Saturday, January 22, 2011
A Rational Plan for Moving Forward
Few would disagree that our nation is in financial trouble. The amount of debt and unfunded mandates is an insurmountable, but not impossible, sum of money to deal with. What we need is a rational plan for moving forward. This must be a plan that is free of sacred cows, budget gimmicks and special interest politics. It must include both short-term and long-term fixes and must account for political change over the long term so that the prize, which is a stable and manageable budgeting system, can be achieved regardless of the party in power. Achieving this goal requires recognition of two basic realities. One is that any plan that covers more than single budget cycle is doomed to failure and explains why the multi-year plans never work. For example, the Congress may agree to cut spending over the next ten years by $2.5 Trillion and then put all the cuts in future budgets, while increasing spending in the current year. The dirty little secret is that the next Congress may ignore the plan is the next budget cycle so the projected savings are never realized (sound familiar?). The second reality is that the major parties just disagree about the role of government. Given these realities a rational plan must feature budget cutting in the current year budget. The Congress must no longer put off cuts to future budgets. The second ingredient must be cuts by personnel attrition. Since personnel costs represent the biggest part of any budget, the government must operate in the mode of not replacing people who retire unless they are essential. Although it is difficult to quantify, approximately a million people enter the Medicare system every year and since all people reaching 65 must sign up for it, it probably represents a fair estimate of those retiring. If more than a million retire, or people retire earlier, the outlook is even better in the long-term. A plan of this type achieves two objectives. The first is to cut the current level of spending in a way that only affects the current budget and the second is to reduce the number of government employees, the most expensive part of any budget. This would permit cuts to be modest on a yearly basis and at the same time reduce the long-term cost of government by reducing the number of employees. A plan like this is far from perfect but the CBO could score it and predict the result. On the surface it seems like a better alternative to the Democratic plan, which is to continue to increase the size and spending habits of government, and the Republican plan, which is to cut the size and spending habits of government. If we combine some yearly spending reductions and some long-term personnel attrition we may be surprised at the result.