Time - Man of the Year/Time_Man_of_the_Year_Compact_Publishing_3YX-Disc-1_Compact_Publishing_1993.iso/moy/101992/1019640.000

Text File | 1993-04-08 | 6KB | 127 lines

                                                                                ESSAY, Page 84

Deficit Reduction?

Excuses, Excuses


By Michael Kinsley


    The return of Ross Perot has brought the federal budget
deficit, like an unwelcome guest, back to the center of national
debate. Perot, whatever his defects, has offered a credible plan
for balancing the budget over five years. The general reaction
from the economic graybeards has been: fine idea, but now's not
the time. To slam on the fiscal brakes in the midst of a
recession, or a shaky recovery, or whatever the heck we're in,
would be suicidal. Partisans of the other two candidates have
grasped this argument as a defense of their considerably more
modest deficit-reduction proposals.

    Well, as Dana Carvey's Church Lady says, "How
conveeeee-nient."

    There are still some people who argue seriously that the
federal deficit isn't a major problem. This Essay is not
intended to answer them. It is an attempt to answer the less
eccentric argument that the short-term problem of stimulating
a weak economy dictates waiting a year or two before addressing
this threat to our long-term prosperity. That is the consensus
view of TIME own panel of economists

    The first answer to such concerns is: Are you kidding? Cut
the deficit too far, too fast? We should only have such
troubles. Anyone who has watched American politics during the
past decade will find it hard to lose sleep about the danger of
overly "drastic and quick action" (Nobel laureate Paul
Samuelson) on the deficit. Why not worry that Americans will
watch too little TV or eat too many green vegetables?

    A real deficit-elimination plan could hardly be enacted
overnight. Perot himself says it would take at least a year. And
a five-year plan would suffer inevitable slippage. Look at past
fiscal diets, like Gramm-Rudman. If the goal of a balanced
budget actually produced, say, an annual deficit under $100
billion by the year 2000, that would be widely regarded as a
spectacular success.

    No one is saying the federal budget should be balanced
overnight. But to say it shouldn't be balanced over five years
is as good as saying it shouldn't be balanced at all. Political
cycles and economic cycles both dictate this reality.

    Politically, the nation's attention span is limited. Who
can believe that America would stick to a course of fiscal
discipline lasting eight or 10 or 15 years? A mere five years
is longer than a presidential term. This means that even a
five-year deadline imposes no real political accountability. In
our political system, a promise to diet over five years is
barely a pious wish. A promise to diet over a longer period
isn't even that.

    Economically, there isn't enough time for even a five-year
deficit-reduction plan if the periods before, during and after
recessions are ruled out. There was about seven years from the
pit of the last recession to the beginning of the current one.
And that, as Reaganites love to tell you, was an extraordinarily
long period of growth. Perhaps you believe -- as the supply-side
conservatives did during the 1980s and Keynesian liberals did
for decades before -- that the business cycle has been
abolished. If not, the calendar is against you: we cannot wait
until full recovery from the current recession to begin serious
deficit reduction and hope to have it completed before the next
recession becomes an excuse to abandon the exercise.

    Although raising taxes or cutting government spending or
both would be an antistimulus for the economy, a credible
deficit-reduction plan would have a countervailing stimulus
effect of its own. Long-term interest rates would go down and
productive private investment would increase, as markets became
convinced that the Federal Government's voracious appetite for
capital was being tamed. More amorphous factors -- a renewed
optimism and confidence that the U.S. was in control of its own
future -- would also have practical economic payoffs.

    To be sure, a credible plan to stimulate our way out of
recession for a year or two and then begin serious deficit
reduction would also have these pleasant effects. But any such
plan to start dieting in two years is inherently incredible.

    This is not to pooh-pooh the short-term problem. The
conflict between the short-term need for stimulus and the long-
term need for deficit reduction is genuine. The party poopers
were predicting this moment -- and being laughed at for it --
throughout the 1980s. They said the time would come when we'd
need the medicine of fiscal stimulation, and it wouldn't be
available. And here we are, taking massive doses of both fiscal
and monetary tonics -- a $300 billion-plus deficit and the
lowest short-term interest rates in a generation -- yet we're
still sickly. We abused the drug while we were well; now it
won't work again until we purge it from our system.

    What's galling is to hear this predicament invoked as an
excuse for inaction by some of the very people who put us in the
predicament. Republicans who dismissed the deficit in the 1980s
-- Why worry? Times are good! -- warn against addressing it in
the 1990s: Not now. Times are bad!

    The Democratic candidate, Bill Clinton, also uses the
recession as an excuse for inadequate deficit-reduction plans.
But Clinton's math is a bit more honest than George Bush's, and
at least Clinton would redirect some government spending toward
useful social investment. And, of course, he hasn't been part
of the Administration that got us into this mess.

    America is like the fellow in the song (The Arkansaw
Traveler, ironically enough) who doesn't fix his roof when it's
sunny and can't fix it when it's raining. Our leaders have told
us there wouldn't be a deficit. Then they said the deficit
didn't matter. Now they say it needs to be fixed, but not just
at the moment. When?