Regarding contingent liabilities (in particular, loan guarantees), wouldn’t an ideal solution be to require the government to, in effect, purchase insurance via some sort of credit default swap, so we wouldn’t just be including some “expected value” type cost in budgets, we’d actually be making the cost explicit and known (since we wouldn’t have to pay more if the contingent liability became an actual liability)?

Of course, that would require a sufficient market and require that we could reasonably assume that the seller of that “insurance” will be able to pay up if and when necessary (and without government sending them money so they can send it back to government), as opposed to our doing the rough equivalent of buying insurance on the Titanic from a passenger on the Titanic.

Do you agree this approach would be ideal, and if so, what are the prospects, given the requirements I mention and/or others?

Of course, I’m just picking 2030 for illustration. The same would apply for a target in 2040 or whenever, and a target for 2030 may not suffice for the same reason (i.e., the drivers of the fiscal imbalance not yet leveling out). The point is just the equivalent of saving for our own retirement or saving for college or for a rainy day that is inevitable. If we want our balance sheet to end up a particular way in 20 or 30 years, we may prefer to sacrifice more over the initial 10 years (and exceed that ultimate balance sheet target at the end of the first 10 years) so we don’t have to sacrifice even more than we otherwise would in the subsequent 10 or 20 years.

From a more current perspective – are we not over due for a discussion of the effects of accrual accounting would have on the 60 in 20 campaign and other fiscal debates?

Brooks is right about the time horizon. The specific items that Len mentions would likely be captured if you looked at projections that stretch far enough (but I am sure Len has other ones in mind as well that might not). The contingent liabilities that Marvin wrote about would not, however, since the current convention is to leave them out of the budget until they actually happen. On this point, by the way, kudos to the Administration for including in the budget a line item for future disaster costs, which are another form of contingent spending that often gets overlooked.

In terms of a fiscal target, we will definitely need more than a single target in a single year, but it may not fit on the bumper sticker . Although, 60 in 20 and declining thereafter might work.

Great point re: hiding liabilities (or viewed differently in some cases, overstating projected revenues — from the government-run lottery, etc.). Isn’t the opportunity to engage in such deception largely dependent on a limited time horizon — e.g., a debt/GDP goal set for 2020 without accompanying goals for 2030, etc.? Eventually such hidden elements must come to the surface (reducing projected revenues and/or increasing projected spending*), and more so with time, right?

* Unless there is explicit deception (rather than implicit), with the government dishonestly claiming access to revenues (from the lottery, for example) that it simply doesn’t have.

State and local governments have turned hidden borrowing into an art form, since most are required to balance their budgets. Selling future tobacco tax settlement revenues at a steep discount, borrowing from state employee pension plans (and/or underfunding them), and myriad other creative schemes exist.

Correctly measuring debt if policymakers have an incentive to hide it will be an enormous challenge.