When money's no object, bad choices abound

If the US continues to act without minding how much money it spends, it will continue to make poor policy decisions

By , Guest blogger

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    Are the wars we're fighting to preserve freedom and save lives worth their costs? It's hard to say when we're not paying for them yet, writes guest blogger Diane Lim Rogers.
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Ezra Klein has a really excellent column on war costs in today’s Washington Post (Business section). His essential point is pretty much a central philosophy here on EconomistMom.com: if we behave as if there are no budget constraints (yet there really are underlying tradeoffs among scarce resources that we just choose to ignore), we’re almost certainly going to make poor choices where marginal benefits fall short of marginal (and true) costs.

Some of my favorite parts of what Ezra has to say (emphasis added):

[F]or more than a decade now, we’ve waged war as if it were free, keeping our wars off the budget and, rather than paying for them as they were fought, slapping them on the national credit card. Paying as you go, after all, is hard. It forces you to make decisions about competing priorities. When you don’t pay up front, those decisions become easy. And war should never be easy...

Honest budgeting serves a purpose beyond making sure revenue matches spending… The numbers on the page — and the trade-offs they demand — are as close to rational as the political process can get. That’s the point of them. By forcing us to make the tough decisions, they help us make good decisions…

The Obama administration has improved the process some, mostly by asking for war funding when the budget is submitted (although the funding itself is still classified as “emergency” spending, and so is not actually ruled by the budget process), including some funding in the budget and more tightly defining what can go into the emergency packages so they don’t simply become budgeting by other means for the Pentagon. But the wars are still charged to the credit card and the Pentagon is still protected from trade-offs.

Even some within the armed forces worry about the Defense Department getting used to this system. Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, gave an unusually frank news conference in January. “The budget has basically doubled in the last decade,” he said. “And my own experience here is that in doubling, we’ve lost our ability to prioritize, to make hard decisions, to do tough analysis, to make trades.”

By its very nature, war poses difficulties for the budget process. For one thing, its costs are at least partly economic, but its benefits often are not. The fact that saving the lives of thousands of Libyans won’t reduce the deficit doesn’t mean it’s not a good thing to do. Moreover, budgeting is about planning, and war is hard to plan for. It often starts unexpectedly, and it frequently ends unpredictably. We don’t know how long a war will last, or if it is known, we might not want that information public. But difficult is not the same as unnecessary.

“The whole point of budgeting is to provide transparency,” [Harvard budget expert Linda] Bilmes says. “It’s the place where we see where our real priorities are.” By refusing to budget for war, our leaders aren’t saying that the safety and security of the United States is our top priority. They’re saying that they’re worried the conflict really isn’t our top priority and that if asked to pay for it, the American people would think other budget priorities more pressing. But those are choices we need to make. Because we spent trillions of dollars in Iraq, it couldn’t be spent on better ways to improve the strength and security of the United States. Refusing to make choices when it comes to war is, in itself, making a choice — and not a wise one.

The same point could be made with any other part of the federal budget that we currently give (and for a long time have given) a “pass” to when it comes to paying for it. If it makes sense that we ought to be evaluating whether the wars that preserve freedoms and save lives are worth their cost, then certainly we should have applied that test to the higher physician payments under Medicare or the extended Bush tax cuts–things that mostly “preserve” and “save” the after-tax incomes of higher-income households–a long, long time ago.

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