As Washington ponders Bill Clinton's 1993 budget fights through the lens of Bob Woodward's critical book The Agenda: Inside the Clinton White House, others might want to ponder how Clinton's 1994 budget passed with little change and no fanfare. The answer: It did so because Clinton avoided breaking what might be called Norquist's law and did not succeed in contracting what Daniel Patrick Moynihan calls Baumol's disease.
Norquist's law is named after Milwaukee Mayor John Norquist, a "new Democrat" who says his first goal is to hold increases in city spending below the rate of inflation: "Every year, we [in government] should reduce the share of the city economy we take." The Clinton budget appears to meet this test; outlays are projected to rise 2.4 percent, less than inflation, and, with economic growth continuing, budget outlays as a percentage of gross domestic product seem likely to fall from the current 22 percent closer to 21 percent.
Why has this happened? First, there were windfalls. The $60 billion of spending in George Bush's budgets for paying off savings and loan depositors has been replaced by $10 billion or so from sales of S&L assets -- about a $70 billion windfall. Second, defense spending is going down. Third, there is constraint imposed by tight caps on discretionary spending set by Bush's Office of Management and Budget director, Richard Darman, in the 1990 budget summit agreement and reaffirmed when Congress passed a version of Clinton's budget in 1993. Darman says the caps "help make the process work better and assess the comparative worth" of different proposals. But Congress could repeal the caps anytime it wants to.
Facing political reality. The most important reason for the shrinking of government's share of the economy is that the political process insists on it. No one in the Clinton administration wants a repeat of the firestorm of angry criticism that greeted the president's tax increases of 1993. His proposed stimulus package -- the kind of federal lagniappe that was popular with voters a generation ago -- had to be withdrawn when it sparked strong opposition and inspired no strenuous support.
So with spending caps in place and with budget rules that force those who want higher spending on one program to find the money in another program, Clinton's work on the budget was tightly circumscribed. He was able to policy-wonk through the numbers, rewarding some departments that were reinventing government a la Al Gore, penalizing others that weren't. He had the help of the able and politically shrewd OMB Director Leon Panetta and of the highly competent and aggressive OMB career staff. Like a student at a liberal college left free to choose his curriculum, Clinton falters when given too much leeway, trying to sell voters more than they will buy on health care or in the 1993 budget. But when faced with a well-structured battery of multiple-choice and short-answer questions, he produces A- level work.
Clinton will likely continue to observe Norquist's law. The economy seems likely to keep growing, which means higher revenues and lower outlays on unemployment-related spending programs that consume vast sums when the economy falters. In Congress and from the public, there is less demand for more spending on new programs than for less spending on current ones: The House leadership has to pull out the stops to defeat New Democrat Rob Andrews and conservative Bill Zeliff's A-to-Z spending-cut proposal, and the next Congress will be more Republican than this one.
Clinton is also likely to avoid Baumol's disease, named after William Baumol, a New York University economics professor, and summarized by Moynihan as the tendency of the costs of personal service providers -- opera singers, teachers, doctors -- to increase faster than the economy grows. To this, Moynihan adds the corollary: "Activities with cost disease migrate to the public sector." The Clinton health care plan was an attempt to accelerate the migration of one seventh of the economy, much of it personal services provided by doctors, from the private sector to the public. But the plan has faltered in the political process, while health care financing itself is being rapidly transformed across the country by businesses, insurers, hospitals, doctors and other care providers.
All of which means, though neither liberals nor conservatives like to say so, that the federal government's share of the economy will likely shrink in the first Clinton term. This anomaly of a Democratic administration is matched only by a Republican counterpart: The government's share of the economy grew rapidly during the presidency of Richard Nixon. That will have happened, now as then, despite the personal views of both presidents, contrary to the hopes of their copartisans and against the expectations of almost the whole electorate. American presidents matter, but, as Nixon learned and Clinton must be beginning to suspect, not always in the way they want.
