How often do you find Matt Yglesias and Megan McArdle agreeing on something? Yglesias, talking about the need to be conservative with future budget projections, says:
The other thing, of course, is that “stuff happens.” Nobody sitting down in 1925 to write a 25-year budget forecast would have made the funds available to win World War II. It’s nice to think that you have a plan that leaves headroom to engage in some deficit spending if it turns out a meteor is going to strike the earth, or Jack Layton is the leading edge of a Viltrumite invasion.
We don’t even need to go back to World War II. We can go back to 2001, when we had a projected surplus. So we spent and cut taxes. And … suddenly we didn’t have the money for a trillion dollar war. We can look at Japan, which invested zillions in “stimulus” spending, got themselves into massive debt and then got hit by one of the biggest natural disasters in history. Hell, we can look at our current situation, where we were pushed to the maximum sustainable debt and suddenly had an economic collapse. We see it in states that cut back on snowplow budgets in warm years, then scream for help when they get a blizzard.
McArdle makes the comparison to people’s personal finances.
Have you ever known anyone who got into trouble with credit cards? I don’t mean someone who had something go wrong and ended up deep in credit card debt because they had to pay the rent somehow; I mean someone who wakes up one day with $21,000 in debt, a closet full of shoes, and no idea where the money went?
The way they get into that trouble is often that they don’t budget. They consider each purchase in isolation: “can I afford these shoes? Can I make the payments on that television?” And in fact, they can afford each of their purchases. They just can’t afford all of them.
We hear this constantly on the spending side. “What kind of country are we if we can’t afford education?” “Surely, this country can afford to provide healthcare to everyone!” “Farm subsidies are such a small part of the budget!” Yes, we can afford some of these things; the problem is that we’re trying to afford all of them simultaneously.
And we’re setting ourselves up to make the same mistakes again. The liberal plans to sort of balance the budget all have taxes rising to historically high levels. The problem is that you now have no room if something really bad happens. Technically, yes, you’ve “balanced the budget”. But you’ve put yourself into such a tenuous fiscal position that a war, a disaster or an economic downturn is ruinous.
A time of peace and prosperity is not the time to be pushing your taxation level to the “break glass in case of emergencies” level. You have to leave some room for the unexpected.