I have been arguing for quite some time (at least since I first wrote Hamilton’s Blessing, a short history of the national debt, in 1997 — when the debt was only a third of what it is today) that as long as governments can keep their books as they please, there will be no solution to the problem of chronic government budget deficits. Accounting causes near instant MEGO (My Eyes Glaze Over) in most people — and in the entire political press corps — so unless governments are constrained by law, politicians know that they can get away, in the short term, with budget gimmicks to hide deficits. And of course, in the long term, it will be someone else’s problem. Budget gimmicks are easy, saying no to political allies is difficult, so budget gimmicks it will be until fiscal disaster looms.
Frankly, it’s been a lonely position to take. I can’t remember reading a single editorial or hearing a single sound bite calling for honest accounting by governments. Until yesterday. That’s when Bill Gates spoke out on the issue.
“It’s riddled with gimmicks,” Mr. Gates said of the “tricks” states use to balance their budgets. Citing moves such as selling state assets and deferring payments, he said some methods are “so blatant and extreme,” that “Enron would blush,” referring to the energy company that collapsed a decade ago amid an accounting scandal.
Gates thinks that governments “need more scrutiny and should follow more-transparent accounting principles, such as those used by Google Inc. and Microsoft Corp.” In other words, governments, like every corporation in the country, should be required to keep their books according to the governmental equivalent of Generally Accepted Accounting Principles and to have their books certified by an independent, politically insulated body that has a mandate to ensure honest accounting.
Politicians will hate the idea and can, undoubtedly, depend on their water bearers in the press to run interference for them. Corporate management hated the idea when Wall Street forced it on them over a century ago. But they learned to live with it, to the infinite benefit of the American economy, and so will the politicians, also to the infinite benefit of the American economy.