I have been wanting to write about the sequester for a couple of days and have been stymied by not knowing where to start because I deeply disagree with both sides. It’s a bit like observing two of our kids fight with each other when both are clearly in the wrong – who do you turn to first? So here is my attempt at blurting it all out in condensed version.

We need to change pretty much everything about the federal budget: how much money goes through government, how it is raised, what we spend it on and how much stuff costs:

1. Government is not the best allocator of funds because it tends to do so through inefficient hierarchies instead of networks. For example, a lot of education dollars should be flowing over platforms like Donors Choose. A lot of labor and agriculture dollars out of the federal budget should not be running through government in the first place.

2. We are taxing the wrong things and in the wrong way. We should reduce the payroll tax and roll out a big honking carbon tax. We want employment (good) and we don’t want carbon (bad). We should lower rates because high marginal rates result in more distortions and get rid of massive loop holes (eg corporate profits abroad).

3. We are spending on the wrong things in our discretionary spending. Our defense spending is totally out of control. We should take it way down. Ditto for Homeland Security + National Intelligence which together are at over $100 Billion. Instead we need to invest more in broadband, public transportation, prizes for medical research (to help lower the cost of healthcare) and other key enablers of the 21st century.

4. Our mandated spending costs way too much: Social Security, Medicare and Medicaid together account for $1.62 trillion or a whooping 42% of the budget. There are many reasons why it costs too much but two stand out in particular: first, the run away cost of our healthcare system which require a thorough reform of the pharmaceutical industry and second that we are giving money to people who don’t need it. We need to construct a social security system that’s about need and not about age.

If that sounds like a lot, well it is. The system is broken in a great many places and any discussion of trying to fix one little part of it without fixing the rest just doesn’t make much sense. If the federal budget were a car it would be one with the engine, transmission, brakes and tires all busted while Washington is arguing fiercely over the rearview mirror.