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Beware of Policies and Legislation Based on the Generational Accounting Scam

Pete Peterson

The Peter G. Peterson Foundation (PGPF) and its allied army of associated deficit hawks want the Congressional Budget Office (CBO), the General Accountability Office (GAO), and the Office of Management and Budget (OMB) to do fiscal gap accounting and generational accounting on an annual basis and, upon request by Congress, to use these accounting methods to evaluate major proposed changes in fiscal legislation.

Generational Accounting is an invalid long-range projection method that doesn’t take into account inflation, the projected value of the Government’s capability to issue fiat currency and reserves in the amounts needed to fulfill Congressional appropriations, and re-pay its debts, the projected non-Government assets corresponding to government liabilities, the likely economic impacts of Government spending, surpluses, and deficits, the impact of accumulating errors on projections, and the biases inherent in pessimistic AND contradictory assumptions. It is a green eye shade method that ignores both economic and political reality.

If you want America to end deficit terrorism and austerity, and to have the fiscal policy space it needs to begin to restore the American Dream, then you need to defeat proposed policies or legislation which puts building blocks in place to bias fiscal policy towards austerity and the economic decline it will surely produce for ourselves, our children, and for their children. Proposed policies and legislation of this kind must be defeated for the following seven reasons.

First, the dangerous practice of making policy makers focus on deficit neutrality as THE key evaluation criterion for new government fiscal policy, has introduced a bias towards austerity policies over the past 37 years that is largely responsible for the higher levels of unemployment, the unremitting downward pressure on wages, and growing inequality in America. The proposed requirement for CBO, GAO, and OMB to perform annual fiscal gap and generational accounting will heavily reinforce and extend the already ridiculous evaluations of fiscal legislation for deficit neutrality and fiscal gaps, rather than for the real economic and societal impacts of fiscal legislation performed by these agencies.

These evaluations are now based on invalid projections over a ten year period. But legislation inspired by the generational accounting point of view would require the same kinds of evaluations, and even more invalid and outlandish projections over a 75 year period. To extend the projection period out to 75 years and include “liabilities” that have no legal accounting status at all at this time, will only strengthen the destructive bias towards austerity that is producing an economy that increasingly vacillates between stagnation and dangerous volatility, and creates a more grossly unequal America.

Second, it is beyond the capacity of CBO, OMB, and GAO to make meaningful projections using 75 year time frames at all. Current fiscal gap evaluation practices by these agencies may rightly be called science fiction because of the notorious deviations of their projections from reality even as little as four months into the future, and certainly over the ten year period they now cover. But to double-down on this bias towards austerity by institutionalizing inter-generational accounting and projections of “unfunded liabilities” is to turn our current ten-year projection practices into pure fantasy 75 year ones. It is both fiscal irresponsibility and fiscal insanity to take such projections seriously.

Third, passing generational accounting-based legislation will strengthen the official status of the myth that Governments issuing their own non-convertible fiat currencies having free-floating exchange rates, and no debts in a currency they don’t issue, still have Inter-temporal Government Budget Constraints (IGBCs).

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