Why the government can’t plan ahead
It’s 1987, and Rudy Penner is winding up his fourth year as head of the Congressional Budget Office, wishing he had a magic 8-ball. He regrets missing the recessions of 1987 and 1990.
“The forecasts for those years were way off,” he says.
Then came the ‘90s, and with them a big uptick in wealth, especially in the financial sector. Uncle Sam’s share of Wall Street’s riches created a surplus nobody expected.
Penner says it’s a difficult proposition to make accurate predictions about the economy and budget deficit. And, he says, Congress’s fuzzy math doesn’t make it any easier. Lawmakers budget 10 years out.
“A very distinct budget horizon of 10 years does allow you to cheat by pushing costs beyond that budget horizon,” he says.
The Roth IRA is a good example of that. Money is taxed as it goes in, meaning revenue in the short-term. But Roth IRA earnings are tax-free. So the government loses out in the end — though that accounting is outside the 10-year budget horizon. But Congress cheerfully ignores that. Another trick? Counting spending that we always knew would wind down — like the cost of the Afghan and Iraq wars — as savings
“So it’s not really savings,” says Harvard public policy professor Linda Bilmes. “It’s like buying stuff on sale that you never intended to buy and saying, look how much I saved.”
It’s not logical. But it’s how humans have evolved to think: Forget about the past, distort the future, and focus on the present.
“When we were out in the world foraging for food, we had to take what we could get immediately,” says Connecticut College psychology professor Stuart Vyse. He says members of Congress are similarly driven by pressures like the 24-hour news cycle.
“The sort of immediate feeback you get on every single decision does tend to focus you on the battle of the moment,” he says.
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