Sunday, February 10, 2013

What Magic Tricks do People Actually Use Smoke and Mirrors For?

by Robert H.

The Washington Post declares that much of 2011's austerity was "not real," simple budgeting tricks, mostly consisting of programs that were already scheduled to be cancelled anyway.  Tyler Cowen, who is fond of being pessimistic when it comes to balancing budgets, exults.

Sorry, deficit scolds, but you don't get to have it both ways on this.  If a department is only helping balance the budget on paper, not making "real" cuts, I can think of two ways to think about it:

1. It is real deficit reduction.  Spending less money is spending less money, it doesn't "not count" because the decision to do so was already in the pipeline.  Just so, congress letting programs die and not routing their funds to new programs is a significant political victory, and a blow to people who claim that bureaucracies never shrink and congress is never responsible for public choice reasons.
2. It is gimmicks, but that's good.  Much of the deficit was caused by smoke and mirrors and/or bad accounting, so we can get rid of it with smoke and mirrors and/or good accounting.   Turns out the deficit wasn't as bad as we thought, we just needed some better accounting practices.

Deficit scolds seem to want to reject one but not fully think through two.  If I can reduce our deficit with an accounting trick, it means that part of the deficit was the result of dumb accounting.  Whoever drew up the baseline didn't realize that that program was slated to be cancelled anyway, so I get to make a reduction vs the baseline just by letting a program that was going to die die.  And that is just as good of news as actually enacting austerity, because it has the same basic result: we are closer to balancing the budget.   Basically the lesson here is either "the deficit wasn't as bad as we thought, some of it was mostly the result of poor accounting and we've cleaned that up" or "hooray, congress was able to exercise real restraint and reduce the deficit!"  Neither result is "fake," it's either a political victory or accounting innovations getting us meaningfully closer to a balanced budget than we thought we were.

Now a deficit scold can respond with, "Maybe, but this is still low hanging fruit.  There won't be many more accounting innovations that will reveal the budget situation to be better than we thought, and/or there won't be many more ways congress can save money just by letting programs die."  And I agree!  But did anyone on earth think the first round of deficit reduction wouldn't go after low hanging fruit?

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