Good News From the “Good Government” Front
The NY Times reports some changes in how our federal spending is reported:
For his first annual budget next week, President Obama has banned four accounting gimmicks that President George W. Bush used to make deficit projections look smaller. The price of more honest bookkeeping: A budget that is $2.7 trillion deeper in the red over the next decade than it would otherwise appear, according to administration officials.
The new accounting involves spending on the wars in Iraq and Afghanistan, Medicare reimbursements to physicians and the cost of disaster responses.
But the biggest adjustment will deal with revenues from the alternative minimum tax, a parallel tax system enacted in 1969 to prevent the wealthy from using tax shelters to avoid paying any income tax.
Even with bigger deficit projections, the Obama administration will put the country on “a sustainable fiscal course” by the end of Mr. Obama’s term, Peter R. Orszag, the director of the Office of Management and Budget, said Thursday in an interview. Mr. Orszag did not provide details of how the administration would reduce a deficit expected to reach at least $1.5 trillion this year.
Mr. Obama’s banishment of the gimmicks, which have been widely criticized, is in keeping with his promise to run a more transparent government.
Fiscal sleight of hand has long been a staple of federal budgets, giving rise to phrases like “rosy scenario” and “magic asterisks.”
The $2.7 trillion in additional deficit spending, Mr. Orszag said, is “a huge amount of money that would just be kind of a magic asterisk in previous budgets.”
“The president prefers to tell the truth,” he said, “rather than make the numbers look better by pretending.”
This is great news, long overdue, and something that I bet even a bunch of conservatives will really like (Coburn, Brownback, DeMint, Ron Paul- I’m looking at you). The dirty secret for ages has been all this off-budget stuff, and you never even see it mentioned on blogs, the more obsessive government watchers in our society. Offhand, the only time I remember ever seeing it mentioned is by guys like Steve Verdon and Alex Knapp at OTB. Case in point- here is the Heritage Foundation railing about off budget spending in… 1985.
At any rate, this will have several outcomes. The first, as was mentioned in the article, is to give the appearance of a much, much larger deficit, even though nothing has changed other than the fact that we are now acknowledging that we are spending money we have already spending. This is, in a sense, moving us from the current state of denial about our spending. If you need an analogy, what we have been doing for the past couple of decades in regards to spending is standing on the scale, seeing the number 300 and not liking it very much, and then saying “Well, I guess I won’t count 100 lbs of this because it is bone and organ and blood, and I can’t live without that, so I will just tell everyone I weigh 200 lbs! A little bit over my target weight of 180, but not that bad! Take that, critics!” Really, it is about that simple, although the analogy may not be perfect.
Second, this will help set the stage for any and all reform (including entitlement reform). You can’t honestly set the country on the right track without having a clear picture of what our finances really look like. As in the example above, you can not set yourself on a road to healthy living if you are pretending you weigh 200 lbs when you actually weigh 300. This fixes that problem.
The third outcome is that this will lead to a general freakout on both sides of the aisle. Democrats are going to hate not being able to hide the large entitlement numbers out there, and Republicans are not going to be able to lie about the real costs of our excellent military adventures overseas and the yearly cost of our defense budget.
Politically, this is very risky for Obama, because you just know that the Republicans, in their current effort to re-brand themselves as fiscal conservatives, are going to look at the new and much larger accounting numbers for the upcoming years and scream blood murder about tax and spend liberals, and without hesitation will compare the current and future numbers under a more honest and open accounting system with past numbers using the OLD accounting system. I can guarantee it. I wouldn’t give it an hour after the change is made before someone at Red State or elsewhere in the wankosphere or talk radio is saying something to the effect of “People said George Bush spent a lot of money, but look at the deficits under the socialist Obama!” They are that dishonest and that shameless.
The first thing I would do if I were Peter Orszag and company, and this is one of the very few times I actually hope someone in government listens to me, is to go back and re-score the last decade or so of budgets using the new accounting system, so when they roll this out they can say “Here is what this year’s budget would have looked like under the old system. Here is what it looks like under the new system. Here are the past ten years worth of budgets under the old system. Here they are under the new system.” For political reasons, this simply has to be done.
At any rate, overall, this is good news, and if I am wrong about anything or have made any mistakes, fill me in. Regardless, if there is anyone who can summon the nerd fury needed to beat the budget into submission, I would bet it is this guy:
That picture of Peter Orszag was taken from the excellent photo essay at the NY Times magazine about the folks who make up the Obama administration.
*** Update ***
Another possible outcome is this could lead to revision/simplification of the tax code due to the AMT stuff.
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I miss Steve Gilliard. Just sayin.’
JC, you’ve previously stated that you don’t think Coburn is a hypocrite on the gov’t spending issue. Can you say why not?
Orszag is somehow going to use his pencil protector to prevent us from spending > $0.5T/yr on the military rathole?
@Danton:
amen.
"I wouldn’t give it an hour after the change is made before someone at Red State or elsewhere in the wankosphere or talk radio is saying…."
John,
You’re being way too kind and generous here. They are probably drafting their talking points as we speak….
More evidence that the adults are back. How refreshing.
When is the last time we can say the executive branch clearly did something that was in the best interest of the country but likely was incredibly detrimental to their own politcal fortunes?
I’m guessing George H.W. Bush’s financial decisions whether it be stopping Reagan’s bad budgets from continuing or raising taxes.
Good on Obama
WTF is the deal with Halperin’s illustration of this story? Green sunglasses?
"go back and re-score the last decade or so of budgets using the new accounting system"
hard to imagine they would NOT do this immediately.
by the way, looking at that photo, that is exactly what I want a budget director to look like.
What? WHAT? They’re going to count money they actually spend as part of the budget? What kind of an effed up libtard thing is that to do?
We obviously much preferred being lied to. As long as it’s the wingnutz doing the lying.
I know i’m being naive, but surely its common sense that if you change the format of these calculations, you measure the past budgets within the same format as future budgets / costs so that solid and clear results can be calculated on success or failure.
If it hasn’t occured to the people in charge then they deserve the unfair and inaccurate comparisons. Its scary how much that is considered ‘obvious’ to the average person is missed by those chosen to lead.
I think a lot of us went on and on about the dishonesty of keeping the wars in Iraq and Afghanistan off-budget, year after year.
Personally, I believe this is a terrible idea. I am really going to miss all that smoke being blown up my ass.
Nerd Fury!
It won’t matter if things don’t noticeably improve by 2010, because we’ll all be fucked royal anyway. But things will improve, because when you pump so much money into the government, it is inevitable that GDP will increase, and some jobs will be produced. The question is whether it becomes self sustaining, and not like Bush’s massive tax cuts creating a flash fire of economic activity that fades when the extra cash dries up. I’m betting there will be a more solid recovery due to all the long term investments, and the fact that mixed in with the severe downturn caused by wreckless loan practices, there is also an element of normal business cycle downturn that will improve in due course. If not, then it’s Palin/Jindal ’12 and time to bend over and kiss are arse goodbye.
**And I realize the above is based on hopeful hopety hope hope. But Big Dawg Bill said on my Teevvee this morn that we need to talk that way, so i’m doin’ my part.
Danton and Linda – I miss him too…
John, excellent post. I’m glad that Obama and his administration are putting the kibosh on hinky accounting as it pertains to the federal budget. And I hope you’re right that Orzsag has done the calculations to show how the numbers differ over the last 8-10 years.
I’ll be curious to find out how much we’ve actually spent on Bush’s folly in Iraq and what portion of the current deficit was caused by that particular spending?
But the framing issue is obvious and don’t be surprised to see old budgets shown using the new common sense method of reporting very soon. I’m keeping my eyes open because will probably be part of the actual budget roll out.
@Danton: Me too!
should be into the (economy)
The correct framing already exists. How many times have we seen corporations forced to abruptly restate earnings for the previous several years after discovering internal accounting fraud? If I’m following this correctly, that’s really all this is, if on an absurdly larger scale.
From a message of hope to apocalyptic visions in 3 short months. I think we could all benefit from a big…… deep…… breath.
Yeah – It’s amazing how much people are complaining about a pittance to try and stabilize the mortgage situation (something that the banks should have done on their own, but they are: greedy, incompetent, sociopathic, or all three), but yet we spent and lost billions and billions on a a voluntary war that in the end doesn’t look any better than had we not done a thing… I am glad that this plan will show defense spending as a line item – transparency is a good thing esp if you want to start streamlining.
That was the first thing I thought when the budget plan was announced. Here’s hoping Big O’s people got his back on this one.
Government telling the truth…what WILL they think of next?!
Good for the Obama administration. I think they will release budgets for at least the last 8 years based on the new calculations. That’s the politically smart thing to do.
I know Obama’s only been on the job for three weeks and things have not been smooth and there will be some issues down the road. But I appreciate the fact that they are actually accomplishing positive things for the people.
Right on!
Reason I said that, I’d just read it was the second anniversary of his last post (I think that’s what I read). And it wasn’t meant to reflect on John’s gig here. I just needed to say it.
@The Grand Panjandrum:
A year ago today or tomorrow Josepg Stiglitz assessed that the war in Iraq had already cost the US 3 trillion dollars. TBH, I think that was conservative at the time and still think so now.
I’m sure everyone would not only like to know how much money has been shoveled into Iraq so far, but how much of it actually ended up where it was supposed to go. Did Haliburton really spend 3 billion for Shamwows, or was there a little padding and unaccountable larceny going on.
Yay, the nerds are in charge. This makes me very happy. As they happen to be adults too it only increases my confidence in this crew. And yes that picture is dictionary perfect of what a govt accountant should look like.
No, he’s going to use it to make it perfectly clear to the public that it’s going into the military rathole. And it’s more than $.5T due to the wars, but of course they were just an asterisk before.
And this is further encouraging (from Ezra via Sully):
Solve health care and a lot of the other entitlement problems (including some of the military rathole problem) goes away, or at least gets small enough to be easily dealt with.
I could see the social security issue being a carrot and stick approach. Reduction of social security benefits is incredibly unpopular, but health care reform is incredibly popular.
It could go something like this: "If we don’t fix the health care issues, we’re going to have to cut social security to balance the books."
Damn, in that pic, Peter Orszag looks just like my dad did about 40 years ago.
Amen!! This has been a particular burr in my saddle for years. And you’re right, John; we can’t solve any problems until we know exactly what we are spending. Long, long overdue.
Seconded.
Actually, they need to do it back through Carter. St. Reagan needs to be looked at in a fair context, if nothing else.
here’s a nice article i came across yesterday : The Trillion-Dollar Defense Budget Is Already Here.
Re-scoring Bush-era budgets is a must. The righties are already howling about the free-spending Democrats and generational theft. Although it won’t stop the howling it will provide some ammunition for those rare on-air appearances by anyone other than outraged Republicans, pseudo-populist stockbrokers and faux plumbers.
I haz a sad. Why I moderated?
Orszag is the man who testified to Congress as CBO Chief that bailing out Freddie-Fannie would probably cost the taxpayer nothing, but might cost $25 billion, with an outside chance of $100 billion.
Don’t get too excited. It sounds to me like the goal is to create a crisis to justify whatever is coming next.
You’re more optimistic than me. I don’t remember a hew and cry being raised by conservatives when the administration put these and other gimmicks in place, except of course from the likes of Paul Krugman. If the Republicans were really interested in fiscal responsibility this is where they’d start. Instead I expect they’ll use this as ammunition as you predict. I expect to see lots of attacks on Obama for ballooning the deficit in just a month’s time.
Peter Orszag looks like a nerd version of the Terminator.
@Brick Oven Bill:
Thank goodness there are no crises now – eh?
You think Democrats are going to hate it if people discover that Social Security (which is paid for with payroll taxes) has been raped to pay for income and capital gains tax cuts? Because?
Political nothing. I would hope it would be common sense that you’d go through this exercise, if only to get everyone back on the same page when we’re talking about a $2.7 trillion deficit. With the massive spending and bailouts over the last six months, it would be nice to think the extra debt didn’t drop out of thin air.
Krugman uses the term "magic asterisk". So have Delong and Greider. But if Obama intends to stop federal borrowing in the next four years, we’ll be in a world of hurt. This isn’t the time.
@Comrade Stuck
into the government
should be into the (economy)
Funny enough. Over the next few years, those will be pretty much the same.
There are plenty of crises to justify lots of things as is, so I wonder why more crises are being generated at this time.
They have never done this with CPI, and this has all the same problems. CPI in the 1980s is not the same as CPI in the 1990s is not the same as now. But every day you have mathematically illiterate people comparing inflation now to the 1980s recession.
If they refused to do it with CPI, there is no reason to believe they will ever do it with the budget.
@Brick Oven Bill,
You mean like "Iraq!" "WMDs!" "Mushroom clouds!" ?
@jenniebee: Because they’ll look guilty as fuck for letting the Republicans get away with it.
Can’t we assume that wingnuts will handle this in the same professional, honest manner that they handled spending on Obama’s inauguration?
Why, I remember reading Malkin or Hannity or Savage as it was calmly explained that Obama’s inauguration only appeared to cost more than Bush’s because security costs were included in all of the estimates, as opposed to previous inaugurations in which security costs were kept out of the final tally. Remember them doing that?
No no, that’s okay. Neither do I.
@The Raven: This looks like its more aimed at dispelling the notion that the government is secretly lying about everything. Proper accounting numbers might crimp spending today, but it will make tax hikes on capital gains and upper-income spending look far more reasonable tomorrow.
There has been so much lying going on for so many years now, you have to start telling the truth if you want make lasting progress.
Here now, there’s no need to drag Tunch into this….
Not only that, we’ll be able to tell whether they’re true conservatives by whether they like this move or not. "Conservative accounting principles," in those exact words, are a deeply cherished financial principle, at least to financial types who take their work at all seriously. In my experience of working with financial analysts, there was nothing more infuriating to them than discovering that the officers of a company they were analyzing were cooking the books and hiding expenses. I can guarantee that CPAs and financial analysts coast-to-coast are pleased with Obama’s move.
And yes, that photo of Orszag simply shouts "propeller-head." :)
Ha ha! Look at me! I just wrote a Republican commercial using cut n’ paste!
@Raven:
I don’t think "a sustainable fiscal course" means a balanced budget. I think it means being able to get an economist to draw a dashed "projected deficit" line that crosses the x-axis within twenty years or so without the use of blackmail or intoxicants.
@Brick Oven Bill:
Brick Oven Bill, the financial system is in complete failure mode being propped up by cybernetically generated dollars in order to prevent a stampede at the banks which would cause civil unrest accompanied by a degree of lawlessness that we just don’t need.
Crisis? Although the worst hasn’t manifested yet, we’re walking that tightrope now. What’s coming next has already been justified. There is no longer a need to "create a crisis", we’re slap in the thick of it now.
The only entitlement program mentioned in the article is Medicare, which we already knew was in trouble. John, haven’t you figured it out, yet? The liberal policy wonks are the fiscally responsible ones; it’s the "conservatives" who have been cooking the numbers. The entitlement programs–except for Medicare, after the Republicans started the tax-cutting–were always shown at their full cost, because they were so unpopular with conservatives. It’s the military spending that got buried.
And this may be part of a move to make the Bush tax cuts for the rich permanent. Orszag is creepy, with his whole "cut Social Security even though it’s not in trouble" position. I wouldn’t put it past him to be pro-Bush-tax-cuts. But the tax cuts are a huge problem. "Entitlements" are not the problem. We have a bunch of wealthy crooks with way too much influence, that’s the problem.
Krawk!
These cockgobblers never stop. Show em the math, and they’ll claim its a Newtonian conspiracy. Show them the actual raw calculations, and they’ll scream "LIBERAL MATH!"
Ya know, Rush is only pushing 4 bills b/c numbers have a liberal bias. Also why he has 4+ marriages.
It’s more like "Well, maybe I weigh 900 pounds, but two thirds of that is water, so that doesn’t count, and weighing 300 pounds is much less risky than malnutrition."
Isn’t this Orszag fellow the one who accidentally caught his office on fire?
@Brick Outhouse Bill
Wow, an honest budget official. Compare that to the Republicans who told us that the War in Iraq would pay for itself, or who told us about how those great Bush tax cuts were going to lead to prosperity forever. Shut the fuck up Bill, you’re retarded.
I would like to see the Obama administration say "Look, this is real budgeting, the budgets under Bush were smoke, mirrors and bullshit, just like the balance sheets of all of those banks that collapsed." We should never miss an opportunity to point out that Republicans are fiscally irresponsible and dishonest, despite their claims to the contrary.
He has never said anything remotely like that. He has been very clear that he does not think SS is the problem, it is Medicare/Medicaid.
Shorter BOB: If a crisis that ALREADY EXISTED is shown to me for the first time, it must be a created crisis.
JFCNTZYM.
Call me crazy, but I think that Peter Orszag guy is totally hot.
I have no defense for myself. Hot nerds just do it for me.
@Brick Oven Bill: Bob, or Bill, may I call you Bill?
I hate to break this to you, but great writing is not an adequate refuge for really dumb and toxic ideas.
If you could just elevate your insights to the level of your prose, you’d be …. a contender.
@The Raven: I hardly consider Krugman and DeLong to be the “general public” when it comes to these matters. That was the point I was trying to make- most people have no idea how much more we spend than we admit to spending. They think the 300 billion dollar deficits we admit to spending are big- the shit is going to hit the fan when this off-budget nonsense stops.
Napoleon, my apologies, you are correct.
Zifnab, Llelldorin: I hope you are right.
That’s the thing that gets me: that people still believe that the Republicans are the party of fiscal responsibility, despite DECADES of evidence showing otherwise. I guess it just goes to show how incredibly powerful propaganda is, when people believe that bullshit over their own eyes.
I read 1984 a couple of weeks ago, and really shouldn’t have — it’s awfully difficult to keep from making constant comparisons now, isn’t it?
John, true, true. I daresay the misers, the crooks, and the "cut everything but the military, the highways, and the cops" guys are going to have a field day with the new numbers.
More Social Security analysis from Ian Welsh over at FDL. While Orszag clearly would like to back-burner Social Security reform, you can bet it will be right at the head of the priorities of conservative Senators–it’s the only thing they can be "right" on. I wish Social Security wasn’t on the table at all.
Good god, Obama has only been President a month and already we’re an additional $2.7 trillion in the hole? At this rate, by the end of his first term we’ll be another 130 trillion dollars in debt! America can’t afford another day of this failed presidency!
[/snark]
@The Moar You Know:
Heh. The Calculator.
Jeepers, that picture of Orszag reminds me of Devo.
It’s a beautiful world we live in.
I’m sure they’ll do this.
I’m just as sure the wingnuts will still try to spin this against Obama for as long as they get free camera time to do so.
Eventually, the wingnuts will ditch that tactic when they discover they can apply the "new math" to the Clinton and Carter eras, which will return them to their natural state of blaming everything on Clinton and Carter — and harmony will again be restored.
@ksmiami:
I seriously doubt it’s going to do that.
For example, will more than 50% of the Dept of Energy budget show up as "defense"? Probably not. Yet more than half of DOE money is spent on nuclear weapons.
@Comrade Darkness:
Yes, comrade.
This might be the single greatest thing Obama could ever do.
Imagine an actual accounting of the trillions and trillions we have poured down the rathole of the military and "defense" over the last few decades. And for what? So we can have third rate healthcare? So we can have second rate education? So we can’t have pensions like other first world countries? or high-speed rail? So we can ship all our jobs overseas to people whose standard of living we surpassed two centuries ago? We’re going to find out we’ve spent trillions so a few perverts in high places can get their rocks off ordering genital mutilation of people we’ve swept up in secret prisons, and so the predator class can have their yachts.
I think the people are going to be mightily, mightily pissed.
Come to think of it, I’m already mightily mightily pissed.
@Polish the Guillotines:
WIN!
You could always become a Republican.
With the help of a simpler tax code, – and Mr. Pocket Protector to better explain it – even future cabinet appointees might be able to figure out how to pay their taxes.
That would be an improvement.
That’s not what he does. He’s the ‘you say this number needs to be turned into that number, here are the ways you can do that, pick one’ guy. I’m that guy. I have no qualms proposing that one way to cut education costs is to grind children into lunch meat. After all, it would technically work, and sometimes it helps people see the relative scale of things when you put them up against options that they have emotional reactions to or to things that are absurd to help them see that other proposals they are considering are equally absurd. So I may propose that option, but I’m the numbers guy, I don’t have any investment in that option. It’s simply a valid, if grizzly, solution to the problem put before me. That’s Orszag. He’s supposed to be seem creepy – he’s the personification of unemotional math.
But doesn’t this, like, reveal information to the terrorists?
someone may have mentioned this in the earlier posts, but i clearly remember paul krugman labeling bush’s budgets as some of the most deceitful documents ever released, every year when they came out.
@The Moar You Know:
From another angle I think he looks like a tougher, better-looking version of Arvid from Head of the Class.
Orzag is really good at being able to translate econspeak into english if his C-span appearances over the years is any indication. I hope they put him in front of the media more when they finally fill in details on the various plans.
But the question really is, who’s the hotter nerd, Orzag or Nate Silver?
I want him as my accountant if I get IRS audited.
Sadly, since he works for the government… :D
[…] from Balloon Juice because I refuse to sign up for the NYT: […]
Don’t worry. I’m trying to find a job in accounting right now, and, trust me, even in this economy, they pay a hell of a lot less than the accounting firms. There is no way in hell that they get any of the best students.
As a taxpayer, you are paying uncompetitive salaries to your public servants. When you run into incompetent ones, just remember that you get what you pay for.
It’s not as if things will be rosy once the economy returns to normal. Even with rising tax revenues due to more robust economic performance, a lot of new revenue will need to be raised. I’m not entirely sure of what needs to be done or how it should be done, but acknowledging the breadth of the problems facing our nation’s finances is a good first step. If nothing else, it gives me confidence that Obama and his team are up to the challenge of turning things around for the long term.
Um, if you are implying what I think you are implying, you’re dead wrong. Orszag is most certainly not on the same level as those who wanted to privatize Social Security. He’s proposed a solution to solve the long-term financing issues with the program, along with MIT professor Peter Diamond, because the program does face minor projected shortfalls over the next few decades. You can argue, as some on the left have done, that this isn’t the right way to go, and there might be something to that. I don’t have the chops to say what is what, but it’s clear that this is a far cry from agreeing with the complaints from some on the right that the system is in crisis and thus possibly arguing, bizarrely, that privatizing the system is the right solution.
Love this post. It’s vital to deal with reality at crisis times.
And the picture is perfect. Sort of forensic accountant glam.
[…] John Cole also offers the administration some interesting advice: […]
Love ya, John, but I gotta agree with The Raven on the *entitlements* thing, at least as far as Social Security is concerned.
Think about it this way: One of the reforms and transparencies that Obama is instituting is to show the *true cost* of all programs paid for out of federal dollars, such as the ‘off-budget’ expenditures on Iraq and Afghanistan. But another of the reforms is to show the *true source* of all revenue received by the government.
One of the results of this is to break out the SS trust fund cash flow from the budgeting revenue, revealing how the earnings of the fund have been used to lower annual cash flow differential between overall spending and revenue (the deficit). BTW, this is what Al Gore was referring to when he said he wanted to put SS in a ‘lockbox’, something for which he was endlessly ridiculed.
Given that, I don’t see how any ‘entitlement reforms’ are needed in SS, since it’s obvious that the SS trust fund is fiscally healthier than the rest of the budget. Where’s the logic to ‘reforming’ the healthiest part of the whole budget, rather than the rest, which it has been subsidizing?
Medicare and Medicaid are a different story, but their problems are due to a much more global issue, runaway health care inflation.
I worked at the White House Office of Management and Budget and before that the Budget Bureau for about 25 years. During much of that time the historical data base calculations were under my jurisdiction. The automated database is structured so that past years are always, repeat always adjusted to be on a comparable basis with the accounting conventions in the president’s budget. Sometimes the budget totals are calculated on more than one basis, usually because the Congress has legislated something out of the budget which the president believes to be inconsistent with correct the concepts. In this connection, the notion of excluding any part of defense expenditures from the budget totals was, of course, ridiculous.
[…] let alone a 1.75 trillion dollar deficit (and yes, I am fully aware this number is bigger than it would be under older budget rules). Oddly enough, I think the bitterest fight in this budget will not be over health care, but cap […]
[…] just heard Peter Orszag, aka, “the Calculator™” quote Toby Keith: “There ain’t no right way to do the wrong thing” while […]