Removing Short-term Politics from the Budget.

 For far too long, many developed nations have faced poor allocation of their budget, with most reporting deficits for decades, leading to national debts to skyrocket, with the investors who help finance these budgets becoming weary that these bonds won't be paid off or worse, inflated away through increasing the money supply. The issue is not one that's even hidden; everyone who pays attention to these figures has been saying it for a long time. Our governments are too short-termistic.

I have been reading Rationality by Pinker, and it had a really interesting section at the start of the book, which highlighted something to me. He brought up myopic preferences, which have implications on our whole financial system. He used examples from the famous Marshmallow experiment, where one is offered a marshmallow now or two in the future and raised the question of how far in the future the extra cost of a marshmallow would outweigh having the one now, or how many marshmallows would you have to receive at a future date for your preferences to be interchangeable.

This whole system is congruent with that of our financial market. Every time you go to take out a loan, the bank weighs the interest against how much that money would be worth to them now, and slaps on a bit extra to cover defaulting and other factors. The staple of modelling this is usually taught as a discount factor, which is often exponential, which one would expect, if the cost of something now is lower than the benefit, we would expect a rational person to expect the same in the future. However, they saw that it was closer to a parabolic curve; the effect of this change is that these lines can overlap, using the brilliant example of ordering food, when you go to the shop, you often pick out healthier food, as we know that it's good for our long-term figure, we plan our food rationally for whats good for us, but when it comes to checking out most of us (certainly me) will pick out a little snack or treat, this demonstrates that in the short-run our goals get distorted. 

This has been known for a long time, with a story from the Odyssey where sailors who wanted the pleasures of listening to the sirens' song would tie themselves to the mast so that their temptation would not consume them and cause them to perish. Now our economy is structured in such a way that new politicians listen to the sirens (the public) heavily criticise any improvement to the longevity of allocating the budget, as no one wants to bear the high taxes that our spending demands, and leave it as a problem for future us or worse future generations (classic Boomer policy), this leads us constantly in a state where we are spending more and raising less with the idiology that the future will pay, while debts get exponentially larger.

Now, I think (and hopefully you do too), that it's time to strap our politicians to the mast. As previously stated, we do agree with rational policy when it's in the far distant choices, our preferences just get distorted when it comes time for us to pay the price. If we enacted those in charge of our budgets  (the Chancellor of the Exchequer in the UK), a system where short-term political plays to do what's best for the people now that was difficult to change while still allowing malleability and adaptability for whatever the economy faced. A system where decisions are pre-chosen and are fit to not exceed the budget.

Every political party with information on projections of the economy will be able to set predetermined tax rates for different parts of the business cycle. When in a recession, they can spend more; in a boom, they would be forced to run a surplus. These would be made in such a way where total National debt would not be able to increase by more than a small sliver (for example, at the end of their projections, say 10 years, the total projected national debt may only rise in line with the trend growth). Since every political party would be held to the same standard there would be no incentive for new parties to come in and instantly preech for the popular increasing debt approach they have always done, any party that comes in must be able to offset any increase in debt, as we need to make the tough decissions before they come as we cannot keep relying on the same strategy where change only happens in crisis. Overall spending and tax rates should be set in stone, the individual parties must decide how big they want the buget cycles to be, and the forced restriction to make the predictions being neutral would mean excessive deficites in economic periods where there is already strong growth while being harder to achieve, and we can hopefully return back to how the budget should be run and not the current one where we keep offsetting to the future.

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