The Budget Act Was a Lot Hipper in ’74 Than It Is Today

Posted March 31, 2008 at 4:37pm

What do the following have in common: the already-enacted economic stimulus, a second economic stimulus, a homeowner bailout, the Bear Stearns rescue by the Federal Reserve, and the soon-to-be-considered emergency supplemental appropriation for activities in Iraq and Afghanistan?

[IMGCAP(1)]Even though they will or could cause higher federal spending or decreased revenues, they all will be considered largely outside the federal budget process.

This tells you all you really need to know about the current state of the budget debate: It’s more than showing its age and desperately needs to be revised. The Congressional Budget Act, the law that created the basics of what Congress and the White House currently do when they debate the budget, was adopted almost three and a half decades ago, when the U.S. economy, financial markets, American politics, the speed with which information is sent and received, and the budget itself were very different than they are today.

Back then, the federal budget was the economic plan for the coming year, and changes were supposed to be both unusual and difficult to adopt. The economy didn’t seem to move as quickly or, because you typically had to wait until you received your newspaper the next morning to find out what had happened in the economy (the evening news produced by the three broadcast television networks didn’t usually cover the U.S. markets because they weren’t considered a general interest story), you didn’t react quickly to what was happening.

That made the nine-month budget process put in place by the budget act both understandable and acceptable. Except during a crisis, the budget adopted each year was what was supposed to be implemented.

As this year’s virtually instant economic challenges and the way Congress and the Bush administration have reacted to them show, few of the factors that existed when the deliberative, duplicative and multilayered budget debate created when Richard Nixon and Gerald Ford were president continue to exist.

For example, more individuals own stock in publicly held companies and invest in other ways than ever before, so what the markets do each day is of interest to a much larger number of people. Interest rate changes are immediately reported and watched closely not just by a handful of professional investors but also by the voters — the people to whom elected officials pay the most attention. Unlike the 1970s, events overseas have an immediate impact on U.S. financial markets, which respond quickly because of computer technologies that didn’t exist before. And all of this is reported in multiple ways as it occurs.

The federal budget also is much different than it was when the budget act was signed into law. Not only is it more than 11 times larger, it is far less “controllable,” that is, much more of what is spent each year is determined by laws and decisions made in previous years. This includes interest on the federal debt, contracts now coming due and entitlement programs. In fact, about two-thirds of federal spending today is the result of decisions made in previous years, approximately double what it was when the budget act was adopted.

All of this makes the federal budget process and the debate that results from that process into relics rather than a viable way to make economic policy in the current environment. Because of that, it’s not surprising that the budget debate is of so little interest to the media: The real economic policy action and news happens elsewhere.

Most federal budget process changes have been enacted only after a consensus developed about what needed to be done. For example, the Congressional Budget Act was adopted only after there was a general agreement that Congress needed to have a process and resources to review what the president proposed each year. That’s why, in addition to a timetable, the act created the Budget committees and the Congressional Budget Office.

Gramm-Rudman-Hollings was adopted when there was a consensus that the outcome-neutral budget act had to be changed so that it required the deficit to be eliminated. Five years later, the Budget Enforcement Act was adopted when there was a consensus that, while deficit reduction was still important, GRH wasn’t the way to do it.

That type of consensus hasn’t existed since. There have been lots of hearings (full disclosure: I’ve testified at a few), discussions and proposals. But the narrow majorities and extreme partisanship of the past decade or so have made it impossible to come up with something that could or should be adopted. If there are 10 people in a room on Capitol Hill, you likely get 10 different fervently expressed ideas. Preventing tax increases, cutting spending, protecting certain programs, eliminating the deficit, reducing the federal debt and a number of other positions are all insisted with equally unyielding passion.

But the way the White House and Congress these days worked to get around the existing budget rules to do what they want to do suggests that a consensus is now subtly developing about the changes that need to be made. In general, this seems to include a process that is far more nimble than what we have now, and one that can produce changes much more quickly.

Without something along these lines, we’ll continue to use a budget process and have a budget debate that were created when disco was king, a pocket calculator was the electronic gadget of choice and some people were still using eight-track tapes.

Stan Collender is managing director at Qorvis Communications and author of “The Guide to the Federal Budget.” His blog is Capital Gains and Games.