BEYOND THE NUMBERS
The accounting convention used since enactment of the Credit Reform Act of 1990 already reflects the risk that borrowers will default on their loans or loan guarantees. . . . [Fair-market accounting] proposes to place an additional budgetary cost on top of the actual cash flows . . . to reflect a cost to society that stems from the fact that, even if the cash flows turn out to be exactly as estimated, the possibility that the credit programs would cost more (or less) than estimated imposes a cost on a risk-averse public. . . .
A society’s aversion to risk may be an appropriate factor for policymakers to take into account in a cost-benefit assessment of any spending or tax proposal but adding a cost to the budget does not make sense. . . . Inclusion of a risk aversion cost for credit programs would be inconsistent with the treatment of other programs in the budget (many of which have costs that are at least as uncertain as the costs of credit programs — for instance, many agriculture programs and Medicare) and would add a cost element from a traditional cost-benefit analysis without adding anything based on the corresponding benefit side of such an analysis. It would also make budget accounting less straightforward and transparent.
[Fair-value accounting] represents a misguided attempt to mold budget accounting to facilitate a cost-benefit analysis, with the result that neither the budget nor the cost-benefit analysis would serve their intended purposes well. [Emphasis added in bold]Mr. Lane says, rightly, that policymakers should take into account the societal advantages and disadvantages of federal credit programs when voting on them. They should do the same when voting on other federal programs and tax policy, as well. But pretending that the government spends more on these programs than it actually does is the wrong way to accomplish that.