How to Cut $100 Billion -- Lessons for Politicians

02/13/2011 12:22 am ET | Updated May 25, 2011

Cut Programs, Not Systems

In demanding at last week's CPAC convention that GOP leaders strike $100 billion from federal spending, Tea Party activists are forcing politicians to go against their natural instincts.

If they expect to succeed, they need to understand the difference between a program, which spends money, and a system, which creates it.

We have all seen it: for every problem, politicians have a program.

When disaster strikes, politicians implement programs to aid the victims.

When public health is inadequate, they fund health care programs to fill the need.

When the environment is polluted, they mandate programs to clean it up.

Some of these programs are necessary, at least temporarily. But programs cost money. And sometimes there is not enough money to pay for all the programs we might like, especially as they accumulate over the years.

So where do we get the money to pay for programs? We get the money from systems.

Systems are different from programs. For example, for any problem, they are systemic solutions, and programmatic solutions.

A police force is a crime-fighting program. It doesn't pay for itself -- it requires a constant infusion of money. The crime it prevents might be said to pay its costs -- but police spend money to reduce crime -- they don't create new value.

Education is a crime-fighting system. By enabling people to provide for themselves, so that crime is less attractive to them, education pays for itself, at least partially.

Systems are wholes. Programs are parts.

Our bodies are systems. They combine a brain that can think, with a body that can act. That enables us to take an idea, and turn it into a physical reality.

Our constitutional democracy is a system. It enables the majority to make decisions, through elected representatives, within bounds set by the Constitution. The system creates a foundation from which stability, security, freedom, innovation, prosperity, and other qualities emerge.

Public education is a system. If well designed, it helps young people become vested with the knowledge and skills they need to support themselves, their families, and their communities.

The economy is a system. Businesses compete to answer a want or need, connecting a social desire -- a demand -- to a supply that meets the demand. Free economic transactions create net value on both sides of the equation -- a net profit for the business, and a net benefit for the consumer.

Systems create value. Programs consume it.

Every system has qualities that are absent in its parts. Systems create new forms of value.

When atoms and molecules join together in a cell, new value emerges: life. When cells join together in a human body, new value emerges: thought, consciousness, and everything that follows.

When people come together to meet their collective needs, new value emerges: families, communities, businesses, economies, nations, civilizations.

Each part in these systems imposes net costs. Those costs can only be sustained because, together, the emergent qualities make the whole system sustainable.

Parts do one thing well. Systems do many things well -- more than the sum of the parts.

Parts are specialized for one function -- atoms for building, cells for living, hands for holding, businesses for producing. Systems are optimized across many functions -- people, businesses, economies meet a huge array of needs, both physical and emotional.

If you judge the value of a system by one thing that it does, it seems inefficient. For example, if you want to fight crime, either through education or police, you will find a police force costs less than a school system per criminal act prevented.

But if you judge the value of a system by all the things it does, it often turns out to be much more cost-effective. A school system generates many outcomes, not just a less crime-prone populace.

Systems always pay for Programs

Parts can't pay for themselves -- ever. They lack the emergent qualities, the net value creation. The laws of thermodynamics rule.

Programs can only be paid for if they are part of larger systems, which generate the net revenues.

A tax program can't be paid for, unless it is part of an economic system, which generates the wealth.

A health program can't be paid for, unless it is part of a system which generates net health.

Programs are often necessary -- they meet essential needs. Often, they are essential parts of larger systems. But they cannot be paid for without systems.

Why seek systemic solutions?

Politicians focus on programs, because they are part of a political system that focuses them on re-election. They need to demonstrate they are advancing solutions to specific problems. Programs are proof points they use, to convince voters they are doing their jobs.

These programs are often very specific to highly-publicized problems. If people are hungry, programs give them food. If they are poor, programs give them money. If people are out of work, programs give them jobs. If disaster strikes, programs provide aid. If an enemy attacks, programs exact retribution.

But systemic solutions are often left behind. Instead of assuring that we have the systems to deliver ample food, jobs, prosperity, health, and safety, we spend our money on programs that aim to guarantee each of these, but without creating the resources to do so.

Programs persist. Systems evolve.

Programs have clearly-defined forms that don't change much over time. Like a police force, they are based on command-and-control.

Systems have evolving forms that adapt as conditions change. Like a natural ecosystem or a healthy economy, they are based on feedback-and-adaptation.

For that reason, programs grow obsolete, and outlive their utility. But systems -- if they receive feedback -- adapt and can live through many forms.

When should we choose programs, and when systems?

If a system and a program would accomplish the same ends, it is better to choose the system. Ideally, it can be self-funding, and accomplish not just one objective, but many.

A program is justified, if it reduces costs that would be incurred without it, and if no systems have been devised that would achieve these same ends. Programs are often necessary, if systems are not sufficient to meet social needs.

But a program should always be embedded in a system, so that the system can cause it to adapt. Otherwise, its costs will invariably outpace its benefits, and it could even undermine the systems that create value more sustainably.

Often, we need both programs and systems to solve problems. To prevent poverty, we need both a healthy economic system, and a program to provide relief in the face of tragedy. To prevent crime, we need both an educational system to build capable people, and a police force to punish the irresponsible.

But it is unwise to divert funding away from a system, in order to fund a program. The first creates value, the second only spends it.

It is time to unite businesses and activists -- from the left to the right -- behind systemic solutions

To be healthy and prosperous over the long term, society needs a healthy environment and economy, and the systems that support them. Businesses and activists, from the left to the right, need to support these interdependent systems.

The point is not to eliminate $100 billion in funding for one set of programs or another. The point is to focus first on the underlying causes, so that we can cut and spend intelligently, and systemically. We need to take a systems approach to solving problems. Instead of relying on expensive programs, design public policy systems, that create net value for society.

Republicans and Democrats should not just blindly support or oppose programs. Instead, they should acknowledge their limits. If we need programs -- police to fight crimes, jobs for the unemployed, health services for those in need -- we need healthy systems that generate the support that pays for those programs.

Entitlements are not systems -- they are programs

Social security used to be part of a system -- one that generated wealth and security, paying for itself. Now it is a program. So is Medicare, Medicaid, the Farm Bill, fossil fuel subsidies, clean energy subsidies, unemployment benefits, the military industrial complex and myriad more. These huge programs produce few of the resources they need to sustain them. Instead, they extract value from the two truly productive systems that remain: the natural environment, and the economy.

If we continue to steal value from the economy and the earth, we will undermine the two systems that must be healthy, to pay for any programs we desire.

Systems for the GOP -- and Democrats -- to support

Cutting $100 billion is a nice populist idea to advance. It has a good ring to it: a hundred billion is an even number that's easy to remember and sounds like a lot.

But if we cut programs that are essential parts of the systems that sustain us -- the economy and environment -- then the costs will exceed the benefits.

Instead, we should seek to replace expensive programs with smarter systems, so that we create sustainable health and prosperity.

Our tax program -- which penalizes income, savings, and jobs, should be replaced by a revenue system: by shifting taxes to things we don't want, like pollution, consumption, and waste, we can kill three birds with one stone.

Our military program -- which has sent our soldiers across the planet to fight fires with even more fire -- should be part of a larger peace-building system that cultivates freedom and prosperity, so that we can preserve our military resources for when war is truly necessary.

Our unemployment and jobs programs -- which depend on subsidies we won't be able to long afford -- need to be part of a system to restore education and innovation to the levels needed for our children and theirs.

All this takes more thought than can be expressed in a populist slogan to advance a simplistic program: to cut $100 billion from whatever programs and systems lack the political power to protect themselves.

The GOP is heading for disaster if it cannot look beyond slogans, and devote the careful, collaborative, bipartisan thought needed to develop systemic solutions.

The Democrats are no better. Both need to learn. Only we can teach them. When will we? When we need to, but can't? Or right now, when we can?