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A New Direction for Budgeting

“We find ourselves in the pilot seat of a 747 airliner at thirty-two thousand feet. We had better try to learn to fly."

That is how Herbert Stein prefaces his insightful book, "Governing the $5 Trillion Economy" (Oxford University Press / Twentieth Century Fund, 145 pages, S17.95). His point is that the current budget process is unable to deal with current economic reality and leaves us unable to decide on the future economic direction of the nation.

Mr. Stein asserts that current budget processes are not allocating the "national output" well because the decision-making process is not based on the best possible information: compromises are not being reached by a reasoned and informed process.

The federal budget should be concerned, Mr. Stein argues, not merely with allocating resources within government, but with managing the entire national economy. "It means regarding the federal government as 'budgeting the GNP,' " he writes. "It means deciding at a certain level of generality of course, and not in detail, how the nearly $5 trillion of the GNP should be allocated and then deciding what budgetary and other policies will help bring about that allocation."

Mr. Stein argues that government decisions are already a major influence on the allocation of our national resources, but that because we do not recognize this, we fail to get good information or make rational judgments.

While Mr. Stein does not suggest that government control over the economy be expanded, he does allow that "budgeting the GNP" could lead to mischief by budgetary bureaucrats.

I would argue that it would lead to a great deal of mischief. A budget process that tries to contend with the allocation of our national output and not just government spending would give the federal government too much opportunity to expand its already overbearing reach.

Having spent 22 years in the private sector as a practicing CPA, and four years in Congress (1985-1989), I find Mr. Stein's proposal somewhat idealistic and naive. I seriously question whether Congress, informed or not, has the political fortitude to address long-range and strategic planning as part of the budget process, as would the board of directors of a large multinational corporate entity.

The current budget arrangements have led to a myopic process that is hostage to year-to-year fiscal (tax-and-spend) considerations, avoiding the larger questions of national economic policy and direction. How could such a Congress deal with a budget process expanded to include national output, not just government spending?

That is not to say that I don't sympathize with much of this book. As a promoter of "truth in government spending" in my two terms on Capitol Hill, I realized we could never deal effectively with a problem we couldn't measure. And, in fact, we can't measure the real economic activity of the nation without better accounting principles (at least better than the "Mickey Mouse" cash basis currently in use l, or without uniform accounting systems, a capital budget, financial management reform and, yes, even a chief financial officer independent of the political process.

Mr. Stein's economic theorizing is often difficult to follow. Economists are more prone to theories and forecasts, while accountants are more comfortable with historical data and numbers. Both can agree, however, that our current system of budgeting and accounting is not providing the financial information legislators need to make rational decisions for the future of America.

So, while I may disagree with (or sometimes get lost in l Mr. Stein's many theoretical arguments, I agree that needed changes (cautious not radical) in the budget process could be guided by more relevant information than is now employed.

But more than just better information is needed; we must revamp the budget process as well!

With the recent report of the National Economic Commission, pretty much along partisan lines with no consensus on fiscal policy, it is hard to see how any meaningful change in our budget process and fiscal policy will be accomplished.

But change we must, and I commend Herbert Stein for his attempt to point us in a new direction. His approach may not be perfect (or even seem realistic at first) but, for the sake of America and its future it can help us begin the debate.

This Article was Originally Published in The Wall Street Journal

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