The Perils of Automatic Budgeting
In the fall of 1978, the United States Congress finally solved the federal government's budget problems. While the Senate debated a bill making some technical revisions to the Bretton Woods Agreement, Virginia senator Harry Byrd, Jr., offered an amendment that read, in its entirety: "Beginning with fiscal year 1981, the total budget outlays of the Federal Government shall not exceed its receipts." The amendment passed, and the bill was eventually signed into law.
The next year, in a bill increasing the debt ceiling, the overwhelmingly Democratic Congress again enacted essentially the same requirement for balanced budgets beginning in 1981. It did so again in 1980, and then in 1982 struck the reference to fiscal year 1981 but reiterated its "commitment" to balanced budgets. To this day, Title 31, Section 1103, of the United States Code reads: "Congress reaffirms its commitment that budget outlays of the United States Government for a fiscal year may be not more than the receipts of the Government for that year."
Of course, in all but four of the 30 years since, the federal government has indeed spent more than it has taken in — running an average annual deficit of more than $340 billion (adjusted for inflation) and well over a trillion dollars in more recent years. The debt held by the public has grown by more than $10 trillion in that time. Not surprisingly, promising to be fiscally responsible in the future has done nothing to mitigate the government's fiscal recklessness in the present.
And yet precisely that practice remains the essence of our fiscal policy today, as Congress and the president struggle to get the federal deficit under control. Now as then, their prayer is: Lord, make our budget sustainable — but not yet.
Our lawmakers contend that today's budget mechanisms are more effective than Senator Byrd's commitment to balanced budgets because they impose specific (if broad) spending cuts that will occur automatically unless Congress undoes them. There has been little recognition of the irony involved in continuing to make this argument even as lawmakers spent the past several months trying to avoid and then mitigate the consequences of a previously enacted mechanism of exactly the same sort: the sequester adopted as part of the 2011 debt-ceiling fight.
The automatic budget mechanism has long held Washington under its spell. But again and again it has disappointed, and for precisely the same reason that Byrd's balanced-budget language was meaningless: As a people no less sovereign than we, future voters (and, more to the point, their representatives) may not feel obligated to respect decisions made in years gone by.
At first glance, this inability to bind the future — which political scientists call the "commitment problem" — would seem to preclude the very possibility of responsible representative government, at least on matters that require sustained discipline (such as the management of the public debt). If representatives today can always put off hard choices until tomorrow — and especially if their voting constituents want them to — it is hard to see how any sacrifices will ever be made. And yet we know that responsible choices are possible, because our predecessors often made them. Balanced budgets in peacetime were the norm for most of our country's history until after the Second World War. Even in the aftermath of the New Deal and Great Society expansions, the polity has managed a few impressive moments of self-control — reining in runaway spending and reducing the growth of entitlement costs.
So why do most of our attempts to achieve such results through automatic budget mechanisms fail? And what has enabled those occasional fiscal successes? To answer these questions, we must first examine the automatic budget mechanisms employed over the past few decades, seeking to distinguish effective recipes for long-term balance from willful acts of self-delusion.
AUTOMATIC FOR THE PEOPLE
While scholars may be able to design rules that would help discipline out-of-control budget growth, it is Congress that must ultimately pass legislation. In making the compromises needed to secure passage, lawmakers are likely to settle on incoherent or politically unsustainable devices — procedures that sound good to the average voter but are not necessarily well suited to the realities of budgeting. And even if the mechanisms actually enacted could succeed, preventing a future Congress from undoing them is no simple matter. Voters naturally want to put off any pain, so the promise of delay is always powerful. In the absence of genuine public outrage over undoing a past budget commitment, Congress would have to rely on some external "enforcer" capable of compelling adherence to past rules — and there are few institutions with such power in our constitutional system.
Congress attempted to create an external budget enforcer in what may have been its most ambitious budget mechanism of the past 30 years: the Gramm-Rudman-Hollings Act of 1985. Enacted as part of a debt-ceiling increase, the law mandated steadily declining deficits until the budget reached balance in fiscal year 1991. In the event the targets for each year were not achieved, Congress delegated to the comptroller general (the head of the General Accounting Office, which reports to Congress) the ability to sequester spending until the deficit was brought down to the level permitted by the statute.
In 1986, the Supreme Court struck down this arrangement as a violation of the separation of powers, since the comptroller, a legislative-branch official, had been assigned the essentially executive function of enforcing the law. Congress, however, was undeterred, and changed the language of the law in 1987 to give the sequestration power to the director of the Office of Management and Budget, safely in the executive branch. For a time, this mechanism seemed to work: As the deficit targets became increasingly demanding in the late 1980s, it appeared that an enforcer had finally been equipped with a powerful tool to impose budget discipline.
In reality, however, Gramm-Rudman-Hollings brought about little more than a boom in accounting shenanigans resulting from the law's design defects. For example, a $10 billion "margin of error" allowance built into the law was effectively used to revise target deficits upward by $10 billion each year. Meanwhile, other budget gimmicks, such as sales of government loans, were used to generate "savings" to manipulate the targets.
More significant was the fact that several of the largest federal programs — including Medicaid and Aid to Families with Dependent Children — were exempted from sequestration, a concession that was the price of passage in the Democratic House. This meant that sequesters had an even more severe effect on the remaining programs, and especially on defense spending. Moreover, while sequestration (which consists of a simple across-the-board reduction in a spending category) sounds easy to implement, it in fact creates an administrative nightmare for agencies, especially those bound by legal relationships with contractors.
Although Gramm-Rudman-Hollings likely did bring about modest reductions in deficit spending at first, over time, the law was increasingly twisted and manipulated to enable greater spending. Various exceptions were legislated into annual spending bills; federal agencies became increasingly adept at fudging their ledgers in ways that avoided budget cuts. And when the demands imposed by the law's framework became too great to be manipulated, Congress simply did away with Gramm-Rudman-Hollings in 1990. As University of Rochester political scientist David Primo points out, this is the general pattern with automatic cutting mechanisms: When the choice is between obedience to the rule and staying safely within the realm of the politically comfortable, the rule is not long for this world.
Intuitively, it would seem like this problem could be solved through incremental budget trimming: Though large, sudden cuts mobilize political opposition, small and gradual ones may be more palatable. But while striving for modesty in budget rules is a sound practice (as we shall see), incrementalism is no guarantee of success. If a particular group bears most of the burden of cuts over time, its members will become highly motivated advocates for "fixing" the reform. They will, in their rhetoric, seek to turn the automatic cuts themselves into a "problem" that needs to be "solved" through bipartisan cooperation.
The classic example of this phenomenon is the Medicare Sustainable Growth Rate, a cost-capping device adopted by Congress as a way of controlling Medicare costs and reaching the desired spending targets in the Balanced Budget Act of 1997. Although the mechanics of the Sustainable Growth Rate calculation are somewhat complex, the basic idea is simple: The growth of Medicare costs per enrollee should not exceed the growth of the nation's per-capita gross domestic product each year, lest health spending consume an ever larger portion of our national resources. Under the law, should Medicare spending exceed GDP growth, the rates at which Medicare pays physicians and other providers of health care must be reduced the following year to compensate for the difference.
But what was thought to be a modest tweak to Medicare's funding formula has, over time, become just one more of the program's fiscal woes. The people subject to the annual spending reduction — especially physicians, a sympathetic and politically potent group — have a powerful incentive to petition Congress for relief each year; the original coalition behind the particular formula enacted in 1997, meanwhile, cannot be reconstituted. And rather than embrace this form of automatic budget discipline as a politically safe way of cutting expenditures, both parties have instead shown great consistency in denouncing the potential cuts to physician payments as grave threats to Medicare. As a result, the so-called "doc fix," in which the Sustainable Growth Rate requirements are waived for a time, has become a staple of our budget process. Thus, rather than providing a solution to our budget problem, the Sustainable Growth Rate rule has become one "problem" that Democrats and Republicans can unite to "fix."
To make matters worse, putting the Sustainable Growth Rate requirement off for one year means that reinstating it the following year would require a more severe reduction in payments to bring Medicare spending back into line with GDP growth. Since the cuts have been put off almost every year since the requirement was enacted, if the Sustainable Growth Rate formula were applied today, it would require an almost 25% reduction in physician fees all at once. To institute these cuts would be politically disastrous, which of course makes the annual "doc fix" even more likely, and the original formula even more meaningless.
If mandating blanket cuts — be they sudden or gradual — is an unworkable budget mechanism, what about procedural requirements that compel Congress or the president to propose new plans for budget savings in the event of overspending? The vagueness of this approach means that, in adopting it, lawmakers do not commit themselves to politically impossible remedies; in this sense, the "come up with a plan in the future" requirement should be more workable than painful automatic cuts. But this same vagueness also makes such mechanisms highly unlikely to have any meaningful effect.
Here, too, the best example comes from Medicare, in this case from the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (known primarily for creating Medicare Part D, the program's prescription-drug benefit). In yet another attempt to restrain the growth of Medicare spending, the law included a device known as the "Medicare Trigger." The trigger requires Medicare's trustees to assess whether Medicare's spending is growing so quickly that it can no longer be adequately funded with Medicare's dedicated payroll tax and must therefore draw heavily on general-fund revenues. (Such a shift in the program's funding sources would mean Medicare was growing more quickly than wages, and therefore more quickly than the economy.) If the trustees observe such rapid growth for two consecutive years, they are required to issue a formal warning to Congress and the president, who in turn are required to propose cost-control legislation within a few months.
Formal warnings under this provision began in 2006 and have followed every year since. The program's projected fiscal course gives no reason to expect that they will ever cease. But far from generating specific legislation to curb costs, the legal trigger has failed even to generate the required proposals. The Bush administration offered only one, in 2008, and the Obama administration has taken the position (previously staked out in a Bush-administration signing statement) that the president cannot be constitutionally required to submit legislation. When it comes to obeying its own rule, Congress has been little better: The 110th Congress waived the requirement that cost-cutting legislation be given fast-track consideration; the 111th Congress suspended the trigger entirely; and, in spite of the apparent opportunity for politically advantageous posturing, the 112th Congress did not even bother to waive the requirement, and instead simply failed to offer a plan. With no penalties for non-compliance specified, the law is now routinely ignored.
Many of the cost-control devices built into Obamacare have a similar feel, and they are likely to meet a similar fate. The Independent Payment Advisory Board, hailed by its defenders as the secret weapon in the battle against Medicare overspending and denounced by its opponents as a "death panel," is a prime example. For all the talk about IPAB's unprecedented power, the design limitations that were imposed on the board in the effort to get Obamacare passed are profound. It is true that the board's recommendations are to be given fast-track consideration in Congress, and if Congress does not replace those recommendations with equivalent cost savings, IPAB's proposals can be implemented by the secretary of Health and Human Services. But these procedures will kick in only if health-care spending growth exceeds a specified cap that is set quite high (at the average of the overall inflation rate and its health-inflation component) through 2018. Moreover, the substance of the recommendations IPAB may offer is tightly circumscribed by the statute: Many different types of health-care providers are wholly exempted from cost cuts, and the board is explicitly prohibited from rationing, raising revenues, raising premiums, imposing greater cost-sharing, or otherwise restricting benefits or eligibility. What the board actually can do is still a matter of speculation, but CBO's scoring of the cost savings that IPAB is supposed to produce speaks volumes: It predicts that the board will provide zero savings through 2022.
The failures of automatic budgeting gimmicks are not confined to health-care spending (or to spending cuts more generally); the revenue side can be problematic, too. Indeed, a nearly identical story can be told about the Alternative Minimum Tax. Designed in 1982 as a way to make sure that high earners could not use various deductions to bring their tax liabilities all the way down to zero, the AMT has gradually encompassed an ever growing number of taxpayers, because the minimum amount of income subject to the tax was not indexed for inflation. As a result, although it wasn't intended to serve as a budget-balancing mechanism, the AMT offered a path toward higher revenues by means of simple legislative inaction. Yet just as with Medicare's Sustainable Growth Rate, this automatic revenue increase came to be seen not as a path to smaller deficits but as a problem to be solved. With great regularity, congressional budgets have included "patches" that set higher income thresholds for AMT applicability, limiting the number of taxpayers forced to pay the levy.
As a part of this January's "fiscal cliff" compromise, the AMT was permanently "patched" — meaning that the income level at which it kicks in is now indexed to inflation. There were legitimate reasons for thinking that allowing the AMT to expand would be bad policy, and millions of households that value their deductions were unlikely to comply meekly. Still, in an era of severe political polarization, the bipartisanship that the effort to avert the expansion of the AMT has inspired is noteworthy. It shows that, even amid cries from both parties about a looming fiscal crisis, embracing an unpopular policy (like allowing the AMT to expand) is worse politically than letting our debt continue to grow out of control.
A final failed budget mechanism that has played an especially prominent role in a recent string of conflicts is the discretionary-spending cap. In the debt-ceiling showdown of 2011, Congress and the president reached an agreement that consisted of two components. One was the implementation of discretionary-spending caps over the 2012-2021 budget window. The second was a larger set of cuts to be determined by the so-called "supercommittee," or, in the event of the committee's failure to reach a compromise, the imposition of even lower discretionary-spending caps (through a sequester much like the one created in Gramm-Rudmann-Hollings). Since the supercommittee did fail, the caps automatically put into place now require discretionary spending in 2021 to be approximately 15% lower than it would have been if the current spending trajectory had been maintained (adjusted for inflation).
It is already clear that sustaining these caps will be extremely difficult. The larger of the spending reductions — the sequestration required in the absence of a supercommittee plan — was pushed back for two months in the fiscal-cliff deal in early 2013. Though it took effect in March, it is clear that both parties would like to ease its effects in the course of the budget process. And even supposing that discretionary spending is effectively lowered in 2013 or 2014, the headline savings numbers assume that the 115th, 116th, and even 117th Congresses will all be inclined to follow the dictates of the 112th. They will be in no way legally bound to do so, however, and we can be fairly sure that remaining faithful to the 2011 deal will seem far less important in 2019 or 2021 than it does even today.
The best that can be said for this non-binding future commitment is that it causes the baseline spending assumptions of the Congressional Budget Office to be lower. This means that appropriating at current levels will be scored as a spending increase in the future, which might open those future appropriators to criticism. While this might constructively change the politics of federal budgeting a little, we can hardly imagine that it will ultimately shape future decisions — especially given all the evidence of past automatic-budgeting failures. The lessons of these past budget commitment mechanisms suggest that the more impressively substantial cuts seem when enacted, the greater the political resistance they will engender when they actually kick in, reducing their chance of actually delivering promised savings.
All of the preceding examples of failed commitment mechanisms and automatic budget adjustments share a common feature: They are mere laws, susceptible to repeal through the same kind of normal political procedures by which they were created. Many would-be reformers have thus concluded that the only way to force Congress's hand is through a constitutional balanced-budget amendment. If our governing institutions prove perennially unable to produce responsible budgets, the thinking goes, we must change the fundamental parameters of those institutions.
There is much to recommend the constitutional option for reform, and the idea has a long and distinguished pedigree among conservative intellectuals. The late Nobel laureate James Buchanan, in particular, ceaselessly advocated a balanced-budget amendment. Throughout his long career, Buchanan insisted that, as they function now, our governing institutions inexorably push rational legislators to embrace deficits — since lawmakers can spend today without taxing today, thanks to the federal government's easy access to credit. This, in turn, creates a budgeting trap that would be difficult to escape even if we were suddenly blessed with a crop of unusually responsible public servants.
As constitutional-reform ideas go, a balanced-budget amendment is not all that far-fetched. The Senate passed one in 1982 by the required two-thirds margin; in 1995, the House did the same, and the Senate fell just one vote short of sending the amendment to the states. (At the time, it appeared that the Republicans advocating the amendment could have gotten significant additional Democratic support if they had been willing to exclude money earmarked for the Social Security trust fund from the federal budget ledger, but they refused.) There was a renewed efflorescence of support for an amendment in 2011, including from some Democrats, such as Colorado senator Mark Udall. The idea also polls exceptionally well: In 2011, it received the support of nearly three out of four respondents in a CNN/ORC poll. While it is unlikely that 38 states would have supported the specific amendments that have emerged from Congress in recent years, the fact that those proposals got as far as they did means that the idea of a constitutional balanced-budget requirement cannot be dismissed as politically impossible.
The real question is whether a balanced-budget amendment would work, and on this score there is not much reason for optimism. First, it is necessary to look at what kind of amendment would be capable of garnering the support of 38 states. Such an amendment would almost certainly be the messy outcome of extensive bipartisan political compromise, which would inevitably introduce the sorts of design flaws that make many laws (and especially budgeting laws) weak and structurally unstable. For example, including a carve-out for Social Security or Medicare could potentially defeat the whole purpose of the amendment, since old-age entitlements are the chief drivers of our runaway deficits and debt.
Then there are the objections about the practical difficulties of reaching budget balance every single year regardless of recessions, economic emergencies, wars, and other catastrophes. To work around this concern, some amendment proposals would surely mandate budget balance over the course of a business cycle (so that deficits required by economic downturns would be balanced by surpluses when high growth resumed). This is undoubtedly a sensible adjustment, but it opens the door to a vicious politicization of economic-data collection and interpretation (since a great deal would depend on the definition of a recession). Exceptions for wartime or disaster spending would similarly create intense pressure around any decision to declare a war or a disaster.
And even if a sensible 28th Amendment requiring budget balance were adopted, how would it be enforced? The most obvious option, enforcement by the judiciary, does not seem particularly appealing. As George Washington University law professor Alan Morrison told Congress in a November 2011 hearing on a balanced-budget amendment, the ensuing litigation would be a horrendous mess: Judges lack competency in evaluating budget projections, and our adversarial judicial system is poorly suited to the technically complex domain of budgeting. The timing of cases, too, would be problematic. Would a budget bill that overspent be cause for legal action at the moment of passage, or would claimants have to wait until the end of the fiscal year to see how the books balanced? And just what would the remedy be? Would the court order sequesters? If it did, would the cuts apply to all federal agencies or only to those that failed to stay within their projected spending? Creative legal thinkers might come up with answers to these questions, but it is doubtful those answers would improve our approach to budgeting.
Most important, there is little reason to think that constitutionally mandating budget balance would, in and of itself, fundamentally change the ends that legislators pursue. Rather, as Judge Frank Easterbrook of the Seventh Circuit Court of Appeals has argued, the most obvious consequence of the amendment would be to move the exercise of government power outside of the formal budget process. Most of this shift would probably take the form of increased regulations, moving costs onto private parties and thereby circumventing the congressional appropriation process. For example, rather than subsidizing public housing, the government could impose rent-control laws on owners of rental properties. This would effectively transfer the full cost burden of providing housing to the poor to the property owners. Though economically inefficient, this solution would allow the program to be scored as "zero cost" in public budgets.
Of course, these costs to institutions and citizens are no less problematic just because they are foisted directly onto private parties; the size of government is not necessarily best measured by dollars spent or borrowed. A 21st-century America with a balanced-budget requirement might well resemble a crazy quilt of individual mandates like those in Obamacare — hardly the embodiment of James Buchanan's vision of balance.
CAN ANYTHING WORK?
While these facts may be dismaying, it would be wrong to conclude that all is hopeless when it comes to fiscal reform. Nor is it the case that every long-term policy change is doomed to later reversal by a fickle legislature. Rightly crafted, budget rules can endure and even achieve significant results. The key is proper design.
Two important examples illustrate some of the necessary components of successful long-term budgeting. The first example is Congress's imposition of Pay-As-You-Go (PAYGO) budgeting in the 1990s. Adopted in the bipartisan Budget Enforcement Act of 1990 — which scrapped Gramm-Rudman-Hollings but also included significant spending cuts and tax increases — PAYGO established a sort of fiscal Hippocratic Oath: New enactments should do no budgetary harm. New tax cuts or spending had to be balanced by cuts to existing spending commitments or by revenue increases — and in the same appropriating legislation, not years later.
As with Gramm-Rudman-Hollings, a violation of PAYGO rules would lead to a sequester, but also as with Gramm-Rudman-Hollings, Congress could always suspend that penalty. In practice, the efficacy of PAYGO depended almost entirely on congressional self-enforcement — but it seems the rule was effective in part because it required a fiscal counterbalance to every new appropriation in real time.
PAYGO also worked because its requirements were based on a responsible and stable fiscal baseline. The law projected plausible spending increases across the decade following the 1990 deal and actually underestimated economic growth, which made it possible to adhere to the rule without unbearable political pain. And PAYGO worked because it resulted from a comprehensive budget agreement between the two parties; crucially, it was not a substitute for such an agreement. This bipartisan support allowed the rule to endure for some time, facilitating significant fiscal improvement that culminated in the unexpected budget surpluses of the late '90s.
But PAYGO was no more a magic bullet than any of the rules discussed above, and could not outlive the era in which honoring it was politically viable. Once surpluses made holding the line on spending seem unnecessary, the rule was increasingly gamed. Then, in early 2001, when the economy slipped into recession, stimulating growth became more important to both parties than maintaining a budget in surplus. In 2002, PAYGO was allowed to expire.
Still, PAYGO's relative success offers a few lessons, the most important of which is that budgeting rules must follow genuine agreement — they cannot stand in for agreement that does not otherwise exist. This is why a 2010 effort by the Democratic Congress to reinstitute PAYGO proved utterly ineffective. In the aftermath of massive federal outlays to deal with the financial crisis and a severe recession, lawmakers started from a spending baseline that nearly everyone believed was unsustainably high. The proposal thus lacked significant bipartisan support, and the new era of PAYGO has never had the moral or political authority of the old one. Without underlying political agreement, such rules are rendered mere "parchment barriers," to borrow James Madison's phrase.
The second example of a budget rule that achieved long-term success is the 1983 reform of Social Security. Faced with increasingly dire financial reports from the program's trustees, President Reagan created the National Commission on Social Security Reform at the end of 1981. The commission, chaired by economist Alan Greenspan, was deadlocked through 1982, but eventually became the vehicle for a compromise proposal worked out in secret by the Reagan administration, New York Democratic senator Daniel Patrick Moynihan, and Democratic House speaker Tip O'Neill. That proposal, submitted to Congress in January 1983 and enacted in April of that year, put into place a schedule for increasing Social Security tax rates and raising the full retirement age to 67. This latter change was (and still is) to be phased in extremely gradually, with the full retirement age finally reaching 67 only in 2027. The law allowed workers the option of taking "early" retirement at age 62, but calculated the size of their benefits based on the gradually rising full retirement age. (The age change is, in other words, a significant — if extremely slow-moving — benefit cut.)
One might have expected the 1983 reform to be eliminated by subsequent Congresses as the effects began to make a difference in the lives of voters. Those reforms might be rolled back still. But remarkably, in the three decades since the automatic Social Security cuts were scheduled, there have been very few attempts to undo them.
There are several reasons for this durability. First, the very gradual phase-in of both the tax hikes and the increased retirement age minimized immediate opposition. By the time the retirement age began rising in the 2000s, beneficiaries had had decades to plan for the consequences. Second, in achieving savings through raising the full retirement age, reformers offered a compelling and intuitive rationale: Life expectancy had increased considerably since Social Security's inception a half-century earlier, so it made sense to raise the retirement age as well.
Third, the fact that Social Security's finances are (at least on paper) handled separately through the program's trust funds has largely insulated it from the give-and-take of regular budgetary politics. As political scientist Eric Patashnik documented in his examination of government trust funds, the choice to conduct a program's financing through a trust fund has often been justified on the grounds of fiscal prudence. In these cases, programmatic budget responsibility is ensured by forcing the program to finance its own spending and thereby disciplining it with the (arguably artificial) threat of "bankruptcy." Why else would we think Social Security can "go bankrupt" but federal education spending cannot? As a result, politicians rarely seek Social Security tax cuts despite the regressive nature of the tax (the payroll-tax holiday of 2011-2012 was a noteworthy exception). Thus, although they are not simply mechanisms of spending restraint, trust funds may be one budget mechanism capable of effectively reshaping government finances for the better.
Together, the PAYGO reform of the 1990s and successes of the 1983 Social Security overhaul offer some helpful instruction for would-be fiscal reformers. They show that automatic budget mechanisms and rules that work are products of hard political compromises, not substitutes for them. Once the hard choices have been made, however, mechanisms can offer a useful way to carry out spending cuts, tax increases, and other policy adjustments in a predictable and stable way.
MAKING HARD CHOICES
That, of course, leads to the question that is always central to discussions of America's budget challenges: Just what political will is there to make hard choices, on either taxing or spending? Answering that question requires an understanding of how budget mechanisms relate to the basic dynamics of our fiscal politics.
There is a tendency in Washington to think of budget mechanisms as substantive alternatives to the irresponsible politics that has sent our deficits spiraling out of control. Because these mechanisms are often technical and complicated, they are taken to be among the most "wonky" and serious elements of a debate that too often consists of cynical slogans and willful denial. But automatic or long-term budget mechanisms do not offer a way around our broken budget politics. These mechanisms, too, represent a sort of pandering — in this case to elite opinion shapers. When politicians are unwilling to spend their political capital on difficult budgetary decisions and instead decide to invest in "visionary" budget mechanisms that promise long-term sustainability, they should not be lauded for exercising bold leadership. Usually, they are engaging in an elaborate form of misdirection, appealing to elites who want to be assured that "something is being done."
Politics is ever the art of the possible, and to the extent that including such mechanisms in budget deals enables otherwise impossible bargains, the trick has its virtues. But if our political leaders have too much faith in the idea that these devices are actually durable solutions, they may be less inclined to fight our fiscal-policy wars at the level of basic principles and tangible compromises.
Fiscal conservatives in particular should avoid this trap, as there are increasingly important intellectual and political battles for them to fight. The fact is that our fiscal dilemmas are worse than they seem, and fiscal conservatives have some educating to do. A growing segment of the commentariat believes that today's low interest rates mean that balanced budgets are simply not worthwhile or necessary, since we can always easily fund our debt. Nearly three decades of low inflation has led many younger policy intellectuals, who did not experience the hyperinflation of the 1970s, to believe that our economy is hindered only by the obstinacy of sound-money, small-government types.
And though Americans retain a commonsense affinity for balanced budgets and low inflation, this should not lead to complacency. As James Savage observed a quarter-century ago, the balanced-budget norm in American politics developed and solidified over nearly two centuries, only to be largely displaced in the course of just a few decades by a presumption that full employment, rather than fiscal balance, should be the first priority in government budgeting.
The intellectual, rhetorical, and political groundwork needed to sustain the ideal of balanced budgets thus requires serious effort. Talking about rules or automatic mechanisms that promise to fix our problems once and for all is entertaining, but it amounts to only more rhetoric in a heated (but so far mostly unproductive) debate. Those who genuinely wish to see some semblance of fiscal balance in the coming decades should instead focus on forging the underlying bipartisan agreement needed to make any budget reform endure. Without this consensus, jumping straight to the question of rules and mechanisms is premature — and a harmful distraction.