They'll just tell better lies
Posted by aogTuesday, 29 May 2007 at 13:07 TrackBack Ping URL

Right Wing News has a post about how, if the government used the same accounting standards it imposes on businesses, the actual deficit (loss) for the previous year would be $1300B instead of the reported $248B. RWN considers this a strong argument for a balanced budget amendment.

I used to support that, but I no longer do. One big reason is how the post refutes itself. Note the key premise, that the real deficit is much larger than the reported debt. Even presuming that a BBA would be effective, it would only reduce the deficit from $1300B to $1000B, which would be nice but hardly a solution to the problem. Even that weak result ignores that since the accounting is already bogus, what’s a little more bogusity to officially comply with a BBA without changing any actual spending? I don’t see how one can take seriously the gist of the post and its conclusion simultaneously.

Comments — Formatting by Textile
Bret Tuesday, 29 May 2007 at 15:37

Deficits are no problem. Whether or not they want to include unfunded future liabilities or not is of little concern to me (though it makes more sense to use different accounting rules for sovereign entities with their own currency and corporations without their own currency), the deficits still are absolutely no problem. If they were a problem, interest rates on 20+ year treasury bonds would be substantially higher.

Michael Herdegen Wednesday, 30 May 2007 at 06:18

Excluding unfunded future liabilities from our gov’t’s accounting of the current deficit IS valid, since the gov’t itself is the entity which controls whether or not those future liabilities get funded, or are simply abolished.

In other words, if a company promises its workers a pension and retirement healthcare, then by law they are required to make regular payments into an account to fund those promises at some future date, because American companies’ operating environment is within the framework of regulations enacted by local, state, and Federal legislatures.

However, the U.S. Congress is not bound by any such restrictions. They operate above the regulatory framework. Promises made by previous Congresses are simply suggestions, not binding.

Congress can, (and IMO will), simply legislate that the beneficiaries of Federal programmes will receive reduced benefits in any number of a half-dozen ways, and Presto !, “unfunded future liability deficit” solved.

Annoying Old Guy Wednesday, 30 May 2007 at 11:25

By that logic, the government shouldn’t track any spending, because they can print money. Such accounting became standard in the business world because it provided useful information for management and share holders. Why shouldn’t voters have access to the same quality of information regarding the government?

Michael Herdegen Wednesday, 30 May 2007 at 12:55

The Feds do track the amount of unfunded future liabilities, and the info is publicly available, just a mouse-click away.

They just don’t include it in the headline Federal budget deficit number.

Further, I’m not sure if it would matter if we did use the $ 1.3 trillion number. The voters seem to have gotten used to several-hundred-billion-dollar deficits, and they don’t seem to care very much about the impending Social Security shortfalls, so why should we expect them to care about nominally trillion dollar deficits ?

Especially when most people apparently buy cars and houses by focussing on the monthly payment, and not on the total price. When voters find out that the argument over unfunded future liabilities is about what will happen in twenty or thirty years, I expect the vast majority to promptly tune out.

Bret Wednesday, 30 May 2007 at 21:55

aog wrote: “Such accounting became standard in the business world because it provided useful information for management and share holders.

Not really. As a thought experiment, let’s say the government didn’t have any other debt and raised taxes to cover that extra $1.3 trillion. What could they do with the money? The government doesn’t need it for cash flow (since these are future liabilities). If the government “deposited” it in the central bank, it would literally just disappear. It would be added to the literally infinite amount of money already at their disposal. That would cause deflation and all kinds of nasty side effects. As a result, I don’t have a problem with handling future liabilities differently than the private sector.

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