More on ‘Irrational Budgeting’

More on ‘Irrational Budgeting’

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Based on his three thoughtful blog posts this week, Joe White’s main beef with federal budgeting seems to be that fiscal insiders focus too much on totals – total revenues, total spending, and total resulting deficits and debt – and too little on the specific tax and spending programs behind those totals.  As a result, he says, they over-emphasize one goal (cutting the deficit), invent impending fiscal crises to build support for that goal, and unfairly blame politicians for not taking action to achieve it.

White is a serious guy and his views are worth a serious look but, with his frame of reference, he confuses as much as he illuminates.

In his first post, White  dismissed the idea that “there is a proper ‘size of government,’” a position conservatives often take in seeking to limit the government to, say, 18 percent of gross domestic product (GDP).  Rather than worry about government’s size, White argues, we should evaluate what it does.  If Social Security, health care programs, and other federal initiatives are working, we should find the revenues to support them – no matter how big government grows in the process.

Maybe so.  But, while White correctly notes that 18 percent of GDP is no more appropriate a level than any other – that the very notion of a proper level has little economic justification –objections to White’s “let it grow, grow, grow” suggestion need not be irrational.  Americans can, in fact, object to letting government grow to a much larger share of GDP for a quite rational, albeit non-economic, reason – they simply fear the potential political downsides of letting their government grow too big.

Americans are a people born of a revolution against what their ancestors viewed as centralized tyranny.  Even in the post-World War II period, a time of vast expansion of federal authority to tax, spend, and regulate, the federal budget has rarely topped 23 percent of GDP, a level far lower than central governments across the Atlantic.  That our budget topped that level in the last two years – due to the extraordinary steps of the Federal Reserve, two Administrations, and Congress to stabilize the financial system and revive the economy – at least partly explains the Tea Party movement and a more general public angst about an “out of control” government in Washington.

Does that mean Americans are irrational?  Hardly.  It means that, as sociologists like to say, culture matters.  Americans are culturally different than Europeans, and we are simply not comfortable with a central government as large, as a share of our economy, as Europeans are.
In his second post, White complained  about fiscal insiders who paint scenarios of impending doom that rising deficits and debt will generate.  That he fingered me as a “relative moderate among Washington elites on this topic” seemed like faint praise indeed, since he dismissed the whole bunch of us as misguided.

On this one, White reminds me of a cigarette smoker who rejects the very notion that smoking is harmful to your health because, up to now, he or she has not contracted lung cancer or emphysema.

We need not worry, he suggests, that lenders will stop financing our deficits no matter how big they get, or that adversarial governments like the one in Beijing may enjoy some leverage over Washington due to its Treasury debt holdings.  Nothing bad has happened to date so, apparently, we need not fear bad things in the future (though, interestingly, he interrupts his screed at one point to concede, to the contrary, that “yes, deficits could become so bad as to be truly threatening…”).

The future is uncertain, of course, so White may prove right.  Perhaps, as he suggests, the federal government can continue to run deficits that will soar in future decades.  Perhaps we will find the lenders when our debt rises to 100, 200, even 300 percent of GDP.  Perhaps we will continue to prosper when interest payments soar as a share of our budget, forcing the Treasury to borrow just to pay interest costs.  Perhaps we should pay little heed to projections of spiraling deficits and debt because, in assuming a continuation of current policy rather than assuming deficit-cutting steps along the way, these projections are “highly implausible.” Perhaps the fiscal gurus of the left and right have it all wrong.

Perhaps.  But the future is not about certainty.  It’s about the very things that White dismisses – projections, scenarios, and risks.  OK, I confess.  I worry about the risks inherent in soaring deficits and debt – steeply rising inflation, interest rates, and interest payments, a collapsing dollar, and a loss of national sovereignty.  If that makes me, in White’s colorful description, a “self-styled fiscal Paul Revere,” guilty as charged!

In his third post, White states the obvious but still goes a bit astray at the end.  Yes, “only minorities support any particular spending cuts or tax hikes, but everyone agrees that the deficit is too high.”  Yes, “maybe there are good reasons why majorities oppose most of what is proposed to reduce the deficit.”  Yes, “the problem is that budget choices really are ‘tough’ on the merits.”

At that point, however, White returns to the unpersuasive bottom line of his first two blogs: that budget insiders focus too much on “dubious theories about the totals” and too little on the “details” behind them.  The President’s budget commission, he believes, is designed to focus attention ever more on those totals and, in this way, push through a sizeable deficit reduction package.

But White gives the commission power that it clearly lacks.  “If the Commission reduces the deficit,” he writes, it will be because it “short-circuited the basic collective choice problem.”  In fact, the commission has no power to do that.  It can craft a plan, but the President and Congress would have to enact it through legislation.  That’s the normal order of things, no short circuit of any kind.

Post your comment below or click here for the previous Capital Exchange post.
Lawrence J. Haas is former Communications Director to Vice President Gore and, before that, to the White House Office of Management and Budget. He's now a public affairs consultant who writes widely about foreign and domestic affairs, including fiscal policy.

Lawrence Haas
is former senior White House official and award-winning journalist, writes widely on foreign and domestic affairs. His articles have appeared in The New York Times, USA Today, Los Angeles Times, Baltimore Sun, Miami Herald, San Diego Union-Tribune