Monday, March 20, 2017

A Better Budget Process

If I were to design the budget of a country I would do it completely differently from how any country in the world does it. I would throw out the opinion polls (which can easily be manipulated) and close the doors to lobbyists and interest groups for the drafting process, in order to prevent corrupting the entire system. A group of economists would then be tasked with estimating the multiplier effects of every government program and modeling how the multipliers decline following the law of diminishing marginal utility as you get more of a good, the amount of added benefit declines. This is how we determine whether the government should spend $1 million or $1 trillion on education, whether we should give a universal basic income of $0, $1000, or $5000 per capita to maximize the well being of our country.

The computer model would then list the multipliers of every government program. This is different based on different government programs, food stamps have a multiplier of 179% while the military has a multiplier of around 50%, every type of spending has this metric which is one way we should guide how we design our budgets. We would start off with estimates of how much the multiplier is for every dollar and then claculate the budget increasing spending until the marginal benefit of the last dollar spent is equal to the marginal cost of the different types of taxes and government borrowing to finance the government spending. The computer would keep increasing spending in one program until the multiplier is equal to the expenditure of the next valuable program and keep increasing spending until the marginal benefit of government spending is equal to the marginal cost of taxes and borrowing. This will help money move to more productive uses and grow our economy as much as possible. Every year we would get a better understanding of how different forms of government spending and taxes behave in the real world and adjust spending accordingly. During a recession we would likely continue to practice counter cyclical fiscal policy to make our economy run smoothly.

Another guiding principle to government spending will also be to reduce risk for the economy as whole so that the decisions people make will take in externalities as much as possible. We will almost certainly have a carbon tax with such a plan, as well as a rule of no bailouts under any circumstance with this guiding principle of people seeing the consequences of their actions.

After the model budget is proposed it would then go to a vote in Congress and be available for public comment, but such a budget would be better for the economy as a whole, and if we have a good Congress working for the benefit of the country would hopefully vote for such a budget. Some programs for public safety might be implemented on top of the budget if they are not covered by the number crunching computer, it is hard to tell without building the model. It is likely the media would manipulate public opinion against such a plan, meaning the enacted budget would probably be worse than our optimum budget. At the end of the day however, it is better to start with the best plan possible to get our most optimal final result.

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