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Saturday, April 16, 2011

Is Obama's Automatic Trigger the Answer?

Alan Krueger likes the "trigger" Obama discussed in his speech on the budget:

A Shot at a Sane Budget, by Alan Krueger, Commentary, NY Times: President Obama has been criticized as too slow to engage in major debates and too timid to make difficult decisions. ... In one important respect, however, Mr. Obama’s deficit speech disproves the caricature, and contains a bold, serious and timely proposal. ...
What I have in mind is his endorsement of a trigger that would automatically kick in to reduce spending and tax expenditures if Congress and the administration fail to bring the debt under control. ... In essence, Mr. Obama proposed a rule that will ... provide predictability and certainty to the federal budget.
Economists prefer rules over discretion when parties can choose to reverse themselves as tough decisions arise. ... Rules can commit individuals or groups to a predetermined path. ...
Although rules are often flouted, they have helped trim budgets in the past.
The so-called pay-go rule in the Budget Enforcement Act of 1990 — which required increases in spending or decreases in revenue to be offset by other spending cuts or revenue increases — helped lead to the surpluses that arose in the late 1990s. We’ve also run the experiment in reverse: After the pay-go rules expired in 2002, increased spending ... and two rounds of tax cuts caused the deficit to soar. ...
Discretion is hard for politicians to give up...

Rules can provide political cover for unpleasant choices, bind groups to a common baseline, and so on, but I'm not as convinced as he is that this will have a dramatic effect.

    Posted by on Saturday, April 16, 2011 at 01:44 PM in Budget Deficit, Economics, Politics | Permalink  Comments (16)


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