Just make me do it

Last week, the so-called Supercommittee that Congress appointed this summer—when it couldn’t find a compromise on how to cut the budget deficit and almost sent the government into default—also failed to find a compromise to cut the budget deficit. So now we fall back to Plan B, which calls for automatic spending restrictions.

Interestingly, though, the spending restrictions don’t take effect until 2013. How convenient! Now Congress has plenty of time to find a veto-proof coalition to override these spending restrictions and can even tuck them into its lame duck session this time next year.

Congress’ failure to suck it up and deal with the problem head on is alarming in and of itself, but what’s even more frightening to me is that the same scenario is playing out in several areas of economic policy. For example, the Europeans can’t deal with their own fiscal problems head on, so they dither in the short run and propose all kinds of longer-term solutions that either don’t work out, like their bailout—uh, financial stability fund—or that are even more complicated and impractical, like the current proposal for tighter fiscal union.

In financial regulation, it’s the same thing. The Dodd-Frank Act was literally thousands of pages long, but it mostly gave instructions to the regulatory agencies to write new rules—a process that is into its second year with no end in sight. As the new rules get proposed, big banks are leaning hard on the regulators to grant exemptions to the rules or otherwise take it easy on them. Even internationally, nobody is willing to deal with the too-big-to-fail problem head on, so we are stuck with lame proposals that are subsequently watered down in response to pushback from the banks.

In the language of economics, everyone seems to be searching, vainly, for a commitment technology—some perfect rule or mechanism that actually forces us to do the things we know we should but can’t bring ourselves to do.

Does that sound familiar? Yeah, probably a little too familiar, like when you know you have to stop lobbing the angry birds at those naughty pigs and start looking over your notes for the exam. Hard deadlines and requirements imposed by someone else and real consequences—like the ones you face with exams—seem to play a big role in actually getting us to do things we don’t really want to do. Otherwise, it’s too easy to procrastinate—again.

So let’s think about what that means for our policymakers. If we want a workable commitment technology, we have to be willing to submit to hard deadlines and requirements imposed by someone else. For example, I remember thumbing through a book by Alvin Hansen, a famous Keynesian economist and one of the creators of the President’s Council of Economic Advisers, in which he proposed that we hand off part of fiscal policy to a Fiscal Authority. The Fiscal Authority would work like the Fed—it would be politically independent and staffed by professional economists—but in this case, its job would be to figure out how much money Congress could spend each year, given the state of the economy and the world. Congress was still in charge of divvying up the money, but the Fiscal Authority set the total size of the pie.

Are we willing to live with an arrangement like that? Given what we’ve been going through, this could seem like a good idea. On the other hand, this may make you nervous—and rightly so—about giving up this much power to technocrats. There’s also a wee issue about the constitutionality of creating an authority like that, but remember that Congress delegates to the Federal Reserve its constitutional authority to coin money and regulate its value. This proposal for a Fiscal Authority may need work, but it gives an idea of what one model of an effective commitment technology would have to look like.