Budgets also exist at the individual level. It is here that we can begin to understand the budget process as a mathematical phenomenon, rather than one of growing expectations. Personal budgets tend to be discussed as 1) a savings for a future expense, or 2) as an adjustment to ensure expenditures are less than income. For example, a small amount is saved from every paycheck and put into a separate envelope to be used "when the time comes.' In the second approach, personal budgeting mimics governmental or business management. It is an effort to increase revenue and decrease expense. Cash flow concerns are at the heart of budgeting.
A personal budget does not require a consensus of unrelated players, obedience to authority, elaborate procedures to change your mind, or a constant chorus of blame or panic. These things only occur within organizations. Risk is personally assumed, and it is not assigned, diverted or shifted onto others. There is no outside analyst comparing your management to an invented ideal. The only consequence and expectation is the will to survive. However, because all money is collectively owned, and flows from one party to another, personal habits get a lot of attention in both economic and business research. Consumption drives production in the standard economic model. The desire everywhere is for budgets to expand. More revenue and less expense is the universal ideal. When individuals are thriving, this is regarded as burgeoning trade.
All budgets are connected to other budgets. Budgets exist allegedly as a means to ensure the ability to consume. Yet, it seems that government is perpetually embroiled in a budget crisis. Over hundreds of years, there has been no improvement in management skill. A budget of a single year is considered a gargantuan accomplishment. In attempting to predict, plan and create the future according to a blueprint, we have introduced fear, panic and volatility. Spending and then cutting, building and then destroying, reorganizing, attempting to capitalize on brief opportunities, and responding to supposedly unexpected problems are all characteristics of the budget process. Chances are that some will claim that successful navigation of these events are due to the success of the budget process. In reality, it is the budget process itself that is creating some of these reputedly unpredictable incidents. Economics is not the study of scarcity or plenty; it is the study of the activity that creates scarcity and plenty.
Cause and effect should be a basic presumption of scientific economic analysis. If the economy is volatile, we created the volatility. If there is scarcity, it is because we have failed to expend our effort in the same hierarchy as our highest priorities, thus creating the scarcity. Budgets are not a cure, and are quite often the disease. Because of money, good ideas are abandoned; because of money, bad ideas are sustained.
Part of the problem with budgets is that all priorities are self-centered. They ignore the fact that we are part of a chain of transactions. Our revenue is someone else's expense. One group is underworked, overpaid and undercharged, while another group is overworked, underpaid and overcharged. This happens by design. While trade is cooperative, the mathematical relationship is fundamentally adversarial. Every transaction has a winner and a loser. Budgets set in place a plan to win in the aggregate, which means other groups must lose in the aggregate. Not surprisingly, when one group is highly satisfied, another group is suffering terribly. The employer has great profits, while the employees are struggling. One business advances while another suffers. Apple goes up while Microsoft goes down. Only expanding consumption can allow two competitors to rise together, which is why growth is viewed as the ideal.
While equality is a political ideal, there is no equality in the marketplace. Laws to provide equal treatment, equality under the law, or contract enforcement, only institutionalize the mathematical inequality of the marketplace. Laws act particularly unfavorably toward the coming generation. Given the central role of education in society, public and private budgets for education occupy a tremendous amount of budgetary resources. This is one of the best pieces of evidence that the budget process is a failure. Education should not be a burden for either the current generation or the next generation.
The Basic Math of a Budget
As stated previously, money is an intellectual agreement that is collectively owned. Value has no absolute definition. The question of how many eggs is one chicken worth cannot be answered conclusively. Nevertheless, trade has a mathematical root that we can study separate from how any particular values are applied. There are general mathematical laws regarding budgets.
A balanced budget is when revenues and expenses are the same. This can be expressed as R=E.
An imbalanced budget can be either a surplus or a deficit. A surplus is when revenue is greater than expenses: R>E or E
These budget formulas are missing the most important element: time. The government, organizations, businesses and individuals do not live in a stagnant model. The cash flow is constantly in flux. Revenues and expenses change for a myriad of reasons. Like a see-saw, the current state of the cash flow can be momentarily positive, negative or balanced.
The primary shortcoming of the budget approach is that it is an artificial logic; it attempts to enforce an unnatural rigidity on the natural process of life. Money is only a substitute for barter. Changes in values are driving one another's budgets, and our ability to trade freely. There is a qualitative difference between planning (which makes sense), and budgeting (which is nonsense).
For an example, we can study the food purchases for a school cafeteria. The planning needs to reflect the school year, vacations, seasonal availability of fresh food, and the most difficult thing to predict: customer demand. Using historical data, we can get a sense of previous years' sales and expenses, but the more we attempt to fine-tune a budget using historical data, the more likely errors will be introduced.
One would not carry an umbrella today because it rained one year ago on this date. Adjusting our expectation to match better the previous calendar, for example, the same Monday of the same week of the same month, would fare no better. Rain is not determined by the calendar, but rather by the season. It does not repeat so precisely that any historical data is of any practical use. This inconsistency keeps weathermen employed. Yet, managers are constantly mining data in an attempt to find some hidden pattern upon which to claim a valid prediction. They think they are responding to new data when they make adjustments, when they are really adjusting to their own flawed assumptions.
The employees serving the food have the best sense of the buying habits of the students. The managers making the money decisions at the top are the most ignorant within the entire organization hierarchy. By trying to predict future cost and demand they are completely isolated from the present and the consequences of their decisions. It is an example of those having the knowledge and power having the least amount of understanding, and those with the understanding having the least power. This is tragic because the act of buying or selling is relatively simple.
If you miss the weather report, then chances are it will not have a significant impact on your day. With a modicum of planning, the budgeting process can be replaced. The imposition of a budget mentality within an organization creates more chaos than it avoids. The budget becomes the customer, not the client. The quality and selection of the school lunch is based on the budget, not based on the likes or needs of the students. Imagination is not being used to solve problems, it is being used to invent numbers which are the problem.
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