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April 21, 2005

Alan Greenspan Brings Plenty of Refreshments

Alan Greenspan shows up for the sane-fiscal-policy party and brings plenty of refreshments, as he calls for the reinstatement of and the strengthening of the 1990 Budget Enforcement Act's PAYGO provisions:

FRB: Testimony, Greenspan--Budget process reforms--April 21, 2005: [T]he unified budget ran a deficit equal to about 3-1/2 percent of gross domestic product in fiscal 2004, and federal debt held by the public as a percent of GDP has risen noticeably since it bottomed out in 2001.... [A]s the latest projections from the Administration and the Congressional Budget Office suggest, our budget position is unlikely to improve substantially in the coming years unless major deficit-reducing actions are taken.

In my judgment, the necessary choices will be especially difficult to implement without the restoration of a set of procedural restraints on the budget-making process. For about a decade, the rules laid out in the Budget Enforcement Act of 1990 and in the later modifications and extensions of the act provided a framework that helped the Congress establish a better fiscal balance.... Many of the provisions that helped restrain budgetary decisionmaking in the 1990s--in particular, the limits on discretionary spending and the PAYGO requirements--were violated ever more frequently; finally, in 2002, they were allowed to expire.

Reinstating a structure like the one provided by the Budget Enforcement Act would signal a renewed commitment to fiscal restraint and help restore discipline to the annual budgeting process. Such a step would be even more meaningful if it were coupled with the adoption of a set of provisions for dealing with unanticipated budgetary outcomes over time.... [A] well-designed set of mechanisms that facilitate midcourse corrections would ease the task of bringing the budget back into line when it goes off track.... Measures that automatically take effect when costs for a particular spending program or tax provision exceed a specified threshold may prove useful as well. The original design of the Budget Enforcement Act could also be enhanced by addressing how the strictures might evolve if and when reasonable fiscal balance came into view.

I do not mean to suggest that the nation's budget problems will be solved simply by adopting a new set of rules. The fundamental fiscal issue is the need to make difficult choices among budget priorities.... [F]uture Congresses and Presidents will, over time, have to weigh the benefits of continued access, on current terms, to advances in medical technology against other spending priorities as well as against tax initiatives that foster increases in economic growth and the revenue base.... [W]e have been in a demographic lull. But this state of relative stability will soon end.... The combination of an aging population and the soaring costs of its medical care is certain to place enormous demands on our nation's resources and to exert pressure on the budget that economic growth alone is unlikely to eliminate...

Left unsaid--but very clear in everyone's mind--is that nobody can think of a single legislative proposal of the Bush administration or a single budget passed by the Republican Congress that has been in accord with the spirit of PAYGO. Greenspan is letting the Republican congressional leadership know that in his view it has done an absolutely horrible job at fiscal policy.

Posted by DeLong at April 21, 2005 12:23 PM