Want better federal budget decisions? Make them easier

Want better federal budget decisions? Make them easier
© Greg Nash

The current federal budget process is widely regarded as dysfunctional and in need of reform. That’s for good reason: The process has produced a bipartisan preference for debt financing all spending, an unsustainable debt trajectory and a generous portion of ineffective, inefficient programs and policies.

In assessing a similar poor fiscal performance, Herb Stein, economist and adviser to Presidents, is said to have observed:

To get better federal budget decisions, we need better people or better information. I don’t know how to get better people, so I think we should get better information.

ADVERTISEMENT

If the attribution is correct, today’s behavioral scientists, would agree that Stein got it more than half right: The problem is not so much getting more capable policymakers as getting relevant information to policymakers in a manner and form easy for them to use.

To see how this advice might improve our current budget process, consider the information requirements for good budgeting: The amount available for spending and the costs and benefits of each considered alternative. In concept, that information is sufficient to allocate limited resources among beneficial alternatives to maximize benefits. In practice, it’s no easy feat. But without relevant, salient information, it’s impossible.

Yet, policymakers are routinely called to make budget decisions without much of that information They are put to the task with a list of what we spent last year, what might be nice to add this year, a credit card without dollar limit and their gut judgement.

A member of Congress considering a proposal to increase spending or reduce taxes might reasonably ask budget staff: How much is available? 

A likely informed response might be:

ADVERTISEMENT

It’s your call. There is no hard limit. The immediate effects of this bill are positive. Sometime in the future, we will probably need to do something about the debt. But by then income is almost sure to be higher. It’s also possible something may turn up that solves the future debt problem for us.

Given that truth, who among us would choose fiscal discipline?

A budget needs to constrain individual spending decisions to an aggregate limit, because the total consists of many, mostly small fiscally inconsequential choices. Procedural constraints come in many forms from annual to longer-term fiscal balance. Budget decisions consistent with long-term economic stability and kept political promises could be made easier by adding one of those to the budget process and saliently relating that limit to every budget decision.

Adding a limit to the current budget process might not be sufficient to slow the growth in debt, increase program effectiveness and efficiency, and restrict promised federal benefits to amounts that could be honored. Achieving those results might also require restricting the authority of elected officials to manage strategically the scored budget cost of legislation. Although policymakers consistently prefer lower-cost to higher-cost policies that deliver about the same benefits, they often resort to accounting and legislative gimmicks to reduce scored costs.

For example, the Bipartisan Policy Act of 2019 (BPA), which raised budget spending caps by over $300 billion and suspended the debt ceiling for the next two fiscal years — actions that do not directly increase outlays or debt — was scored as reducing the deficit by $54.5 billion for the 10-year budget window. This deficit effect resulted from provisions in the act that would reduce outlays and increase revenues in years eight to 10, if lawmakers do not repeal or modify the legislation before it becomes effective. Ironically, the urgent purpose of BBA was to suspend the previously legislated debt ceiling and raise the spending caps established in the Budget Control Act of 2011.

Members of Congress are not unique in acting inconsistently with their authentic long-term goals and in rationalizing daily departures with contrived self-deceptions. It’s a human trait. We all wish devoutly to be healthy and fit. But most of us will make dietary and activity choices today, “just one won’t matter,” that we will regret tomorrow. 

But we are also are aware of our self-control limitations and adopt “error reduction” rules: avoiding dietary temptations, pre-committing to exercise. As Dan Ariely, author of “Predictably Irrational: The Hidden Forces that Shape Our Decisions,” puts it, referencing an interview with Warren Buffett, “Even the most analytical thinkers are predictably irrational; the really smart ones acknowledge and address their irrationalities.”  

Our current lawmakers are really smart; in considering federal budget reform measures, they need to show it.

Marvin Phaup teaches federal budgeting and economics at George Washington University’s Trachtenberg School of Public Policy and Public Administration and George Mason University’s Schar School of Policy and Government.