The Greek debt crisis has inspired economist Michael Boskin to lay out some fundamental lessons that are equally applicable to our own federal and state governments.
Quoting directly from this article by Boskin, the lessons are:
- elected officials systematically ignore long-run costs to achieve short-run benefits;
- they wait to act until they are forced;
- government policies cannot circumvent the laws of economics;
- governments cannot revoke the laws of arithmetic; and
- budget policy is not merely accounting.
The challenge is to devise fiscal reforms that limit these tendencies. That’s why, for example, it’s so important to replace the traditional defined-benefit (DB) pension plan in the public sector with defined-contribution (DC) plans. Because DB plans are based on complex actuarial calculations, they are inherently opaque and have proven to be easy to manipulate. By contrast, any change in a DC plan has an immediate and visible budgetary impact.
Lesson #5 is especially relevant to debate over Lt. Gov. Richard Ravitch’s long-term financial reform proposal for New York State, which is designed to promote budgetary balance (an accounting concept) rather than spending control (a meaningful policy goal).
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