"Politics without romance": That's what economist James Buchanan called public-choice theory, which he helped pioneer, and for which he won the economics Nobel in 1986. Public-choice theory suggests that people in politics will tend to make choices according to rational self-interest. To assume otherwise -- to believe, for example, that politicians act like "public servants" whose primary concern is the long-term health of the body politic -- is to succumb to the romantic view that ordinary people will generally act in extraordinary ways.
Politicians spend other people's money, whether it's money that mainly belongs to those outside their states or districts; or, on entitlement programs for the elderly, money that mainly belongs to one generation to pay for another; or, when running up the soaring federal debt, money that will mainly come from future taxpayers.
Most politicians can hardly be expected to be careful with this money, especially when spending it in huge quantities helps gets them re-elected. Of course, the same point applies to voters who receive other people's money. As founding father James Madison once famously warned, men are not angels.
Analysts at the nonpartisan Congressional Budget Office are not angels either. In fact, they often behave like garden-variety bureaucrats. Whenever they "score" a piece of legislation, they are bureaucratically obligated to take its assumptions at face value. A recent glaring example: Medicare law currently requires that payments to physicians be cut 27% by 2013. But everyone knows that's a Capitol Hill fantasy, even including those on Capitol Hill; ever since 1997, these planned cuts have been canceled at the last minute. But the CBO takes these cuts at face value in what is called its "baseline scenario."
Happily, though, in most of its more detailed treatises, it also runs an "alternative fiscal scenario," based on "what some…might consider 'current policies' as opposed to current laws." As a watchdog agency, then, the Congressional Budget Office often tells politicians what politicians don't like to hear.
Take the third way of spending other people's money, already mentioned: running up the federal debt. Right now, debt held by the public as a share of gross domestic product is at 73%, the highest percentage since shortly after World War II. But with historically low interest rates, the cost of servicing that debt requires the equivalent of 1.4% of GDP, against total federal outlays that account for 23.4% of GDP.
About half the debt is in foreign hands; so about half those payments of interest are transfers from U.S. taxpayers to foreign holders. But 1.4% of GDP cannot be called especially burdensome; and besides, those of us spending other people's money might console ourselves with the thought that, according to the CBO's alternative fiscal scenario, debt-servicing will account for a still-manageable 3.7% of GDP by 2022.
But by 2022, debt as a share of GDP will start to take off. By 2042, interest on the debt is estimated at 11.8% of GDP, and projected to rise further from there -- well on its way to swamping the federal budget.
That's why the CBO gently counsels against waiting to rein in the budget, observing that "a 10-year delay would reduce the well-being of all future generations." For more on the 10-year outlook, see "Budget Faceoff: Ryan vs. Obama."
Comments? E-mail: firstname.lastname@example.org