Get Off the Budget Treadmill

There is no denying that America’s chronic fiscal problems are political rather than economic in nature.

It is politics that explains why, according to the Congressional Budget Office, the federal government will likely run a deficit every year from now until 2038. It is politics that explains why President Obama and Congress have been unable to agree on the reforms of taxation and entitlements that are so manifestly needed. And it is politics that explains why, before too long, Washington insiders will be back to the usual brinkmanship over government funding and borrowing.

Most economists would agree that the politicization of monetary policy has undesirable consequences, like pre-election rate cuts and high inflation. Hence independent central banks. Yet there is no chance whatever of legislatures giving up control of the budgetary process to independent fiscal technocrats. So are there any alternatives? The obvious one is to enact budgets for longer than a single year.

This idea is not without precedent. A recent example of a multiyear budget comes from Israel, where one of us served as finance minister. The biennial budget approved in July 2009 (for the years 2009-10) was the first two-year budget in Israel’s history, and it was followed by biennial budgets for 2011-12 and 2013-14. Although Israel is going back to annual budgets in 2015, other democracies that have experimented with two-year budgets include Hungary and Spain. And a number of other states — including Austria, Canada and Slovenia — have moved toward rolling budgets, presenting two annual budgets at a time....