Opinion: Bring on the deficit-battling robots!

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Have you ever noticed how little faith lawmakers have in their own ability to do the right thing, fiscally? Whenever the time comes to tighten belts, the first proposal always seems to be a change in the budget process, as opposed to changing its actual contents.

Witness President Obama’s call today, at a White House ‘fiscal responsibility summit,’ to restore the pay-as-you-go discipline that went out of favor during George W. Bush’s administration. A congressional budget rule, ‘pay-go’ required any increase in federal benefits or cut in taxes to be offset with an equivalent reduction in entitlements or increase in taxes. It also had a mechanism for imposing across-the-board cuts in discretionary spending if lawmakers failed to make the required offsets. Congress could waive the rule, but only by supermajority vote. According to a story today in the Wall Street Journal (no Web version of the piece, sorry), the administration not only wants to restore the pay-go process, it wants to add teeth to it by enacting the rule into federal law.

I was in Washington in the late ‘80s and early ‘90s, and I saw how much power the rule eventually gave deficit hawks. They were all worked up about $200 billion deficits back then -- how quaint that seems compared to today’s $1.3 trillion shortfall. But pay-go works best in the context of a fast-growing economy, and it doesn’t provide much help reining in entitlement programs whose existing formulas lead to runaway spending.

Some Republicans -- who opposed pay-go rules because they made it harder to cut taxes -- have ridiculed Democrats’ pay-go system as being riddled with loopholes. (Insert your own joke here about the twisted logic of criticizing someone for not enforcing rules you don’t like.) The House GOP has countered with its own process gimmick: a freeze on federal spending in the next fiscal year. Even if you accept the argument that the Democrats’ Keynesian stimulus efforts are ill-conceived, you can’t seriously believe that freezing federal spending in 2009-2010 will make much of a difference in the deficit. The recession is driving down tax revenues and increasing the cost of safety-net entitlements, Medicaid in particular.

The sad fact of the matter is that the White House and Congress have to get serious about bringing the role of government back into line with the amount of taxes collected. Forget across-the-board spending restraints and process rules; it’s time to set priorities, starting with the top spending categories. At least Obama acknowledged that rising health-care costs are the biggest fiscal problem over the long term, and he noted the threat to the long-term solvency of Social Security. Both issues have been too hot politically for Congress to tackle, despite widespread agreement that some kind of action is necessary. The Social Security problem, however, may not be that hard to fix in the actuarial sense -- for example, see this 2006 proposal from former Social Security Commissioner Robert M. Ball. Then again, one of his ideas was to ‘improve the return on Social Security funds by investing part of them in equities,’ and we’ve seen how well that’s worked out for 401(k) plans.