Wednesday, October 7, 2009

The Economist likes Independent Budget Officers

In September, the Economist magazine published an editorial arguing in favour of independent budget officers. They draw a parallel to central banking, which has benefited over the past 20 years from a move toward greater independence.

Here is the core of their argument:

Hence the importance of the other approach: appointing independent budget monitors. Politicians will not (and should not) outsource tax and spending decisions to unelected technocrats, but all countries should have independent bean-counters to pass judgment on their fiscal plans. Even without statutory power, such bodies have an impact. New cost estimates from the CBO, for instance, recently changed the terms of America’s health-care debate. These bodies should not just assess politicians’ plans, but offer simulations of different fiscal paths. Britain’s Tories want to copy the CBO model.

They are right. No politician likes being second guessed, but the greater fiscal credibility that such rules and institutions provide actually increases a finance minister’s room for manoeuvre. It also helps central bankers, by assuaging investors’ fear that bankrupt governments will resort to printing money. Credibility will not magically remove the difficult budget choices that lie ahead. But it is an important place to start.

Hat tip to Vaughn Palmer/Vancouver Sun.