Planet Money Summer School, Govt 3: You Are What You Pay For (Budgets)

Date: July 23, 2025
Host: Robert Smith, NPR
Guest Professor: Aviva Aron-Dine, The Hamilton Project at Brookings

Episode Overview

This episode dives into the federal government budget: where the money the government collects (mainly through taxes) actually gets spent, why certain areas receive so much more funding than others, and the complex realities that shape budgeting decisions. Along the way, listeners learn economics concepts like "market failure," "redistribution," and the power dynamics between special interests, politicians, and the public. The show combines a practical tour of the U.S. budget—by breaking down the big-ticket items—with case studies on how lobbying and political self-interest shape government spending.

Key Discussion Points and Insights

1. Why Does the Government Run Deficits?

[02:09–05:17]

• Host Robert Smith frames the perennial debate: Why doesn’t the government ever balance its budget, especially given the $36 trillion national debt?
• Aviva Aron-Dine explains that, unlike individuals, governments have a tax base, and there are legitimate reasons to run deficits:
  • Wars and recessions justify increased borrowing.
  • Even in normal times, borrowing can fund investments that pay off in the long term.
• Key concern: If debt grows faster than the economy, it becomes unsustainable, requiring drastic measures like major tax increases or spending cuts.

Quote:
“The more the debt grows as a share of the economy, and the more rapidly it’s growing, the harder it is to make that stabilization.”
—Aviva Aron-Dine [05:10]

2. What Does the Federal Government Actually Spend Money On?

[06:38–18:33]

"The Ten-Minute Budget Breakdown"

A fast-paced walkthrough of the federal budget, assigning each major spending category a proportionate slice of 10 minutes. Most data remains broadly accurate, despite being based on a 2017 segment.

Major Spending Buckets:

• Medicare & Medicaid (29%)

  • Coverage for 120 million Americans (seniors, low-income families, disabled).
  • Federal/state partnership; Medicaid expanded with Obamacare.
  • Political fights center on how many people get covered and how much federal money is sent to states.

  Quote:
  “If we live long enough, we all get Medicare. But even if you don’t consider yourself poor, you might also find yourself on Medicaid.”
  —Robert Smith [08:45]

• Social Security (24%)

  • "Almost everybody gets it," including the rich, to ensure broad-based political support.
  • Funded via payroll tax; not a personal savings account—today’s workers fund current retirees.

  Quote:
  “God damn it, I’m going to be sure to have a program that no damn Congress is going to mess with because people are going to feel entitled.”
  —Ted Marmor, paraphrasing FDR [12:16]

  Quote:
  “The probability that you will receive Social Security benefits for retirement is so high that you should be declared irrational for believing [otherwise].”
  —Ted Marmor [12:54]

• National Defense (15%)

  • $1.5 billion per day, steady proportion over decades.
  • Changes are perpetually proposed, but powerful interest groups (including defense contractors and lobbyists) maintain the status quo.

• Income Security (13%)

  • Programs for low-income Americans: food stamps (SNAP), earned income tax credit, unemployment insurance, etc.
  • SNAP recipients are mostly children, the elderly, or people with disabilities.

• Interest on National Debt (6% then; now 13%)

  • No direct benefits—just the price of borrowing.
  • Interest as a share of spending is growing due to higher debt and rising interest rates.

  Quote:
  “The interest on the national debt is now double what it was—13% of the budget. Twice as much time, ouch indeed.”
  —Robert Smith [18:25]

• Veterans Affairs (5%)

• Transportation (2%)

  • Infrastructure and transport projects, highlighted by a poetic haiku from Ray LaHood.

• International Affairs (1%)

• Everything else (3%)

  • Includes law enforcement, environment, science, agriculture, etc.

Memorable Takeaway:

Quote:
“The federal government is basically a big insurance company—backed by a large standing army.”
—Jacob Goldstein [18:33]

3. Economic Theory: Why Government Does What It Does

[19:25–22:35]

Aviva Aron-Dine explains government spending decisions fall into two broad categories:

• Market Failure: When private markets can’t efficiently provide certain goods/services.
  • Examples: National defense, scientific research, roads, parks.
• Redistribution: Adjusting economic outcomes for equity rather than efficiency, e.g., SNAP/food stamps.
  • Not about markets failing to function but not producing a distribution society finds acceptable.

Quote:
“There are lots of things that the market is definitely not going to provide... National defense, it’s what economists call a pure public good.”
—Aviva Aron-Dine [20:16]

Quote:
“A pretty pure case of...the market failing to achieve the distributional outcome that we want.”
—Aviva Aron-Dine on SNAP [22:15]

4. The Messy Reality: Special Interests, Lobbying, and Budget Decisions

[23:41–34:31]

Political Realities:

• Politicians balance the national interest with district-level demands and re-election pressures:

  • Fundraising is relentless; members spend hours daily soliciting donations, often leaning on lobbyists and special interests (Senator Dick Durbin describes “power hours" at call centers).
  • Fundraisers are central to D.C. political life (as described by several lawmakers and lobbyists).

• Lobbyists’ Role and Return on Investment:

  • Politicians frequently seek donations from lobbyists, not just the reverse.
  • Special Interests may get an outsized return for their lobbying. Study of the 2004 American Jobs Creation Act found corporations got a 22,000% return on investment in lobbying.

Quote:
“The member is stalking the lobbyist, saying, ‘Hey, can I have some of that money?’”
—Alex Blumberg [29:07]

Quote:
“If the voters have a position, the votes will kick money’s rear end any time…”
—Barney Frank [31:02]

• Why does lobbying work so well?
  • On technical or niche issues, only special interests are paying close attention. Lawmakers are often swayed by those providing information—and donations.

5. Economic Principle: Concentrated Benefits vs Diffuse Costs

[35:02–38:17]

Aron-Dine introduces a core political economy concept:

• Concentrated Benefits:
  • If a policy benefits a small, focused group substantially (e.g., hospitals), those affected will lobby fiercely to maintain it.
• Diffuse Costs/Benefits:
  • If a reform would slightly benefit millions, those people have little incentive to lobby for it.
• Result: Hard to reform wasteful or inefficient spending.

Quote:
“The hospital cares a ton about this payment reform. At best, the average citizen is going to save a little bit of money, and so they're just never going to care as much as the local hospital does.”
—Aviva Aron-Dine [36:16]

6. Quick Vocabulary Review

[37:06–38:17]

Terms defined:

• Market failure: When the private market won’t efficiently provide a good/service (e.g., defense).
• Redistribution: Adjusting the distribution of resources for equity, not efficiency.
• Concentrated vs Diffuse: Who’s paying attention and fighting for/against budget changes, affecting political feasibility.

Notable Quotes & Moments

• Robert Smith: “It’s easy to rant about big government, but what if everything inside the budget is actually there for a good reason? Then how do you make the hard choices?” [05:17]
• Jacob Goldstein: “Almost everybody gets Social Security, including billionaires. If Warren Buffett wants Social Security, he can get it.” [11:12]
• Ted Marmor: “The probability that you will receive Social Security benefits for retirement is so high that you should be declared irrational for believing [otherwise].” [12:54]
• Nick Fountain: (on international affairs): “If the current plans hold, the budget for international aid and embassies will be cut to far less than 1%.” [18:25]
• Barney Frank: “Look, if [money] had no effect, we would be the only human beings in the history of the world who, on a regular basis, took significant amounts of money from perfect strangers and made sure...that it had no effect on our behavior.” [30:36]

Timestamps for Key Segments

• 00:56–02:12 – Episode intro, this week’s theme: government spending
• 02:12–05:17 – Why governments run deficits/national debt concerns
• 06:38–18:33 – Ten-minute budget breakdown: where the money actually goes
• 19:25–22:35 – Why does government spend where it does? (Theory: market failure and redistribution)
• 23:41–34:31 – Political reality: lobbying, fundraising, and special interests
• 35:02–38:17 – Concentrated vs. diffuse interests in budget decisions (and why reform is so hard)
• 37:06–38:17 – Vocabulary and concepts recap

Conclusion

This episode serves as a crash course on federal budgeting. It moves beyond abstract numbers to examine why the government spends what it does, the economic theories behind those decisions, and the all-too-human realities—re-election pressures, lobbying, and special interests—that dictate how and where our tax dollars ultimately get spent. The class is left to reflect on whether spending aligns with market failures, societal values, or vested interests—and to keep a sharp eye on the forces shaping those choices.