INSIGHTS: HOW TO MAKE THE BUDGET PROCESS GREAT AGAIN
By Guest Columnist Rachel Cole:
Policy and Government Affairs Associate, Citizens Against Goverment Waste.
Reprinted with permission.
With the beginning of a new administration, the best and brightest in leadership are often selected to advise the President. House Budget Committee Chairman Tom Price, M.D. (R-Ga.), who has been nominated as the secretary of Health and Human Services, fits that description. He will not only be an excellent secretary; he has been an exceptional chairman of the committee. In December, 2016, Chairman Price proposed a series of changes to the budget process. His reforms, which will help return the budget process to regular order, include:
- Biennial Budgeting: Biennial budgeting would create a two-year budget cycle, with the first year devoted to appropriations and the second year to oversight of these expenditures. The reform has the paradoxical support of both former Senate Majority Leader Harry Reid (D-Nev.) and former Senate Budget Committee Chairman Jeff Sessions (R-Ala.).
- Institutional Reforms: The “power of the purse” is designated exclusively to Congress. But the current process favors the desires of the president over the priorities of Congress. Budget resolutions by the House and Senate are reported by April 15, with the President’s policy-based budget typically offered the first Monday of February. As a result, congressional resolutions tend to respond to the President, not the other way around. The Price plan proposes that the President defer his or her budget until April 30, allowing the President’s priorities to be considered during the conference of the chambers. It also suggests that the fiscal year reflect the legislative schedule and begin on January 1, rather than October 1.
- Regulatory Budget: Regulations can have an impact of trillions of dollars on the economy, for better or, more often, for worse. The President’s budget would be required to include the short and long-term costs of current and proposed federal regulations. Further, a baseline of regulatory compliance costs on individuals and businesses would be submitted to Congress by the Office of Management and Budget.
- Uniform Budget Rules: Budget resolutions in each chamber can have mismatching rules. As a result, the scores for long term costs can differ in each chamber for the same legislation. The consideration of budget resolutions with differing rules should require a conference of the resolutions to resolve the differences. Uniform budget rules would make the agreed-upon budget resolution more enforceable.
- Unauthorized Programs: According to a January 15, 2016 Congressional Budget Office (CBO) report, $310 billion was spent on unauthorized programs in fiscal year (FY) 2016 alone; worse, more than half of these programs have expired authorizations of ten or more years. In the 114th Congress, Dr. Price proposed a reduction in the statutory spending limits for unauthorized programs that exceed a certain spending level; Rep. Cathy McMorris Rodgers (R-Wash.) offered legislation, the Unauthorized Spending Accountability Act, that would automatically sequester and “sunset” unauthorized programs. The failure to conduct sufficient oversight and authorization hearings has led to a lack of accountability and transparency in many federal agencies and programs.
Reforms aside, it is critical that Congress return to a regular budget process that has only been adhered to four times in the past 40 years (FYs 1997, 1995, 1989, and 1977). Despite pledges to meet budget deadlines from House Speaker Paul Ryan (R-Wis.) and Senate Majority Leader Mitch McConnell (R-Ky.), the House and Senate were unable to pass all 12 appropriations bills in 2016. The reforms proposed by the outgoing chairman will help the the incoming interim chairman Rep. Diane Black, (R-Tenn.) and indeed, the entire Congress, be better equipped to, in the spirit of President Trump, make the budget process great again.
ON THE ECONOMY: EASY AS A B C
By John Dunham:
Managing Partner, John Dunham & Associates
You went to school to learn girl, things you never, never knew before. Like I before E except after C, and why 2 plus 2 makes 4, Now, now, now, I’m gonna teach you (teach you, teach you) all about love girl (all about love). Sit yourself down, take a seat, all you gotta do is repeat after me. A B C – It’s easy as, 1 2 3. As simple as, do re mi. A B C, 1 2 3. Baby, you and me girl. While it sounds like something from Sesame Street, these lyrics are from ABC, a number-one hit by the Jackson 5. First aired on American Bandstand on February 21, 1970, it knocked The Beatles’ Let It Be off the top of the Billboard Hot 100.
The one thing that everyone who studied economics in college remembers is that there were a lot of formulas with letters that seems to somehow be important. One of these was:
GDP = C+I+G+(X-M)
This is what is called the Consumption Estimate of Gross Domestic Product, and was derived from the model for demand developed by British Economist John Maynard Keynes in the early part of the 20th Century. We have long argued that this is an inappropriate way to measure GDP since the statistic is really supposed to be a measure of production, but the Keynesian system is consumption based, so in that context the calculation is correct. What the equation is saying is that the size of the economy is the sum of all consumer spending, plus investment spending plus government spending plus net exports.
Under this model, therefore, an economy grows when people spend money. What the model fails to take into account is that this spending can be from revenues (or wages) obtained by current production, from past production and from future production. In the 1920s and 1930s this did not matter a whole lot since credit markets were not as developed as they are today, and because government was not a huge net debtor. Under the Keynesian model, growth can come from consumers borrowing from future income to spend today (think credit card debt), or from governments printing money to give to people or to pay employees, or from businesses issuing bonds to pay dividends to shareholders. In effect, a country can also grow if it exports everything it produces to another country even at a price below what it took to produce the export (think China).
Taken to its logical conclusion, the whole consumption calculation of GDP makes very little sense. Unfortunately, it is also the calculation that the Federal Bureau of Economic Analysis (BEA) uses to calculate the size of America’s economy.
We have long been forecasting a recession in America. This forecast has nothing really to do with the vicissitudes of the economic policy decisions carried out under the Bush, Obama and now Trump administrations, but rather from the natural ebb and flow of the economy. The US economy (as measured by the BEA) last peaked in the third quarter of 2007. It went into recession and bottomed out during the 2nd quarter of 2009. Since then, the economy has grown by 17 percent or $2.45 trillion. However, since that time, federal government debt has grown by $7.9 trillion in real terms.
Let’s go back to our Keynesian equation: GDP=C+I+G+(X-M). We know C or personal consumption expenditures is up by $1.6 trillion over the period. Net exports has also improved by $0.14 trillion. Lets put what we know into our equation:
$2.45 = $1.6 + I + $7.9 + $0.14
Now solving for I or net investment we get -$7.19. In other words, in spite of all of the construction, new factories, new home construction, etc., America has eaten $7.19 trillion worth of either past savings or future production since the last recession. In reality, the country never got out of recession if one were to measure GDP in terms of production or actual income, with the vast majority of this coming from increased government borrowing.
The recovery since the last recession was a mirage. In fact, the recovery since the prior recession was mainly a mirage as well, though not to the same massive extent. No wonder that most people feel worse off than then did 8 or 9 or 10 years ago in spite of the fact that the government says the economy has grown by 17 percent.
We have long forecast a recession beginning at the end of last year or early this year. Whether or not the BEA measures one is difficult to say, but when I went to school to learn things you never, never knew before, I learned that 2 plus 2 makes 4, and that 2 minus 8 makes negative 6.
So let’s talk about recession now.
The Monthly Manifesto is published by John Dunham and Associates, 32 Court Street, Brooklyn, NY 11201 as a service to our clients and friends. For more information relating to the content or for a free consultation on how we can assist your company or organization with your issues please contact us at 212-239-2105, or click the button below…