Without Rules, Fiscal Policy Chaos Will Continue

The 35-day government shutdown that kicked-off 2019, and the compromise than ended it, are only the latest indicators of the fiscal chaos that reigns in Washington. The latest version is just now getting underway, kicked off by the President’s 2020 budget message.

The chaos is reflected both in the failure of Congress to follow the procedural rules it has set for itself, and in a failure to provide a degree of fiscal stimulus or restraint that is appropriate to the state of the business cycle. Without better fiscal policy rules, the chaos will continue. Herbert Stein, Chairman of the Council of Economic Advisers under Presidents Nixon and Ford, put it this way 35 years ago:

The basic fact is that we have no long-run budget policy — no policy for the size of deficits and for the rate of growth of the public debt over a period of years. Annually we make decisions about the size of the deficit that are entirely inconsistent with our professed long-run goals, with the explanation and hope that something will happen or be done before the long-run arises, but not yet. (AEI Economist, Dec. 1984)

We have made no progress since then. Here are some ideas on what is wrong and how to fix it.

Procedural rules are not enough