Is Balancing the Budget a Stupid Idea?
I often enjoy reading what Robert Reich has to say, but this piece just made me sad:
The federal budget is just an accounting convention – and a lousy one at that. It doesn’t distinguish between three types of spending: (1) spending that’s necessary to pay off obligations made in the past, (2) spending intended to make us better off today, and (3) spending to make us more productive in the future. Any family knows the difference between past, present, and future – between, say, paying down the mortgage, going on an ocean cruise, or paying college tuition for the kids … But the federal budget doesn’t at all resemble a family budget. The federal budget is a static account that tells us nothing about past, present, or future.
The family budget is also a static concept – and most households look at savings and investment decisions in terms of their long-term impact. In this sense, the federal budget is like the family budget. I’m sure Robert has heard of the Ando-Modigliani life-cycle model. So the real point is whether we are running deficits to invest in our future. The sad truth is that Bush’s fiscal fiasco has not only caused some to panic that we’ve spent the Social Security reserves but it has also likely reduced investment.
Robert makes a few good point here:
Price supports designed to protect today’s farmers are treated the same way as education and health care for our nation’s children. They both show up as categories in the yearly budget – even though the farm price supports are to keep a group of people secure today, while education and child health care are really investments in America’s future. Social Security surpluses show up in the budget as this year’s revenues that offset this year’s expenses. But in reality the surpluses are payments by post-war boomers who are still working – but who in a few years will be retired and making big withdrawals. What look like revenues will soon turn into big liabilities. The federal budget hides this inconvenient fact.
Actually, the unified deficit understates the general fund deficit precisely because it counts the Trust Fund surpluses as offsets. So we really should be running unified surpluses. His other points are that not all government spending is the same. While that’s true, we still have to honor the long-run budget constraint – just like most families do.