Every year, the average family spends $17,000 on housing, $9,000 on transportation and $6,000 on food. What do you think it spends on government?
John, Jane, and their young son Justin are the typical American family. Two cars are parked inside the garage of their moderately sized house. With one predominant breadwinner, and a spouse who works part-time, the family pulls in about $60,000 a year. They spend $50,000. They save between $2,000 and $3,000. The rest is taxed.
No, not taxed. Let's say something else instead. Let's say the money is spent to buy government. How much should they spend?
It helps to understand how much they're paying for other stuff. Every year, John and Jane spend $17,000 on housing, including shelter, utilities, and furniture, according to the U.S. consumer expenditure survey (see above). They spend $9,000 on transportation, between their cars, gasoline, and the occasional taxi. They $6,000 on food. A little over $3,000 at home. A little under $3,000 at restaurants. Average consumer spending on entertainment and media -- cable, movies, etc -- is kissing triple digits. If they have smart phones, they probably spend more than $1,000 each on a data plans.
The price of government for the average American family falls somewhere between $5,000 and $10,000.
John and Jane are content, but they want security. What happens after they retire, when one of them gets sick, or the breadwinner becomes disabled? How much would they pay for highly trained professionals guarding their country, their airports, and their neighborhoods? For good roads and bridges? For enforced regulations to keep food and consumer products safe for Justin? For a year in public schools and national parks?
All of that is what government is for. So what's a good price for government?
You can argue that government is priceless, but it has a price. It's $3.6 trillion. That's what Washington spends every year to do its business, and its business is security. Social Security (20% of the budget) provides retirement security. Medicare and Medicaid (another 20%) provide health security. Defense (another 20%) provides national security. More than 10% is various forms of income security.
Now, how much should we pay for all this? The first thing to note is that we don't pay for all this. In 2010, taxpayers paid about $2 trillion for a government that spent $3.5 trillion. We borrowed the rest.
For the typical tax unit making $45,000 a year, the price of government is $5,535.
Most government revenue comes from the richest Americans, who have most of the income in the first place. For the typical tax unit making $45,000 a year, the price of government is $5,535. For John and Jane, a typical consumer unit (which is measured differently), it's probably closer to $10,000.
The upshot is that the price of government for the average American family falls somewhere between $5,000 and $10,000. Remember, John and Jane spend $6,000 on food and $9,000 on entertainment. Somewhere between food and entertainment for the typical family is the price of government.
This exercise has two points.
First, if we want to close the deficit, we need to think more rigorously about what we want government to do, how much it will cost, and how we're going to pay for it. Republicans want to cut taxes (which are already at their lowest effective rate in half a century) while keeping defense and Medicare. Democrats want to expand the value of government for the lower middle class while letting them pay less for it. In an age of austerity, we need better arithmetic from our leaders.
Second, we also need a better understanding among of voters of how much government does that is worth paying for. Why do people in China, who are much poorer than the typical American, save 33% of their money while Americans save 3%? One big reason is that we pay our government to insure us when we get old and sick. China has much less protection. If government spends less on necessities like health care and retirement security, we'll have to spend more. Those are dollars that won't go to our homes, our food, our kids.
One more time: $17,000 for a year in housing, $9,000 for a year in transportation, $6,000 to $10,000 on a year on the federal government, and $6,000 on a year in food. So, what do you think of those prices?