This One's Too Hot, This One's Too Cold
I agree with my partners in crime--Congress and the President should be able to conduct responsible budget policies even without putting any of it on autopilot. But they don't conduct responsible budget policies, and, more importantly, we don't hold them accountable for this at election time, and so I think some type of automatic trigger could work.
Pete notes that the triggers are likely to come at the tough points in the business cycle, leading Congress and the President to undo them anyway. If I didn't believe that in December, I certainly believe it after a winter orgy of stimulus packages and bailouts. Stan points out that for entitlement programs, the time horizon is so long that any forecast isn't good for anything but grins. One is complaining about short term concerns, the other about long term concerns.
What would a happy medium look like? Here are some ideas:
The Social Security Trustees extend the projections (the actuaries get cranky when you call it a forecast) out to 75 years, but most of the projection is on autopilot after just a couple of decades, if that long. (Take a look at this table, for example.) We could apply the "sustainable solvency" definition much earlier in the projection period if we were building in a trigger.
We can also be creative on what event is a trigger and what gets triggered. The advent of oral contraception in the 1960s and the legalization of abortion in the 1970s should have triggered a frank discussion of permanently lower fertility rates that found its way into policy. It doesn't matter what your view on Social Security is--you have to acknowledge that lower fertility rates make the pay-as-you-go financing more difficult to sustain. It would have been nice to recognize at that time that as generations were investing less in their children, they should have been paying more for their own retirement or expecting less per capita.
We used to do this with the Advisory Councils. But the 1994-6 Advisory Council was the last one, and the Social Security Advisory Board is far less prominent as an ongoing entity.
I think what we need is some good old-fashioned Congressional hearings, triggered by projections of long-term budget imbalance, with the expectation--imposed by the voting public--that there will be legislation produced to resolve the projected imbalance.
Yes! Provide Cover For Fiscal Responsibility
Andrew, First, thanks for your posts on this extremely important topic, and thanks as well to your colleagues for the points they raise. You are quite right when you say, "Congress and the President should be able to conduct responsible budget policies even without putting any of it on autopilot. But they don't conduct responsible budget policies, and, more importantly, we don't hold them accountable for this at election time". I have long believed that we need to provide political cover for fiscal responsibility, because as things are, the politicians simply won't act responsibly if it means political suicide. I have advocated for a bi-partisan or non-partisan commission to develop alternative fiscally-responsible plans, with different sets of trade-offs, coupled with either political pressure or mandate that Congress choose from among the alternatives rather than continuing, in effect, to choose "none of the above" and continue on our fiscally irresponsible course. See here and here (as a note, the diary at the first link was posted in May, 2007, before Greenspan's prestige was tarnished by the recent mortgage/housing/financial crisis). As for the drawbacks argued by Pete and Stan (if I may use first names) of the think tank coalition's broad recommendations: Stan writes: "relying on a trigger mechanism to do the dirty work is really nothing more than an admission that elected officials won't do what's necessary if left on their own. In other words, this is like a base closure commission and process for entitlemnent programs?" Yes, exactly. The idea is to provide political cover for politicians to be responsible, since they have proven that otherwise they will not do so. It may be allowing them a cowardly route to responsibility, and it may not be ideal in terms of a political process, but we are obviously not living in an ideal world in which politicians do the right thing, and if some did, they would probably be voted out of office without such political cover -- like a perverse form of Darwinism: Survival of the least responsible). Stan writes: "Gramm-Rudman-Hollings had triggers such as the ones suggested by the think tanks. They never worked." True, at least for the most part (perhaps they played some role in the political calculus that had some marginal positive effect toward fiscal responsibility, ceteris paribus, but I agree it was marginal at best), but (1) they don't hurt (unless they displace some more effective alternative, which the current process certainly isn't), and (2) past failures don't necessarily mean future efforts under different frameworks and under different fiscal pressures will also fail. Pete adds that "our political leaders just won't accept automatic adjustments because heavy corrections would prove politically dangerous." It is indeed possible that the triggers will be overridden as in the past, but (1) a trigger system, properly structured, would require some substantial supermajority to override the triggers, making it less likely, and (2) such a system, combined with a political effort to educate the public and bring them on board with the need for fiscal responsible and abidance by the triggers, would raise the political cost of voting to override the triggers, changing the political calculus and making such an override less likely. In other words, the idea is to make it less "politically dangerous" to be fiscally responsible and more "politically dangerous" to be fiscally irresponsible, relative to those respective dangers under our current process. Pete writes: "Another problem with automatic corrections is that they just aren't nuanced enough to avoid unintended consequences. If Medicare spending is rising too quickly because doctors are performing too many tests and procedures, the optimal solution is not to cut benefits across the board or to raise copays. The optimal solution would be to correct medical practices." True, automatic corrections have less flexibility and that can lead to sub-optimal policies, at least in the short run. But first, again we must weigh that drawback against the long-term fiscal disaster that our current process is likely to produce. Second, to use your example, the prospect of benefit cuts or copay increases may very well provide the necessary impetus for structural changes such as doctors performing too many tests and procedures (forcing trade-offs tends to be more motivating than offering supposed free lunches), and such structural changes may then occur either in anticipation of (and preempting) such benefit cuts or may come in the aftermath of such benefit cuts as a remedy, perhaps as a means of reversing those benefit cuts, or to prevent further cuts. The point is that in the long-term, we are better off forcing trade-offs, and doing so sooner rather than later, rather than pretending our resources are and will always be infinite or even sufficient to meet expectations and needs. Pete rightly points out that triggers could lead to poorly timed fiscal changes relative to the business cycle. True, but even assuming, arguendo, that our political process produces a net beneficial temporary, cycle-managing fiscal policy (and that's a big "if"), whatever net benefit would be lost under a trigger system would be far outweighed by the long-term benefit of fiscal responsibility. In extreme circumstances, of course, political support for overriding the triggers could be so great as to achieve such an override, for better or for worse. Stan also righly points out the innacuracy of long-term budget projections. But are we not to plan and set policy based on our best guesses, and instead just disregard long-term considerations even though we do have enough actuarial and other data to determine that there is a strong likelihood that we will face an enormous crisis if we continue on our current course? That would certainly seem irresponsible. Yes, taking such projections into account will lead to policies that require sacrifices today some portion of which may turn out to be unnecessary, but it is indeed responsible to make such sacrifices based on the probability and scale of fiscal and economic disaster that is likely to occur if we do not. While I have not read up as much as I should on global climate change, perhaps it is a suitable analogy. Stan writes: "this is really nothing more than attempt to come up with a process for cutting entitlement spending. I completely understand the need to make these and all other programs in the federal budget fit within the revenues that will be collected, to make the revenues match the spending, or some combination of the two." I agree, and I see this as a weakness of the system being suggested by the think tanks: It is focused only on part of the budget rather than the entire budget -- all spending and all revenues. The system should address what really matters, our OVERALL fiscal imbalance, and the triggers should be based accordingly. Everything must be on the table: Entitlements, Defense, non-Defense discretionary, and all taxes.