From: thf2@ellis.uchicago.edu (Ted Frank)
Subject: Re: Balancing the budget
Reply-To: thf2@midway.uchicago.edu
Organization: University of Chicago Computing Organizations
Distribution: usa
Date: Tue, 7 Apr 1992 05:34:50 GMT

In article <TOM.92Apr6110736@amber.ssd.csd.harris.com> tom@ssd.csd.harris.com (Tom Horsley) writes:
>Here is my plan for a balanced budget process - I am interested in knowing
>what is wrong with it. Please ignore the fact that the Congress would never
>adopt it, I already know that, I am just wondering what is technically wrong
>with it...
>
>Step 2 - The first phase of the budgeting process would prioritize spending
>         requirements. Each member of Congress would be able to annotate
>         each node in the computer chart with the percentage of the budget
>         he feels that part of government should get. Any Congressman could
>         go as far down the org chart as he felt like going. He could
>         allocate money just to top level nodes and leave it up to the
>         bureaucrats running that section to divide up the pie below that
>         level, or he could micro manage all the way down the tree. It would
>         be up to the individual Congressman to decide how much detail he
>         wanted to get into.

This leads to a problem of strategic behavior, as well as institutionalized
logrolling.

Simply put, let's say Congressman X wants program Y to receive $1 billion,
but knows that the rest of Congress will only support it $500 million.
X has an incentive to hide his true feelings about the worth of Y and
overexaggerate to "compensate" for the rest of Congress's "undervaluing."
And vice versa for other programs.  Repeat for 435 Congressmen and 100
Senators.

>         Clearly, simple percentages are a bad idea. Some programs will need
>         a minimum amount of funding to be worth doing at all, and every
>         program should have a cap on funding representing the maximum
>         amount of money the program could use. These numbers would also be
>         noted in the chart and each Congressman could give his idea of what
>         the number should be.

So no programs will be cut?  Who decides the minimum and the maximum?
What incentives will they have to not under or overexaggerate the right
numbers?

>Step 4 - Finally - the step everyone has been waiting for. The total amount
>         of money available is estimated. This consists of tax revenues,
>         plus any borrowing which another supermajority will authorize.
>         At this time, Congress may consider raising taxes (if they think
>         they can get away with it).
>
>         This money is then allocated according to the percentages fixed in
>         Step 3. Any program which fails to get its minimum required funding
>         is simply canceled, and the increased revenue allocated according
>         to the percentages again (you probably program a computer to do
>         this iteratively - you want to cancel just one program at a time so
>         the increased revenue has a chance to salvage a more important
>         program).  Any program which gets more than its max also returns
>         money to the pot to be spread out over the other programs.
>
>         (Should a miracle occur, and Congress actually adopt a plan like
>         this, it should probably be phased in over several years with
>         initial plans for deficits dropping to zero after 5 or 10 years).

The problem is that in a perfectly functioning economy, the budget
deficit shouldn't be precisely zero: it should be fluctuating between
surpluses and deficits depending on the strength of the economy.

The problem with your model is that it will shoehorn budgets into
an unnatural zero-state, creating feedback effects:  tax revenues
go down due to recession, meaning a need for an increase in government
expenditures on safety net programs, meaning a deficit, meaning an
across-the-board cut in government spending, hurting the economy and
sending it further into recession, meaning tax revenues go down....

>I like this idea because it seems like it would be simple to sell to the
>voters. Anyone should be able to understand the concept of not being able to
>spend money you don't have. 

Did you get a mortgage to buy your house?  Ever use a credit card?
*Everyone* spends money they don't have.  The issue is whether they spend
it wisely, and invest it in such a way that the return from the borrowed
money exceeds the interest expenses on that borrowing.  For example,
which is better: a $10 billion increase in the deficit now to fully
fund HeadStart, with concomitant costs of $0.6 billion a year forever,
or having a $100 billion increase in government spending over the next twenty
years paying for the prisons, welfare, and poverty produced by not
properly educating the country's children?  The problem with our budget
isn't that we don't have a balanced budget amendment, it's that

(1) Instead of a surplus in good years and a deficit in bad years, we
    have a $200 billion deficit in good years and a $400 billion deficit
    in bad years.
(2) The budget deficit is being used on consumption rather than investment,
and
(3) Instead of an assets-liability budget which would encourage long-term
    vs. short-term spending, we have a cash-flow budget that rewards
    short-term thinking.  If GM sold its biggest factory to the Japanese
    for market-value cash, it would show no effect in its profits.  If the
    US sold the Statue of Liberty, it would show the few million dollars as
    "revenues," and claim the deficit had been "reduced."

>It might even be easy to seel to the Congress. They no longer have to agree
>on individual spending, they only have to agree on the process.

There might be Constitutional problems with this process.

>I would move most "entitlements" into the budget and eliminate cost of
>living increases. I don't see any reason why social security recipients
>should get an automatic cost of living increase when the working people (who
>are, after all, paying for social security) don't get automatic cost of
>living increases in their salary. Working people get salary increases when
>their company can afford to give them one. Social security should work the
>same way - you get an increase when the country can afford it (Yep - this is
>also absolutely impossible to implement).

Well, the issue here is that a COLA isn't an "increase," it's keeping
up on the treadmill.  You might think you're not getting cost of living
increases, but that's what the majority of an average "merit" raise is.
-- 
Ted Frank          + "A word is not a crystal, transparent and unchanged, it
1307 E 60 St, #109 +  is the skin of a living thought and may vary greatly in
U o' C Law Skool   +  color and content according to the circumstances and
Chi, IL 60637      +  the time in which it is used."  --  Holmes
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