Saturday, March 21, 2009

Washington University Law School budget conference

I am sitting in a hotel lounge (better-appointed than the available ones at the airport) waiting for the departure time of a flight out of St. Louis, where I just spent the last two days at a budget conference organized by Cheryl Block of WULS. Lots of interesting sessions, on topics ranging from automatic budgetary changes (such as entitlements cuts) to restore fiscal sustainability, to how the Presidential and legislative budget processes do and should function (e.g., use of budget resolutions or automatic sunset rules), to the practical political feasibility of "saving" Social Security surpluses, to the relevance of the tax expenditure debate, to issues of capital budgeting (amortizing items with long-term benefit) and how to measure the budgetary cost of bailouts.

I was there to present my current paper on the fiscal gap, its generational equity and efficiency consequences, etc. I'll probably get to rewrite this paper, using more recent CBO estimates and changing the emphasis a bit, as Cheryl is planning to create a conference volume, or perhaps something better than a conference volume in that it emphasizes organizing new knowledge without being limited to what people happened to present.

One thing that became clear to me in re. my paper is that the financial crisis has opposite implications for the apparent relevance of my paper than I realized when I started writing it. As I noted in a prior post about someone's colloquium paper, it can be kind of awkward or inconvenient when current events, such as the financial crisis, overtake one while one is writing a given paper (e.g., if one is lauding universal home ownership). When the financial crisis hit while I was in mid-draft, I had a bit of the feeling that it was rhetorically inconvenient because the short-term emphasis has to be on pulling the economy out of its nosedive, rather than immediately restoring long-term balance. So while I could rightly point out in my draft that the financial crisis makes the long-term problems worse, I had to acknowledge that the current mess has to be dealt with first.

But especially in lieu of the Chinese prime minister's recent remarks about U.S. solvency, it became clear to me (perhaps with a little help from my friends) that the positive links between the two issues are stronger than I had recognized. If you're going to be borrowing $2 trillion a year for the next few years, you had damn well better take steps to reassure prospective lenders that you are on a course to assure your own long-term solvency.

One way of putting it is that the Washington MSM conventional wisdom, as usual, is 180 degrees wrong. Obama isn't tackling too much - healthcare and energy policy/ cap and trade permits are actually even more urgent given the crisis than they would be otherwise. Rather, he is tackling too little, in that he hasn't done enough so far to show that the U.S. will be trying to tack back towards the path of solvency. Which is not to say that his or his advisors' political judgment was wrong if they concluded this would be unfeasible. But certainly in terms of the correct policies to follow, by failing to address long-term solvency sufficiently yet (apart from a couple of tantalizing hints), one could argue that he needs to put more on his plate, not less.

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