Strategic choice is key to solving economic problems – turns case.

CONCLUSION: INSTITUTIONALIST PUBLIC FINANCE IN AN ERAOF SIGNIFICANT BUDGETARY CHALLENGES

On 13 September 2011, Douglas W. Elmendorf, director of the Congres-sional Budget Office (CBO), testified before the Joint Select Committee on Deficit Reduction of the US Congress. ‘‘The federal government is confronting significant and fundamental budgetary challenges,’’ Elmendorf(2011: 1) told the committee. He continued: ‘‘If current policies are continued in coming years, the aging of the population and the rising cost of health care will boost federal spending, as a share of the economy, well above the23 For discussions of experience with stakeholder engagement outside the United States, see, for example, Ramstad (1991) and Reynolds (2004).FORUM FOR SOCIAL ECONOMICS372amount of revenues that the federal government has collected in the past. Asa result, putting the federal budget on a sustainable path will require significant changes in spending policies, tax policies, or both.’’ But there was still more. ‘‘The task of addressing the nation’s formidable fiscal challenges is complicated by the weakness of the economy and the large numbers of unemployed workers, empty houses, and underused factories and offices,’’ Elmendorf (2011: 1) added.24Thus, tradeoffs are unavoidable: ‘‘Changes that might be made to federal spending or tax policies could have a substantial impact on the pace of economic recovery during the next few years as well as on the nation’s output and people’s income over the longer term.’’ The CBO director made it clear that Congress needs to make strategic choices. ‘‘There is no commonly agreed upon level of federal debt that is sustainable or optimal,’’ he stated, acknowledging that economics offers no textbook answer to the question of how much (as well as to that of how)deficit reduction should be accomplished (Elmendorf 2011: 26). To be sure, his testimony also demonstrated that economic analysis offers some insight, especially into the economic effects of the timing and composition of fiscal policy action. But policymakers still face difficult choices: ‘‘The most fundamental question is what role the government should play in the US economy and society’’ (Elmendorf 2011: 34).Elmendorf’s testimony describes the setting in which American institu-tional economists are seeking to reexamine the core concepts of institution-alist public finance. And, as mentioned above, short-term and long-term fiscal challenges are not confined to the United States. This article has responded by identifying four core concepts: problem solving, institutional analysis, strategic choice, and stakeholder engagement. Those concepts were first fashioned decades ago, but continue to provide a solid basis for constructive analyses of fiscal and budgetary challenges. The four concepts examined in this article combine to form a coherent institutionalist approach to the study of fiscal policy questions. The approach begins with an interest in real-world problem solving and with an accompanying recognition that solving economic problems requires institu-tional adjustments. That interest directs institutionalists to an analysis of institutions for the purpose of getting to a problem’s roots by means of thecomparative case method. That method can shed light on policy alternativesand likely consequences, but only strategic choice can enable researchers and24 The task is also complicated by fiscal problems in Europe and weaker prospects for economic growthoutside the United States, observed Elmendorf (2011: 9–10).CORE CONCEPTS OF INSTITUTIONALIST PUBLIC FINANCE373policymakers to assess and choose among policy alternatives. And the need for strategic choice, combined with the absence of a value-free measuring stick or universal policy criterion, leads institutionalists to highlight the usefulness of stakeholder engagement. The institutionalist approach described in this article rests heavily on the scholarship and insight of John R. Commons. Commons thought it was appropriate for stakeholders to select the criteria by which a problem and policy options would be evaluated. He also thought the ‘‘right’’ solution was one arrived at with meaningful input from all affected parties. That would not generate a ‘‘perfect’’ solution in any objective sense, but it would instead be a ‘‘reasonable’’ solution that could be tested in practice and taken as astarting point for further investigations of economic problems (Commons1925).25Of course, Commons’s last book was published posthumously in 1950, and institutionalism has lost considerable ground within the economics profes-sion in the decades since then. Indeed, scholars were writing the tradition’s obituary in the 1960s. Nevertheless, given the fiscal policy challenges now confronting the United States and many other nations, Groves’s (1964a: 246)response to those writers continues to ring true: ‘‘If institutional economics is dead or dying, so much the worse for economics and public finance.’’