A New Bottom Line for the Budget Deficit

Charles R. Morris is author of "The Cost of Good Intentions," an analysis of the New York fiscal crisis

The federal budget deficit appears almost ready to take its place in the Museum of Great Non-Problems, right next to the melting of the Polar Ice Cap. Those who follow the market in impending catastrophes will surely recall how recently a tidal wave of liquefied Arctic ice threatened to drown New York City under 20 feet of water and turn Southern California into a vast marshland.

The formal disenshrinement of the deficit as the nation's No. 1 Problem began recently with the Congressional Budget Office's release of revised deficit "base-line projections" to 1991--that is, projections based on a continuation of current policies. The new projections forecast that the deficit will decline by about $100 billion between now and 1991, primarily because of revised estimates of inflation and interest rates. They are in sharp contrast to the previous year's predictions of almost a $100 billion increase during the same period.

That is a $200 billion swing in the numbers in a single year. Non-sophisticates might expect such a massive revision to be accompanied by shame-faced resignations among the congressional economic corps or at least a note of apology. But the rules for modern forecasting are to do it cheekily and frequently, to insist on the solidity of each new forecast and to count on the general lack of interest in the subject to obscure yesterday's bumblings.

The revised congressional forecasts coincide with the increased currency accorded the views of a small group of academic economists, led by Robert Eisner of Northwestern University and Alan S. Blinder of Princeton, who have been insisting for some time that federal accounting conventions for inflation and for capital assets overstate the actual impact of the deficit by at least $100 billion.

The mounting evidence that deficits are overstated has had little effect on mainstream economists. Like children babbling catechism lessons, they have been insisting for the last five years that growing federal deficits increase inflation, raise interest rates and strangle private capital markets--in the face of the obvious facts that growing federal deficits have coincided with falling inflation, declining interest rates and the most robust conditions on the private capital markets in years. The usual response that the deficit's ill-effects will occur "sooner or later" sound suspiciously like reassurances from a rainmaker.

One might reasonably ask why, in the face of such pervasive and obvious contradictions, the deficit has managed to achieve such an exalted position in the current political demonology and maintained it so tenaciously.

Its grip on the political imagination may stem from the fact that it is the most readily available and reasonably apposite metaphor for the collapse of the policy-making system in Washington. Regardless of its economic reality, it is a convenient expression of the signal failure of the political system to answer the three great federal issues of the decade: how to bring military spending under some reasonable form of direction and control; how to reform the system of federal transfer payments to the elderly according to principles of justice and common sense; how to achieve an orderly dismantling and restructuring for a half-century's ramshackle edifice of social intervention programs that have long since lost coherence.

There is no need to invoke "Star Wars" for examples of defense technology run amok. Consider a so-called "bread and butter" program like rebuilding the Navy. Procurement has centered around the construction of two new aircraft carriers with attendant cruisers, destroyers and other escorts--for roughly $12 billion. Because carriers are so expensive, the Navy takes heroic measures to protect them. The cost of each carrier group includes a billion-dollar escort destroyer packed with electronic warfare gear, a nuclear attack submarine, anti-aircraft cruisers, squadrons of F-14 interceptors and anti-submarine airplanes and helicopters.

Indeed, the defense of the carrier is so diligently provided for that almost two-thirds of the total aircraft it supports are devoted to self-defense rather than raining hell's fire upon an enemy. Out of an average carrier group's total of 90 military aircraft, only 34 light-to-medium attack bombers are available for offensive duty--for a construction outlay of $6 billion. Such majestic lack of proportion transcends folly. It approaches autism.

The second area of federal policy- making desperately in need of common sense is the entire system of transfer payments for the aged. Although Social Security was established as a contributory pension plan to forestall destitution among the elderly, the facade of a contributory program has long since collapsed. With the regular benefits increases of the past 20 years, the amount of the entitlement now far exceeds the value of the contributions made by the average retiree. Social Security now exists virtually on a year-to-year basis: The value of the taxes collected each year is approximately equal to the value of that year's benefit pay out.

The elderly--and certainly the elderly poor--deserve special consideration, but, as a class, the over-65s are the wealthiest demographic group, and there is no economic or social justification for a massive annual transfer of wealth from working people to people who don't need it.

Too much of the remainder of the federal Establishment consists of shameless sellouts to special interests like the farm price-support programs, squalid failures like the welfare system--its growth coinciding with the spiritual and moral degradation of America's black underclass--and useless excrescences like the Small Business Administration.

There is considerable scope for sensible reform in all these areas but Washington's policy-making apparatus remains utterly paralyzed. The militant conservatives see any curtailment of the Pentagon's weapon fantasies as a desire to return to the military erosion of the early 1970s--and sometimes their fears are well-founded. Similarly, liberals see any assault on even the least worthy of federal social programs as the start of a wholesale purge of humanitarian purpose from the federal agenda--and they have reason for their nervousness. Liberals and conservatives alike quail before the voting power of the aged massed in defense of their "entitlements."

And therefore the rousing welcome for the Great Deficit Problems--as for the deus ex machina of an ancient stage play. With the deficit as a goad, politicians were constrained, to their relief, to act against their baser instincts, even to endure such grotesqueries as the Gramm-Rudman Act. If the deficit loses its powers to persuade, one wonders what can take its place.

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