to be considered is that some of the other programs have been expanded over the years as the world has changed.  What we're really seeing is that the number of programs utilizing discretionary spending has increased its use of it.  On a humorous side note, the general composition of what constitutes "national defense" is relatively unchanged--even in 1962, it was 96% (rounded) DoD-military and 4% "other defense".  Some things apparently don't change over time.

Thinking in terms of "over time" got me wondering about how just has discretionary spending changed over the past 49 years.   I needed a new graph.

 Total discretionary spending from 1962 to 2011

Scary!!  Even from a distance you can see that this really is not a good thing.  For those that get confused about the (in millions) thing--100,000 would be the equivalent of $100 billion and 1,500,000 is the equivalent of $1.5 trillion.  At this point, even an atheist like me is praying that these numbers aren't actually adjusted for inflation after all because this just looks so ludicrous.  A good question to ask at this point, however,  is "just what the hell is discretionary spending?".  Wikipedia provides us with a quick definition: "US government expenditures which are subject to annual review and authorization by Congress, as distinct from expenditures authorized by existing laws." (http://en.wiktionary.org/wiki/discretionary_spending).  Okay then, discretionary spending is what money gets spent through Congress' discretion and not because of existing laws.  I bet you that the president at the time probably has veto power on this, too, because that's how our government works--checks and balances.  Apparently, though, the guys running the government just seem to be thinking of just checks. 

We already know that national defense is a big piece of the pie so what has happened with that over the same time period?  Hmmm, let's see:

National Defense Discretionary Spending from 
1962 to 2011  Interesting. Well, it makes sense somewhat as these jumps are probably wars, right?   Let's see...the US became involved in the Vietnam War starting in 1965 and ending in 1973 so a spike should be there, right?  Hmmm, I guess it goes up a little.  Well, okay...how about the Persian Gulf?  That went on from 1990 to 1991 and that explains that spike in...hmmm, it decreased in 1990 but spiked in 1991.  There's the spike!  Hmm.  Did something happen in the 80's?  I'm confused.  Afghanistan started in very late 2001 and Iraq in early 2003 but why is the spending getting ramped up again in 2000?  If I was a conspiracy theorist, I'd say that the DoD has psychics on board, but no worries, I'm not.  I just don't have any explanation for this at all.   I'm not a member of the DoD--that's a matter of national security.  We're not supposed to know what they're doing outside of spending a ton of money with very little historic explanation.

Let's go with what we do know historically.   The growth in spending from year to year can tell us a lot because it's not dealing with numbers but simply the percentage of change.  Therefore, we can compare the spending growth in the military involvements during the period available (1962 to 2011).   And oh yes, I went there--lavender (has to match my blog!!)

Growth in national defense discretionary spending during wartimes

I give up.  Where's my white flag of surrender?  I have zero explanation for this. Keep in mind that any positive number means that they spent more than the prior year by that percentage amount.  If it's negative, it means that the discretionary spending was less than the prior year.  So,  what we have is a decline in spending in the first years of Vietnam and the Gulf wars but not in the first year of Afghanistan (and they were already ramping up spending the year before!).  In Vietnam, it started declining about mid-way through the operation whereas it's a constant growth during our last operations in Afghanistan and Iraq.  It is nice to know, however, that this kind of spending declined the year after the Persian Gulf (it looked very lonely with it's little blip).  That got me wondering though.  How much has discretionary spending for national defense changed in the last 49 years?  It has increased 129%.  That's a lot more money being spent today today by the DoD than 49 years ago.  Please, please tell me that it's not adjusted for inflation....please.

Stepping away from the defense spending and back to just Congress' spending.  I thought it would be interesting to see what information I could find as far as how our deficits and surpluses are looking over the last 49 years.  If Congress is spending a lot more, then it has to be because we can afford it, right?   The ideal scenario for a government is to hover right around 0.  Too much surplus means that wealth is being accumulated that isn't getting passed on to the citizens.  Too much deficit means major trouble.  (Think Greece, Ireland, Portugal and more as the extreme example of that).  Luckily, the OMB had that information available, too. 

US Federal Surplus and Deficits from 1948 to 2011
Really, very not good.  You don't even have to click the link to know that this is really, very not good.  It's heartbreaking.  We were in great shape for so long.  What the hell happened?  Well, in the 1970's, there was a recession and the OPEC oil embargo but things start getting out of hand in the 80's.  That's the handiwork of "trickle down" economics.  Problem with trickle down economics is that they most likely didn't provide enough tax revenues to make sure that the natural growth in spending as the nation grows was balanced out.  That's exactly what that says.  Toss in increases to discretionary spending and it's gruesome.  The surplus in the late 90's where it spikes up above the 0 ridge is Clinton tweaking the budget and vetoing line items within it.  If you look back at the graphs of total and national defense discretionary spending, you'll see a plateau there.  He was definitely trying to balance the budget and we ended up with a surplus.  Hopefully, that surplus was used to pay down some of the accumulated debt.  One can only hope....

In 2000, it drops back significantly below the 0 goal line with the election of George Bush but you can tell that they tried to reign it all back in again.  And then, catastrophe strikes in 2008.  A lot of people want to point fingers at Obama for that one and perhaps that is somewhat well placed.  Discretionary spending was growing at a fast clip and seemingly unchecked. However, there is another way that we can compare this to decide what exactly happened to our nation's budget.  We can look at other countries.  Finding that kind of information in the same format is  hard but looking for this kind of plunge should be pretty obvious.  Thankfully, the website, Trading Economics, has a cool little feature where they will put all sorts of information in a graphical format. 

First:  Greece, one of the most financially bankrupt governments in the world



Second:  UK Government Budget Deficits and Surpluses

Both Greece and the UK's deficits plunge horrifically in 2009 to 2010.  The US plunged first in 2008.  What happened in 2008 that could affect countries around the world similarly?  It wasn't Obama being elected as president because Obama has nothing to do with Greece's or the UK's budgets.  All that leaves is the Financial Crisis of 2007-8.  It truly crippled the world.

Professionalism and Accounting in the 21st Century

This is my accounting capstone final paper where we were asked the question of what it means to be a professional accountant in the 21st Century.  Enjoy.

The traditional idea behind what it means to be a professional within the field of accounting has generally had an emphasis on the important role of the accounting professional in serving the public interest.  The concept of serving the public interest as an accountant has been to provide as much assurance in the accuracy of reporting financial statement data in order to preserve and restore the public confidence within the field of accounting.  Although these concepts are undoubtedly important to  professional accountants, they are also short sighted in today's socioeconomic climate as global civil unrest increases.  The target of protesters and the general public's ire is ubiquitously labeled as simply "capitalism".  However, both the accounting profession and protest groups like Occupy have it all wrong.  For the common people, their confidence has not been shaken in the accounting industry but instead, in capitalism as a whole.  For professional accountants who solely focus their self criticisms in subjects such as the accuracy of the numbers they provide, they are missing the broader implications and effects of the very data that they provide in managerial decision making.  

When Ray Johnson asked the question what it meant to be a professional, many of the students stated that being a professional required that one be certified.   In the role of devil's advocate, I suggested that a plumber was still a plumber regardless of certification.   Comparing a plumber to an accountant may seem to be distasteful but it's effective for describing the impacts that can occur when either a plumber or an accountant does not behave ethically in the course of their profession.  For a plumber, the damage of unethical behavior can result in the damage to the foundation of the home where the work was done and the public's perception of the profession.  On the other hand, for an accountant to do the same in their field, the damage done is less on the public's perception of the profession and more on the very foundation of capitalism, itself.  

Enron is a perfect example of the affect of the power of accounting.  The Enron scandals could not have occurred if it weren't for Andy Fastow, the former CFO of Enron, and Arthur Anderson both working against the public interest and the accounting profession as a whole by utilizing their professional knowledge to enable fraud and illegality.  If Arthur Anderson had, instead, upheld the public interest required as accounting professionals,  the Enron debacle would not have occurred.  Although we within the accounting field focus heavily upon Fastow and Arthur Anderson, we fail to recognize that it is not the field of accounting that was damaged in so much as Enron becoming the poster child for corruption within capitalism among the general public.  The accountants and others abusing accounting methods, such as Andy Fastow,  who participate in these scandals are rarely household names for the general public.  However, ask the same public what Enron means to them and they will invariably answer with corruption and capitalism.  Instead of focusing on what the accounting firm of Arthur Anderson should have done, they will, instead, be aware of the thousands of individuals who lost their pensions due to the fraud and corruption of Enron.  

Probably the most well-known catch phrase of the Occupy movement globally is "People, Not Profit" as the protest targets capitalism as a whole.  As I mentioned earlier, the Occupy movement is off the mark in its target.  Instead, the movement should be targeting the very methods of accounting used world-wide.  Over the years, news articles discussing the working conditions and treatment of employees globally have been on the increase,  further fueling the sentiment of Occupy's "people, not profits".  Most recently, I came across an article on the probably biased Mother Jones' site where one of their journalists worked undercover at an Amalgamated Giant Product Shipping warehouse here in the US.  While maintaining reasonable skepticism at hand as I skimmed the article, I read the following line, "From the temp agency, Amalgamated has ordered the exact number of humans it should take to fill this week's orders if we work at top capacity."[1]  Although the journalist has no apparent idea what it is precisely that she is complaining about, what she is describing is undoubtedly, to an accountant's eye, the effect of cost accounting on the human condition when the calculation of those numbers does not include the human condition, itself.    However, not once does the journalist make this link and, instead, the article becomes yet another in the long line of criticisms against capitalism.  Instead, the criticisms should have fallen on the methods of accounting that encompass numbers alone and without comprehension of impact or public perception.  

 

Working conditions are not the only area where accounting professionals may be doing the public perception of capitalism harm.  News articles reporting companies closing factories after reporting billions in profits such as Huffington Post's recent article titled, " PepsiCo Layoffs: World's 2nd-Largest Food Company Cutting 8700 Jobs Despite Higher Revenue"[2] also certainly doesn't help.  Although PepsiCo's restructuring may improve the profitability of the company for its shareholders through figures provided by its accountants, one has to wonder whether the accountants placed a monetary value on possible public enmity and negative press as a factor within their calculations or advisements to PepsiCo's CEO in making this decision.  Did they even consider them to be factors while they were focused on the numbers provided for the upcoming year's financial forecast? 

Another news story fueling public enmity towards capitalism over the last two years has been corporations stockpiling cash despite maintaining profits during the recession.  Although each of these companies may individually have reasons for stockpiling cash as with Molson Coors' plans to expand their market, collectively the behavior has been contributing to raising the public's ire. According to Jim Zarroli in an article about corporations stockpiling cash for NPR, "U.S. companies that earn profits abroad have to pay taxes when they bring it home, so they tend to like to keep money overseas as long as possible."[3]  Keeping income offshore to avoid US taxes is undoubtedly the work of accounting professionals and it is not the only tax related accounting activity that has raised public ire towards capitalism.  Another common public complaint is the very well known matter of GE and their tax accountants who are responsible for GE paying no taxes at all despite billions in profits for the last several years.  Although both the stockpiling of cash and the avoidance of taxes are both clearly accounting related issues, it is still not the accounting professionals that are being questioned but instead, simply these matters become more fuel for the capitalism funeral pyre. 

If one would ask any professional in any field what would be the worst outcome possible of their actions, I would not be surprised if the answer would be "to cause another's death".  The loss of life has perhaps the most dramatic impact of all.  In September of 2011, the final report on the cause of the explosion of the Deepwater Horizon and death of its 11 rig workers and untold numbers of wildlife due to the resulting oil spill in the Gulf of Mexico in 2010 was released.  This report by the US Coast Guard and the Bureau of Ocean Energy Management found " five examples of where the company made 'decisions that reduced costs and increased risk' as the well ran $58m (£37m) over budget."[4]  It is not CEO's that create prospective budgets.  It is professional accountants. 

Although it may seem unjust to level a large portion of the blame on accounting professionals for what is happening globally and the potential demise of capitalism as they are simple suppliers of numbers, I argue that the quality of those numbers provided are not inclusive enough.  The professional accountant provides the very backbone from which management makes their decisions and that provided information can have dire consequences upon human rights, society, politics, and the environment.  As accounting professionals, we must recognize this grim fact and shift our thinking to embody this.  It is a natural fit for accountability and accountant both share the same root.  Likewise, it is already our duty to serve the public interest in the most basic of terms.  As accountants, we must be accountable for our actions and respect the trust given to us by the public with a broader definition of "public interest".  We cannot simply be number crunchers bent on accuracy in reporting but we must also act as philosophers able to measure ethics and potential outcome.   Maintaining growth in profits for our shareholders as our sole measure of duty may ultimately lay waste to the very society and environment in which our shareholders reside.

There is an inherent need that the quality of the information that we provide be inclusive of more than simply just numbers. There is no adequate measure of public enmity nor is a human being capable of operating at a maximum capacity  like a machine. There is no measure of discontent when a middle class citizen pays more taxes on $100,000 income than GE, who made $14.2 billion in 2010.[5]  Nor is it readily apparent that the accountants, whose advise is expected by management, are considering the larger picture of public discontent at all. Over the last 6 months, the world has experienced massive civil unrest stretching across the globe from Nigeria to Japan to Greece to New York City and beyond whose predominant focus has been capitalism.  If capitalism as a system appears to the general public to be drunk on greed, as protesters frequently state, then it is the accounting professionals who act as the enablers by providing the bottle from which capitalism drinks.  

In today's fast paced and interconnected world, serving the public interest as a professional accountant can no longer be simply about accuracy in accounting numbers but, instead, a professional accountant must regard the world with their eyes open wide.  What we are dealing with today in the 21st century is no longer simply just a lack of public confidence towards the field of accounting but a rapidly declining loss of public confidence towards the very system that accountants operate within as a whole.  The damage that can be done by a professional accountant who chooses to keep his/her eyes closed is substantial and the resulting loss of public confidence within the profession goes relatively unfelt.  Instead, it can cause thousands to gather in a city to protest the very system in which they work. It can cause people to lose their homes and live on the streets, in cars, or tents. It can plunge a country into burning chaos.  Their cost cutting measures can result in the defilement of a gulf and even death.  One of my favorite sayings has long been, "With great power comes great responsibility"[6] and if there is any profession that holds such an immensity of a power, it is the accountant.

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[1] McClelland, Mac "I Was a Warehouse Wage Slave".  MotherJones. March/April 2012.  Retrieved: March 13, 2012. http://motherjones.com/politics/2012/02/mac-mcclelland-free-online-shipping-warehouses-labor?page=2

[2] Anderson, Mae "PepsiCo Layoffs:  World's 2nd-Largest Food Company Cutting 8700 Jobs Despite Higher Revenue" .  Huffington Post, February 9, 2012.  Retrieved: March 13, 2012. http://www.huffingtonpost.com/2012/02/09/pepsico-layoffs_n_1265407.html

[3] Zarroli, Mark.  "Companies Sit On Cash; Reluctant To Invest, Hire" NPR August 17, 2011. Retrieved: March 13, 2012http://www.npr.org/2011/08/17/139703989/companies-sit-on-cash-reluctant-to-invest-hire

[4] Rowena Mason, "BP cost-cutting a cause of Gulf of Mexico oil spill, US report finds", September 14, 2011.  The Telegraph. Retrieved: March, 13, 2012. http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/8763644/BP-cost-cutting-a-cause-of-Gulf-of-Mexico-oil-spill-US-report-finds.html

[5] Jake Tapper "General Electric Paid No Federal Taxes in 2010".  ABC News, March 25, 2011.  Retrieved: March 13, 2012. http://abcnews.go.com/Politics/general-electric-paid-federal-taxes-2010/story?id=13224558#.T2ACaPXp4xA

[6] Uncle Ben, "Spiderman".