Zero Sum Game - The Black Box of the Congressional Budget Process - Page 2 of 2

What would happen if you ran your household budget that way? It would mean that if you spent $1,000 on baseball tickets this year, you’d assume that the next year you’d spend maybe $1,100, regardless of your financial situation. And, if you decided to only spend $1,075 the next, you could pat yourself on the back for “cutting” your budget. Except we all know that in reality, you’re actually spending more than the previous year. That’s insane, right?

Perhaps worse than the impact of baseline budgeting is the period of 10 years that is the current vernacular of budget-speak. Ask any business person you know how far out he or she projects revenue and expenses. I asked two good friends of mine, one of whom had been the founder and CEO of a New York Stock Exchange listed company and other had been the President of a sizable regional bank (that was gobbled up by a larger institution that was inhaled by yet a larger institution that was swallowed by an even larger institution that bought an equally large institution and changed its name during the heyday of the bank consolidation craze and then collapsed during the great financial ‘Smores melt of 2008). The question was whether or not they found 10-year projections to be at all useful in running their businesses.

They both just laughed; so should you—unless it makes you cry. Even Mao didn’t have the cheek to plan his economy more than five years ahead.

Here’s something else that you probably don’t know, and neither did I until very recently: according to the Harvard Law School budget policy seminar, ten-year baseline projections are not intended to be precise. In fact, they can’t be… because baseline budgets are projections and actual budgets change every year. As is intuitively obvious, baseline budgeting itself assumes that everything is OK, and thus no major restructuring is required.

So what should we assume when we hear politicians from both sides of the aisle bloviating about historic cuts or necessary revenue increases? Everyone who talks about a cut is talking about a cut that might happen over the next 10 years, assuming we have no financially devastating terrorist attacks, mortgage crises or failing governments in Europe. And of course it’s not really a reduction in absolute terms. It’s only less than the growth in expenditures required by the baseline analysis. What I assume is that all of this rigmarole will have the effect—I hope not an intended effect—of making certain that most voters don’t really understand what the hell is going on in Washington when it comes to money.

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Obviously, the federal budget and the CBO budgeting procedures are complex subjects. No doubt, any brief discussion of them is inherently unfair. Nonetheless, I firmly believe that baseline budgeting and ten-year projections need to go the way of the eight track tape deck before we can understand, much less solve, the really pressing issues created by budget deficits and credit downgrades. It’s a complicated problem. The current federal budget is 2,403 pages long. I understand that we live in a big, complicated country, with lots of obligations, but that’s only slightly shorter than the latest Webster’s Unabridged Dictionary, which is 2,783 pages and contains almost every English word ever spoken. Thankfully, the budget is quite a bit shorter than the U.S. tax code, which is currently clocking in at about 70,000 pages.

Paddy Chayefsky said it best in his brilliant script for the movie “Network.” Like the ones most of us remember, these words too are spoken by Peter Finch playing Howard Beale, a once-respected network news anchor:

“I don’t have to tell you things are bad. Everybody knows things are bad. It’s a Depression. Everybody’s out of work or scared of losing their job. The dollar buys a nickel’s worth, banks are going bust…We know things are bad— worse than bad. They’re crazy. ”

That was written in 1974.

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