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9/18/06

Harvard: When Words Get in the Way: The Failure of Fiscal Language — by Julia Hanna


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When Words Get in the Way: The Failure of Fiscal Language — by Julia Hanna

Does the federal deficit matter? Oceans of ink track and report this monster tally (current estimates for fiscal year 2006 stand at $260 billion), yet Jerry Green of Harvard Business School and Laurence J. Kotlikoff of Boston University contend that the deficit and related fiscal measures are arbitrary terms with no intrinsic meaning, a lesson that even economists have not learned.

"On the General Relativity of Fiscal Language," a working paper for the National Bureau of Economic Research, provides a mathematical proof that the deficit, taxes, and transfer payments are no more than labeling conventions—representing, in the words of the authors, "an exercise in linguistics, not economics." Like Einstein's General Theory of Relativity, which concluded that concepts like time and distance depend on one's reference point, current fiscal language "represent numbers in search of concepts that provide the illusion of meaning where none exists."

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