The Upcoming Budget & Deficit Battle – Go Ahead, Kick That Can Down The Road. Here’s Some Reasons Why.

Go ahead, kick it again, you know you wanna.

     Congress will be back from summer camp in a couple of weeks for more warfare over budgets and deficits.  All parties are thinking big, thinking long-term – as in ten year plans long-term. . . But the Clinton and Bush eras show that when it comes to budget and deficit projections, and the plans and proposals that come from them, usually it’s much more sensible to just “kick the can down the road,” a few yards at a time rather than a few miles. 

    Unpredictability, that’s predictable. We all project forward based on the past and the status of the present. Individuals, families, and – especially – governments. We all make big commitments to the next few years, or longer. We must, regardless of the sense of it. If we accepted that predictions are almost always wrong, our plans often futile, we’d have to admit we’re buffeted around by a world that is unresponsive to earnest, well-meaning plans. Some do admit this. Most people and all governments, though, push that kind of thinking where it belongs, away. Emotionally, humans need to plan, and for years ahead. We feel safe. In control. So, regardless of the sense of it, we project. We plan. Maybe, in the renewed budget and deficit battle, we need to shorten our horizon.

Dude, I live in the unknown unknown.

Soon, when the rascals return to Congress for more of the same, we’ll be bombarded like Fort Sumter with plans about plans, guesses posing as certainties, plans to make plans, and committees about planning more committees. Good plans. Lousy plans. Depraved plans. Then there’s Obama’s plan, the GOP plan, the Tea Party plan, Pelosi’s plan, ad infinitum. All plans, they’ll continue to say, are based on addressing a rapidly growing deficit. Democrats and Obama will try, but addressing immediate needs for jobs programs are most likely DOA. But plan for ten years out? That they and most everyone else will do despite the proven futility of it. And what, in the end, will the plan that emerges be worth in practical terms? For some guidance, let’s have a look at the Clinton era budget surplus, a 1998 CBO 10-year budget projection, and the unpredicted activities of a  president from Texas.

It’s hard to square it today, but remember how, ten years ago, many were worried about the problems that might come from our rapidly growing surplus.  You’re LOL-ing, aren’t you? I laughed too. But it’s true. Clinton left us with a budget surplus.

And some economists were as worried about that as much as they worried about the previous deficit. Here’s a good example. Bloomberg Businessweek, February 2001. The dawn of the Bush II era. The article carried the giddy title, The Surplus? Make It a National Savings Account.  

. . . with the private saving rate at record lows, it should be good news that the government is projected to run large budget surpluses over the next decade. Why, then, is Federal Reserve Chairman Alan Greenspan, an outstanding student of economics, concerned about ”looming surpluses” and calling for ”surplus-lowering policy initiatives?”

See? People – Alan Greenspan –were worried about surpluses! Who knew? Among other esoteric thngs, Greenspan’s worried that the federal government would spend the coming surpluses on “private assets,” and thereby be subject to untoward and market disruptive political pressure. Good point. How’d Greenie’s concerns play out? That’s a rhetorical question; we’re now living through that result, that comeuppance to all well-meaning long-range predictors and planners. Boy howdie, are we! Here’s how a Connecticut bumpkin from Texas resided over it with near unanimity of members of his own party, and some support from the other side of the aisle.

“Relatively.” Gotcha Alan. As we all know, and experienced first hand, the arrival of Dubya in January 2001 very quickly provided the necessary “range of error” Greenspan spoke of. Quickly, he knocked off any rosy future of any kind. With his infamous – to many – tax cut he quickly put us back into deficit, and beyond, urging us to boldly go where no American deficit has gone since the Civil War or FDR. So now, ten years later, it’s deficits, deficits, deficits. How’s that for a ten year plan?

In 1998, the government had a $70 billion budget surplus. Head scratching all around. This is the trend, many said. This trend is our friend. The CBO, in its The Economic and Budget Outlook: Fiscal Years 1999-2008, projected continuing surpluses from 1998 to 2008. Surreal, huh? Today, with what seems clinically insane optimism, CBO estimated that from January 1999, the government will have a budget surplus for each fiscal year from 1999 through 2009!  Even Candide’s mentor, “the best of all worlds” Pangloss would be dumbfounded.
The Congressional Research Service, Congress’s very own “think tank” housed in the Library of Congress, produced a report on March 1, 1999, Surpluses and Federal Debt. In it, government finance analyst Philip Winters gathered data from the CBO report. Here’s the deficit busting chart he produced, and to which I’ve added a few elements:

If it had happened like that perhaps we’d have no Tea Party today, no Cantor, no Bachmann, no Ron Paul, no Rick Perry, no John Boehner (well, no, Boehner would have found a way). But it didn’t happen “according to Hoyle,” and it couldn’t. The only predictable about a ten year projection is its massive instability. A projection is based upon actual economic and political data that is static, it’s already behind us. The variables attached to events both big and small abound – nearing the infinite. If we could identify and list the thousands of variables that would more accurately predict a short-term result we would not be able to compute them, so many possibilities would emerge. Computational capacities are still relatively weak in cases with even a dozen variables, much less thousands. “Certain” and “projection” don’t play well together at recess. Over ten years?

Click image for a side- by-side view

         Click to see what really happened..

To me, the 1998 CBO lesson is that whatever long-term plan comes out of the Fall 2011 budget and deficit battle will almost certainly be short-lived, overtaken by events unimagined and utterly beyond our ability to prevent. Old Rummy’s “unknown unknowns.”

Moreover, it’ll be obvious well before November 2012. Do you think the electoral politics from here forward makes agreement on anything substantial, like federal job creation, more or less likely? I tend to think “less likely” simply because the GOP hammer, the Tea Party, sees every problem as a nail. Unless their own constituents change their minds, and pressure them – there are some signs of this – there will be little backing off, although Prime Minister Eric Cantor’s letter to his co-conspirator may signal some electoral reality is pushing itself in. Perhaps during the PM’s summer break some corporate execs or top drawer constituents gave him revised marching orders. Let’s hope so.

In any event, despite the chequered history of projections, that doesn’t mean we should abandon them. Economic and demographic projections and derived longer-term plans are critical for social security outlays, Medicare costs, etc. Moreover, planning centers one’s attention on priorities. In the CBO  case, though, projections and planning did not predict the economic cost of George W. Bush, 9/11, nor the housing bubble. These were true historical outliers, a gathering of events and trends that are equivalent to 100 year floods. Nobody can reasonably “blame” CBO in the slightest for this. Rather, it’s our overuse of, and overawe about, long-term planning that leads to wasted time, endless delay, sometimes brutal contention over issues expected to arise five, six, or ten years down the road. Worst of all, there’s the opportunity cost – time wasted in futile ten year planning – pushes out attention to immediate needs that government could rather quickly address.

So, Congress and President, go ahead, kick that can down the street where we now live, the one with all those out of work folks sitting on the stoops. Concentrate there, plan there, not on the street where we plan to live in ten years.That street will likely not even exist then.

Newt Gingrich consults his most trusted advisor.

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