By J.D. ALT
What? You mean we haven’t always been doing that?
A recent op-ed in the Washington Post (“Dynamic Scoring” by Congressman John K. Delaney) alerts us to an astonishing fact: Not only does our political leadership insist that the federal government manage its budget in the same way as a household—i.e. not spending more than it “earns”—but further insists that the federal government behave like a household devoid of any rational capacity to evaluate the net future benefits of its budgetary decisions. In other words, if the U.S. federal “household” wanted to buy seeds for the federal “household” garden, it is required to deduct from its budgetary calculation the cost of the seeds, but it is NOT allowed to add to its budgetary calculation the value of the tomatoes and cucumbers that will grow from the seeds it intends to plant—nor is it allowed to assign a value to the nutritional benefits that the “household” members will obtain by eating the tomatoes and cucumbers (or the health-care costs incurred if the veggies are not consumed.) This is called “static scoring”, and it is what the Congressional Budget Office, Delaney tells us, is required to do each time Congress proposes to spend money on any particular item or program.
The net result of static scoring in a budgeting process, of course, is that the “household” has a lot less calculable money to spend—and a much harder time justifying the spending of it—because the concept of “investment” and “return on investment” are not operable factors. It may well be, in fact, that the static “score” assigned by the Congressional Budget Office will indicate that the federal “household” cannot afford to buy any seeds at all. Just have to tighten our belts and do without. Unless, of course, we want to take money away from something else we’ve already agreed to spend it on. Then we can spend it. If we want to fix failing bridges, we have to NOT provide school lunches in poor urban neighborhoods. In other words, our Congressional leadership is operating with the approximate intellectual acuity and managerial insight of a five year old child on a weekly allowance.
If recent news is any indication, we shall soon see static scoring played out and dramatized in earnest when president Obama makes public his proposal that two years of community college be available free to every American high-school graduate. The cost of such a federal program will be duly calculated and trumpeted on every news broadcast, plastered on every headline, and our Congressional leaders will compete to see who can appear most “fiscally responsible” in declaring that the federal “household” cannot possibly afford such an expenditure. There will be very little, if any, rigorous and formal congressional calculations or discussion about what the return on such an investment would likely be and, as a result, that part of what ought to be a rational budgetary calculation will never even materialize.
All of this, of course, is predicated on the belief that the U.S. federal government—the issuer of the U.S. Dollar—has to collect tax dollars in order to have dollars to spend which, in a round-about way, is at the heart of the complaint of congressman Delaney’s op-ed piece. He was alerting us to the fact that the newly empowered Republican congress has now adopted a revised budgetary rule called “dynamic scoring” which, in fact, requires the Congressional Budget Office to include, in its budgetary evaluations, the “net return” analysis we’ve just been discussing. But don’t jump to the conclusion that the congressional budget process has crawled out of its Neanderthal cave into the sunlight of rational decision-making because, as Delaney points out, the new congressional leaders have decided that “dynamic scoring” will not be applied to all federal spending programs, but only to certain programs—specifically, programs which cut taxes. The new “dynamic scoring”, they reason, will show that by reducing the federal taxes levied on large business interests, the amount of taxes ultimately collected by the federal government overall will increase—thereby helping us, thankfully, to balance our federal “household” budget.
We’re a long way from the day that U.S. citizens in general, and the congressional leaders they elect to represent them, openly acknowledge and understand the workings of a modern fiat money system—and choose to rationally manage that money system for their collective benefit. But in the meantime it may be a useful first step (as Congressman Delaney helpfully suggests) if it were required that ALL proposed federal spending programs (not just tax-cuts) be evaluated with “dynamic scoring”. I realize, of course, the “score” will depend on whose doing the analysis, and also on the rules governing that analysis—for example, how far into the future the returns on investment can be counted. Nevertheless, it seems to me significant benefits could flow from this policy. If nothing else, the ensuing analysis and debates would begin to demonstrate and establish one of the basic principles of modern money: that the purpose of sovereign spending is to pay people to do measurably useful things that result in returns with calculable value—like, for example, repairing dangerous bridges or instructing a society’s young adults in the art and technologies of the nation’s commerce. Also, taken to its logical conclusion, dynamic scoring could evolve into the very process that a democracy—enlightened with the understanding of modern fiat money—will need to have in order to make rational decisions about how and when to spend the virtually unlimited currency at its disposal.
If, for example, Apple had been charged a sensible royalty per unit for the government developed ideas that have been incorporated into Apple’s “i” products, and Apple payed a just amount of tax in the USA, the dynamic returns on the government funded research would be phenomenal.
Professor Marianna Mazzucato’s book, “The Entrepreneurial State” gives some excellent examples of how poor the actual return is that the USA citizen receives for the research its government funds (on the citizens’ behalf) in the technology and the pharmaceutical industries
I am not sure how a return can be calculated on general societal well being and happiness but the USA politicians have plenty of scope to improve those measures of society if they stopped trying to please business and instead worked on improving those aspects of American society. Too often politicians concentrate on taking those risks out of democracy that their Wall Street and other business friends fear.
I think Congresspersons would say that the return on investment analysis you describe is inherent in all spending all the time. That they don’t spend a dime unless they think it will generate a dime (or more) worth of benefit. Sometimes there might be a financial benefit, but most times it is intangible. It’s hard to quantify the benefit of a new aircraft carrier, but they don’t authorize one unless they deem it necessary to maintain our defense posture, and, ultimately, our freedom. There is, of course, much debate along these lines, and few unanimous opinions.
Static analysis includes all that, and under the “pay for it” mentality, a law to do A instead of B (at the same level of spending) implies an assertion that there is more national benefit to doing A than to doing B. And CBO assumes that our economic future is the same either way, because of static scoring.
CBO uses economic growth assumptions to estimate future tax receipts. What static analysis doesn’t include is the effect of fiscal policy on future growth, and tax receipts. Any proposal to increase spending today, or cut tax rates today, should result in an upward adjustment of the assumed growth rate. Static analysis fails to do that. CBO tax receipts projections following large tax rate cuts in the 1980’s and early 2000’s were woefully off the mark because of that. Proponents of the tax cuts who estimated higher future growth – dynamic scoring – made estimates that were closer to what actually happened.