In an unusual display of fiscal rectitude for Washington, the can that politicians are always kicking down the road may finally be kicking back with the launch of a campaign to push for honest numbers in government budgeting.
It’s not just the bipartisan legislation that Sens. John Thune, R-N.D., and Tim Kaine, D-Va., introduced two weeks ago in the Senate but the campaign surrounding it, including a veritable torch and pitchfork-wielding mob of prominent economists and former government officials endorsing the bill.
“You never see 11 Nobel economists endorse something—never, never, never, never, never,” Boston University economist Laurence Kotlikoff (left) told ThinkAdvisor in an interview.
The busy academic, who has supplemented his teaching, book and academic journal writing with a maverick presidential campaign last year, drafted the aptly named Intergenerational Financial Obligations Reform (INFORM) Act. U.C. Berkeley economist Alan Auerbach edited the bill’s language.
The legislation would mandate detailed cost analyses of congressional and presidential spending initiatives. Specifically, it would institute what is known in economics as fiscal gap and generational accounting, which include future financial obligations that are currently off the books.
“Have you seen those greenish-yellow Social Security checks your mother gets every month?” Kotlikoff asked. “Well not a penny of it is recorded as official debt.”
The Boston University economist has been writing for 30 years on the problems attendant on government commitments which are mostly off the books. “Official debt is only one-twentieth of our true obligations,” he warns, calculating our true debt today weighs in at $222 trillion.
If the current generation does not accept higher taxes or reduced benefits, they will be in effect shifting the cost of their living standards onto a less affluent younger generation.
Kotlikoff’s Inform Act website has tabs for Nobel Prize-winning economists such as Kenneth Arrow and William Sharpe, former government officials like George Shultz and Michael Boskin, hundreds of economists and finance professors like Jeffrey Sachs and Kent Smetters and other supporters such as columnist Scott Burns and broker-dealer executive and ThinkAdvisor contributor Bob Seawright.
The purple-colored website—Kotlikoff’s intent is to move beyond red (Republican) or blue (Democrat)—seeks citizen endorsers as well, prior to a full-page New York Times ad to run some time next month.
Kotlikoff is optimistic about the measure’s chance of passage, saying a co-sponsor from each party will soon be introducing a House version of the Senate bill.
“The government has spent six decades lying about the deficit,” Kotlikoff says, referring to promises backed by words but not deeds.
“No matter what labeling convention you use, economics is about real things and linguistics is about words,” he says. “This [bill] is the economics profession speaking with almost one voice,” he adds, citing the large number of economics profession endorsers.
Kotlikoff says there a number of technical issues—involving how the U.S. will account for future expenses—that will complicate implementation of the bill. These expenses will be “very difficult to measure but we have to try.”
The Boston University economist credits a nonpartisan grass roots group of young Americans called The Can Kicks Back, which—“with no money” initially— started lobbying for generational equity starting in November of last year.
Some nonpartisan philanthropists kicked in funds, brought Kotlikoff in to draft a bill (“It took months to get the language right”) and the group attracted the interest of “Senators who really care about the country,” Kotlikoff says, adding “this is democracy in action.”
If passed, the Inform Act would substitute the current convention of looking at the budgetary impact of spending over 10 years with a 75-year and “infinite horizon” fiscal gap and generational accounting analysis.
Such analyses were performed in the first Bush and Clinton administrations, but were then nixed, though the Social Security Trustees Report and the IMF still utilize this approach to show how liabilities are transferred intergenerationally.