Fiscal Consolidation

Keys to inducing fiscal responsibility

The bottom line is that, for a nation to shift from a fiscally irresponsible course to a fiscally responsible course, the decision-makers — the politicians — have to decide to do so. There are two ways this can occur, (1) the politicians (enough of them, that is) decide to do the right thing even if it brings substantial harm/risk to their respective political careers, or (2) the political calculus changes such that this cost/risk is sufficiently diminished (or ideally even turned into a net positive for their political career prospects).

I’d consider #1 unlikely. Call me a cynic, but I think that the top priority by far among members of Congress and wannabees is getting re-elected/elected and advancing their political careers. This occurs largely due to a perverse form of natural selection, as those presenting voters with a “take your medicine” message of responsible sacrifice don’t win election/re-election, losing to those who take irresponsible positions of much more limited and inadequate — but more palatable — sacrifice while promising even more goodies (more spending and/or lower taxes). With apologies to Darwin, when it comes to addressing our long-term fiscal imbalance, Congressional politics is “survival of the least responsible.”

To change the political calculus, there are a variety of strategies and tactics that we should pursue to educate, change minds and motivate the public — foremost among them the overarching strategy of making “responsibility” a source of greater pride than are the current partisan badges of “conservative” and “progressive” — but we also need to work the budget process end, providing as much political cover as possible through something like the SAFE Commission, as well as strong, statutory Paygo with high hurdles to override.

In the case of some European nations, the need to meet particular fiscal responsibility standards to join a huge free trade union — and thus bring, in the eyes of voters huge benefits — probably provided such political cover for politicians. Alternatively, crisis and the related fear among the public of going over a cliff can also change the political calculus, but the whole point is to shift to fiscal responsibility before a crisis.

We need to work both ends, the public and the process.