ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, October 15, 1996 TAG: 9610150071
SECTION: EDITORIAL PAGE: A-4 EDITION: METRO
TRYING to balance the federal budget, said America's newest Nobel economist last week, is an "insane pursuit" that will "drive the economy into a depression."
William Vickrey, however, didn't get much time to advance his views via the media platform he ascended by virtue of winning a Nobel. The emeritus professor at Columbia University, 82, died on Friday, just three days after he and British economist James Mirrlees were named 1996 co-winners in economics.
The Nobel didn't go to Vickrey for his opinions on budget-balancing. He won, rather, for his work nearly half a century ago (expanded subsequently by Mirrlees) in "asymmetric information'' - the study of how economic transactions are affected by the fact that buyers and sellers do not each have the same information available to them.
That work is important, and has had a public-policy impact on a range of matters, including how the U.S. Treasury auctions its two and five-year notes. But broader fiscal issues speak more directly to the general public. And it was Vickrey's comments on the balanced-budget issue that captured public attention.
For us and for many others, Vickrey was wrong on the point, at least in current circumstances. But perhaps his brief hour on the national stage can serve as a useful warning against some of the more misleading stuff that has become part of the political debate about budget balancing.
The federal budget is not just like your family budget - unless, among many other considerations, your family happens to have the power to issue legal tender.
State governments and many private business run chronic deficits - or would if, like the federal government, they did not distinguish long-term capital outlay from expenditures for current operations.
The notion that the federal budget needs to be in balance every year is both futile and foolish. Uncle Sam needs to be able to respond to national emergencies, to invest in the infrastructure of future prosperity and, when needed, to employ recession-fighting tools.
But all that acknowledged, now is not the time to stop trying to balance the budget.
First, in the not-so-distant past lie the massive deficits of the 1980s. Their legacy - a skyrocketing national debt and skyrocketing debt-service costs - is far from tamed, and could become quickly worse in an economic downturn.
Second, in the not-so-distant future lies the retirement of a huge generation of baby boomers, and consequent fiscal strains on entitlement programs like Medicare and Social Security. This strain will be easier for everyone to bear if the federal government can redeem big trust-fund IOUs without also having to service so much other debt.
Finally, there is a worldwide trend - welcomed by all but big-government economic liberals and authoritarian social conservatives - against bureaucratic centralization and hierarchical decision-making. This trend does not in itself require a balanced budget. But it does suggest the need for a smaller federal role, which means hard decisions need to be made about where to invest public resources.
As Thomas Roberts, a Reform Party congressional candidate in the 9th District, aptly observes, the nation might have a frank discussion of entitlement spending if increases in Social Security and Medicare outlays were limited to increases in revenues from the taxes and premiums for those programs. "We could say, if we want to give more here, then we have to take it from somewhere."
In contrast, adding indiscriminately to the already swollen debt will only defer such decisions, while evading accountability and burdening future generations. If the current national debt were more investment in the future, and less for current consumption, there'd be less need to work it off.
To a point, then, Vickrey was right: Balanced federal budgets aren't holy. They shouldn't be an unquestioned article of faith for all times and all circumstances. But at this time and in these circumstances, balancing the budget is a legitimate and proper goal.
LENGTH: Medium: 74 linesby CNB