John Steele Gordon, in the WSJ (Sept. 28, 2004):

With the presidential elections weeks away, politicians are in full cry. While Iraq dominates, the federal deficit is getting its share of attention. That's understandable, seeing that for the fiscal year 2004, which ends on Friday, the government will report spending $422 billion more than it took in. Even in D.C., that's real money, greater than the GNP of all but 15 countries. But the figure bears little relationship to reality. It's nothing more than the result of major-league book-cooking that would get any corporate management a nice long stretch in Club Fed.

Just consider. In FYs 1998, 1999, 2000 and 2001, the federal government ran up"surpluses" amounting to $558.5 billion. So the national debt was reduced by $558.5 billion in those years, right? No, it increased by $400.7 billion.

Only in D.C.

Wall Street learned more than a century ago that management could not resist the temptation to keep corporate books in self-serving ways. As a result, as the great Wall Street banks and the NYSE came to dominate capitalism in the 1880s and '90s, they began to insist that books be kept according to consistent standards, now known as"generally accepted accounting principles," and that they be certified by independent accountants. Corporations that refused found that they could not get their shares underwritten or listed on the NYSE. Only in 1934 did the newly-born SEC make GAAP and independent certification legally mandatory.

Unfortunately, no such requirements prevent Congress and the president from keeping the books in ways that make themselves look good. In 1968, LBJ made a huge budget deficit disappear by simply making Social Security, with its large surplus being paid into the Social Security Trust Fund, an on-budget item. So all the hue and cry coming from people running for election this fall about the deficit, is so much, well, hue and cry. If any of them were serious about dealing with the fiscal problems, they'd propose reform of the government's bookkeeping methods as a first step. That, after all, is the only way we'll know what the deficit or surplus actually is.

As with corporations, someone from the outside has to decide exactly how to keep the books and inspect them for accuracy. Something analogous to the Federal Reserve, which keeps the awesome power to create money out of the hands of politicians, is needed. Fed members are nominated by the president and confirmed by the Senate for 14-year terms, with a chairman appointed from among them for a four-year term. They can only be removed for cause. A Federal Accounting Board, similarly structured, should set rules for how the government keeps its books and have the power to inspect those books.

You'll know when the politicians are actually serious about dealing with the federal deficit when they subject themselves to the same accounting strictures that every corporation faces. Until then, it's just talk -- pay no attention.