Risky Returns: Accounting for Risk in the Federal Budget

58 Pages Posted: 15 Apr 2012 Last revised: 23 Jan 2023

See all articles by David Kamin

David Kamin

New York University School of Law

Date Written: March 1, 2012


There has been a growing consensus among academics, analysts, and policymakers that the official federal budget estimates should reflect the “cost of risk” — the amount that the private market would demand to bear risk. The result would be to add tens if not hundreds of billions of dollars in annual costs to the federal budget and, in combination with the budget enforcement laws now in place, make it much more difficult for the federal government to create or expand programs that involve risk — ranging from student lending to home mortgage guarantees to, potentially, broad social insurance programs like unemployment insurance. This article is the first academic analysis to reject this consensus and argue that including the “cost of risk” would improperly skew budget estimates. In addressing this issue, this article explores the purpose of budgeting and concludes that official budget measures are best used as a gauge of the federal government’s fiscal position and not as a means of capturing broader social effects. Including the “cost of risk” in the official budget estimates confuses cost-benefit analysis for budgeting and would generate incoherence in the official budget measures that would leave them doing little well at all.

Keywords: federal budget, risk, budget rules

Suggested Citation

Kamin, David, Risky Returns: Accounting for Risk in the Federal Budget (March 1, 2012). Indiana Law Journal, Forthcoming, NYU Law and Economics Research Paper No. 12-10, Available at SSRN: https://ssrn.com/abstract=2039784

David Kamin (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

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