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SAVEGO: Control the Controllable

Thursday, June 23, 2011

The key problem with this type of mechanism is that you are attempting to bind Congress to a metric that it does not control – the economy – and penalize them if they fail to meet those targets.

  • Debt and deficits as a percentage of GDP fluctuate largely with movements in the economy, rather than specific policy decisions of Congress. Therefore, using one of these metrics forces Congress to chase moving targets that are beyond their control.
  • If the economy grows faster than expected (thereby making the target easier to hit), given Congress’ natural behavior, they likely would take the opportunity to have a “spending party” or backtrack on previous action so that they don’t “over-achieve.” Yet, this economic growth may turn out to be only temporary, and then Congress will have to go back with an even tougher job than before, forced to make additional cuts to offset the new spending that had since been implemented.
  • Alternatively, if the economy grows slower than expected, then suddenly, at the end of the year, Congress will find that they failed to meet the goals that they thought were achieved. Thus, they will have to revisit their actions to find additional savings. Many would view this task as difficult or unfair, meaning that it might be overridden, and therefore undermine the credibility of the law.
2011-06-23 00:00:00

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