Chapter 2: Budgeting and Political Economy: A Theoretical Framework
When budgeting is treated as a matter of arithmetic, restoration of sound finance seems easy to achieve. A $1 trillion deficit could be eliminated over ten years simply by reducing expenditures by $100 billion per year. This annual reduction is little more than a rounding error in the fiscal accounts, as it amounts to less than 1 percent of GDP. To think of budgeting in this way is to think of it the way an individual might think about paring down some accumulated debt. This way of thinking is illustrated well by the widely used practice of reducing a national economy to a representative individual and reasoning in terms of that hypothetical individual. It is also illustrated by the practice of thinking and reasoning in terms of average magnitudes regarding variables of interest. All analytical efforts that proceed in this fashion treat a collection of individuals, no matter how large that collection might be, as equivalent to a single individual. Reducing budgeting by a collective body to budgeting by an individual has simplicity on its side. In dealing with complex situations, some efforts to achieve simplification will always be necessary to move the analytical effort forward. But there are different ways of achieving that simplification, some of which will distort unduly the nature of the situation that has generated the observations that require correction. This kind of distortion arises in collective budgeting when the setting is reduced to one of individual choice, for when this reduction is made, the only...
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