Thursday, February 7, 2013

In the Water, In the Air: Thursday, February 7, 2013.

Thursday, February 7, 2013.  A former comptroller gives our elected officials an "F" on fiscal policies; public choice theory implies that only the constitution can thwart the self-interest of elected officials; bipartisan and untenable promises.

DAVID WALKER, a former U.S. comptroller general, breaks out the red pen and grades our elected officials of both parties:
Since 2000, we have been experiencing a recurring case of Democratic big-spending policies and Republican low-tax policies, combined with additional spending for a range of contingencies. The result has been huge deficits, rapidly mounting debt, and a total liability and unfunded debt burden of $71.2 trillion, up from $20.6 trillion at the end of fiscal 2000, and growing by $8.2 million a minute. Considering all of these developments, what fiscal grade do the Congresses and the presidents of both parties who have held power since 2001 deserve? In my view, they deserve an F.
The hard and cold reality is that due to the failure of elected officials to heed professional, nonpartisan and nonideological advice, we are all paying a price — and that price will increase over time unless we change our fiscal policy. It’s time to recognize reality and change course.
(David M. Walker, The Washington Times, Uncle Sam Gets an F in Money Management: Paying the Price for Bipartisan Irresponsibility, Feb. 6, 2013.)

It is easy enough for partisans on either side of the aisle to see our financial problems as being entirely the other side's fault.  Political ideologies can be somewhat like a mythology: they provide self-consistent explanations for a wide range of phenomena in the world.  And like a mythology, they can provide useful guidance--once you've accepted the premises.

Are our deficits caused by a revenue problem, and curable by more taxes?  If you tend to favor a world in which taxes and spending are both higher, why yes--yes, they are.  Are our deficits caused by a spending problem, and curable by cutting expenditures?  If you tend to favor a world in which taxes and spending are both lower, why yes--yes, they are.

And indeed, if we increased revenues, we probably could erase our deficits.  And if we decreased spending, we probably could erase our deficits.  True believers of either persuasion have an answer, and it provides all the explanation they need.

But why do we not do either of these things now?  Because there is not enough political support for either course of action.  We are happy enough to lower taxes when we can, and we are happy enough to raise spending when we can, but we go to great lengths to avoid having to reconcile the two.  Our problem is not a revenue problem, and it is also not a spending problem: it is a reconciliation problem.  Unfortunately, our current process for establishing revenue-side and spending-side policies requires that we all view our problem from the same perspective in order to allow us to coordinate and implement a solution.  Our current process seemingly requires us to agree before we can coordinate.

And our separate, self-consistent ideological worlds don't provide much of an incentive for us to even try to coordinate.

WHY NOT A BALANCED BUDGET AMENDMENT?  George Will takes a stab at the question and concludes that there's not much of an argument against a balanced budget amendment, and there is a good reason for it:
. . . Public choice theory applies economic analysis — essentially, the study of how incentives influence behavior — to politics. 
Public choice analysis began in the 1960s, when Washington’s social engineers were busy as beavers building a Great Society and confidence in government reached an apogee that prudent people hope will never be matched. Public choice theory demystified politics by puncturing the grand illusion that nourishes government growth. It is the fiction that elected politicians and government administrators are more nobly motivated, unselfish and disinterested than are persons acting in the private sector. 
Buchanan extended the idea of the profit motive to the behavior of politicians and bureaucrats, two groups seeking to maximize power the way many people in the private sector maximize monetary profits. Public-sector actors often do this by transactions with rent-seekers — private factions trying to maximize their welfare by getting government to give them benefits, such as appropriations, tax preferences and other subsidies. 
. . . 
The political class is incorrigible because it is composed of — let us say the worst — human beings. They respond to incentives of self-interest. Their acquisitiveness is not for money but for the currency of power, which they act to retain and enlarge. This class can be constrained, if at all, not by exhorting them to become disinterested but by binding them with a constitutional amendment.
(George F. Will, The Washington Post, Shackling The Spenders, Feb. 6, 2013.)

Our political class may respond to incentives of self-interest--as public choice theory might predict--but that doesn't make them bad people, let alone the worst human beings.  It just makes them human, period.

This much is true, though: the only way to bind the political class is through a constitutional amendment.  But whereas a balanced budget amendment would crank up the heat on Congress by turning a long-standing goal (balanced budgets) into a demand, it would not make it any easier for our elected officials to come to an agreement.  This is especially true given that the balanced budget amendments most recently proposed contain "escape hatch" provisions that would allow a vote of, say, 3/5ths of Congress to avoid having to balance the budget, if balancing the budget should prove to be just too hard.

The Solvency Amendment would instead do what a balanced budget amendment does not: it would ensure that we start out each year with a balanced budget, one that we could modify if we could determine a more pleasing way to balance our budget, but one that would at least be balanced by default.  We would not have to worry that our political class--each member of which being motivated by self-interest--may well not be able to balance our budgets even when our goal becomes a demand.

MEANWHILE, Robert Samuelson at RealClearMarkets hit on something back in December when he said:
Whatever one thinks about raising taxes at the top (and I have no objection to it as part of comprehensive budget package), it’s not the crux of the problem. The crux of our problem — the problem being the bipartisan and untenable promises made to most Americans of both high government benefits and low taxes — arises from an aging population and high health costs, which cause rapid increases in spending on Social Security, Medicare and Medicaid.
(Robert Samuelson, The Washington Post, Obama’s leadership failure, Feb. 7, 2013.)

Set aside for a moment the notion that our problem arises from "an aging populatioin and high health costs."  The crux of our problem is truly "the bipartisan and untenable promises made to most Americans of both high government benefits and low taxes."

Maybe that's where we should be looking for a solution.  And coincidentally enough, there is a way reconcile our existing bipartisan and untenable promises, and then keep us from making the same sorts of promises in the first place...

Have you heard about the Solvency Amendment?

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