Planet Money Summer School 3: How Government Decides What to Spend Our Money On

Release Date: July 23, 2025
Host: Robert Smith
Guest: Aviva Arundine, Director of the Hamilton Project at the Brookings Institution

Introduction: Understanding Government Spending

Robert Smith welcomes listeners to the third installment of Planet Money Summer School, focusing on the intricate process of government budgeting. Building on last week's discussion about taxes, this episode delves into how the government prioritizes and allocates funds amidst rising national debt, which has surpassed $36 trillion (01:03).

Guest Insight: Aviva Arundine on Fiscal Policies

Aviva Arundine joins as the guest professor, shedding light on the Hamilton Project's role in formulating quality fiscal policies. She emphasizes that while governments can raise substantial funds, strategic spending is crucial to avoid unsustainable debt growth (02:19).

Key Quote:
"The concern is when your debt is growing too rapidly relative to your economy." – Aviva Arundine (04:03)

Breaking Down the Federal Budget

Robert Smith introduces a case study from a 2017 episode hosted by Jacob Goldstein and Stacey Vanek Smith, where the entire federal budget was explained in just 10 minutes (06:47). Despite being eight years old, the budget's major components remain largely unchanged, highlighting persistent spending patterns.

1. Medicare and Medicaid (29%)

Medicare and Medicaid collectively consume nearly a third of the federal budget, covering over 120 million Americans, including the elderly, low-income families, and individuals with long-term disabilities (08:05).

Notable Discussion:

• Sarah Kliff explains that 08:39, "If you live long enough, you might end up on Medicaid," highlighting the program's extensive reach beyond just the poor.
• The expansion under Obamacare 09:40 increased federal funding to states, allowing more individuals to gain coverage.

Key Quote:
"We're talking about the future of Medicaid." – Robert Smith (09:59)

2. Social Security (24%)

Social Security remains a cornerstone of federal spending, benefiting nearly every American over 66, including wealthy individuals like billionaires.

Key Quote:
"Social Security is politically bulletproof." – Dick Durbin (12:57)

Jacob Goldstein and Dick Durbin discuss the program's sustainability, emphasizing its broad-based support due to its universal eligibility and direct linkage to workers' contributions (11:22).

3. Defense (15%)

Defense spending accounts for 15% of the budget, consistently maintained despite political debates over increases and cuts.

Notable Insight:

• Stacey Vanek Smith reveals that over the past two decades, the defense budget's share has remained relatively stable (14:07).
• Bill Valdez, a veteran from the Energy Department, credits lobbyists for maintaining this equilibrium, ensuring budget stability through special interest group negotiations (14:45).

Key Quote:
"The budget status quo is really this hard-earned equilibrium." – Bill Valdez (14:53)

4. Income Security (13%)

This segment covers programs like the Earned Income Tax Credit, housing assistance, unemployment benefits, and SNAP (food stamps).

Notable Discussion:

• Raquel Alexander clarifies that SNAP supports over 40 million people, predominantly children, the elderly, and the disabled (15:38).
• Work requirements ensure that able-bodied individuals remain employed to qualify for assistance (15:38).

5. Interest on National Debt (6%)

Interest payments on the national debt have become more burdensome due to increased debt and rising interest rates, now consuming double the budget portion seen in earlier years (10:48).

6. Veterans Affairs (5%)

Veterans Affairs provides healthcare and disability benefits, with ongoing debates about funding levels and potential cuts (17:21).

7. International Affairs (1%)

Allocations for operating U.S. embassies, military assistance to allies, and aid to developing nations have seen significant cuts, reflecting shifting priorities (17:46).

8. Other Areas (3%)

Includes justice, natural resources, science, space, technology, general government operations, and community development.

Key Quote:
"The federal government is basically a big insurance company backed by a large standing army." – Jacob Goldstein (18:25)

The Influence of Lobbying on Budget Decisions

The episode transitions to exploring the profound impact of lobbying on government spending. Fundraising is depicted as a central activity for politicians, often hindering fiscally responsible decisions.

Key Highlights:

• Dick Durbin admits that senators spend substantial time fundraising, which can compromise their legislative priorities (23:52).
• Lobbyists play a pivotal role in shaping budget allocations by organizing fundraisers and influencing policy through financial incentives (28:10).

Key Quote:
"When you hear about lobbying, it's not just money buying votes, but a pervasive influence that shapes policy outcomes." – Sarah Kliff (30:03)

Case Study:

• The American Jobs Creation Act of 2004 demonstrated an astronomical return on lobbying investment, where every dollar spent yielded $220 in tax benefits (31:43).

Economic Principles Behind Budget Allocations

Aviva Arundine elucidates two primary motivations for government spending: addressing market failures and redistributing income.

1. Addressing Market Failures

Government intervenes when the private market fails to provide essential goods or services efficiently.

Examples:

• National Defense: A non-rival and non-exclusive public good that the market cannot adequately supply.
• Education and Infrastructure: Services that benefit society broadly and require collective funding.

Key Quote:
"If the private market is not giving us the distribution of resources that we as a society want, the government steps in to redistribute income." – Aviva Arundine (19:57)

2. Redistribution of Income

Programs like SNAP aim to redistribute resources to ensure lower poverty rates and provide food security, correcting imbalances that purely market-driven outcomes would exacerbate.

Challenges in Budget Reform: Concentrated vs. Diffuse Interests

A significant barrier to budgetary reforms is the disparity between concentrated benefits and diffuse costs.

Key Insights:

• Concentrated Interests: Entities like hospitals or defense contractors that receive substantial benefits from specific budget allocations.
• Diffuse Benefits: The general public enjoys broader, but smaller, advantages such as reduced national debt or improved public services.

Aviva Arundine explains that this imbalance makes it difficult to pass reforms, as the powerful, concentrated interests oppose changes that would dilute their benefits for marginal gains to the populace (35:28).

Key Quote:
"The hospital cares a ton about this payment reform. The average citizen cares a little bit." – Aviva Arundine (35:30)

Conclusion: The Complex Dance of Politics and Economics

Robert Smith wraps up by summarizing the complexities involved in government budgeting, emphasizing the tug-of-war between special interests and the broader public good. Aviva Arundine reinforces the importance of understanding these economic principles to navigate and potentially reform the budgeting process effectively.

Key Vocabulary:

• Market Failure: Situations where the private market does not efficiently allocate goods and services.
• Redistribution: Government efforts to adjust the distribution of resources to achieve a more equitable outcome.
• Concentrated vs. Diffuse Interests: The challenge of balancing significant benefits to a few against minor benefits to many.

Key Quote:
"Special interests often get exactly what they want because their benefits are concentrated whereas the costs are spread out among many." – Aviva Arundine (35:30)

Notable Quotes with Timestamps:

• "The concern is when your debt is growing too rapidly relative to your economy." – Aviva Arundine (04:03)
• "Social Security is politically bulletproof." – Dick Durbin (12:57)
• "The budget status quo is really this hard-earned equilibrium." – Bill Valdez (14:53)
• "The federal government is basically a big insurance company backed by a large standing army." – Jacob Goldstein (18:25)
• "When you hear about lobbying, it's not just money buying votes, but a pervasive influence that shapes policy outcomes." – Sarah Kliff (30:03)
• "Special interests often get exactly what they want because their benefits are concentrated whereas the costs are spread out among many." – Aviva Arundine (35:30)

This episode of Planet Money Summer School offers a comprehensive exploration of government budgeting, the pervasive influence of lobbying, and the economic principles that underpin fiscal decisions. By breaking down complex topics into relatable discussions, it provides listeners with a deeper understanding of how government prioritizes spending in the face of growing debt and competing interests.