BUDGET RULES

People tend to expect both too much and too little of budget rules. Because they are more art (or perhaps, craft) than science, it is impossible to derive some ideal set of rules through theory. Because they involve many arbitrary elements, they are also easy to disparage. And yet, an orderly decision process requires rules, written or unwritten. We believe that the return of significant deficits after a brief interlude of surpluses will make it inevitable that budget policy will be a prime focus of attention in 2005 or soon thereafter, and that budget rules will receive a significant share of that attention. This article represents an attempt to make some sense out of budget rules and what we might expect from them. Budget rules can be likened to the rules by which a household conducts its financial affairs. No matter how formal or informal, they cannot force rational budget decisions if the parties to the agreement do not want to be rational. By the same token, once there is a political consensus behind a specific goal, like balancing the budget, rules can limit the extent to which the Congress strays from that goal. They can keep nudging legislators in the right direction, even if they do not always prevent moves in the wron