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Government accounting rules fall into that category of important things that are ignored because they are boring. But they're important! So I'm glad to see James Surowiecki point out one of the more galling quirks of our budgeting: The fact that we don't separate investment from consumption. Business income statements do: They have fields for capital investment, and fields for regular spending. The government does not. Most folks realize this is silly, but the government has to play by its own rules, and thus productive investments look the same as useless spending. As folks like Congressmen James Oberstar point out, this leads legislators to "emphasize projects that cost less on an annual basis but more on a long-term basis, while also leading us to underestimate the benefits to the economy at large of investments in things like infrastructure, basic research, and so on." Surowiecki goes on to argue that we've been understanding the bailout plan all wrong:
In today’s Times, there’s a front-page story on the swelling budget deficit, and the bailout package is mentioned first among the factors that are contributing to that deficit. But surely calling the recapitalization package “spending” is more than a bit misleading, since the money will be literally invested, going to purchase preferred shares in the banks, which come with guaranteed dividends and warrants attached that will give the government an upside (albeit not enough of one) if the banks’ stock prices rise. If you take part of your income and buy municipal bonds or stock, we generally wouldn’t say you’d spent that money. We’d say you invested it. I realize that, given the way the U.S. budget is accounted for, it’s accurate to say the $250 billion package is increasing the deficit. But it’d be good to see some acknowledgment that, in this case, “spending” that money is going to make the government richer, not poorer.Yep.
