Hand-Wringing on Budget Just Political Sport

The Reagan Administration submitted a $1.024-trillion budget to Congress on Monday and acknowledged that the federal government in fiscal 1988--the year that begins Oct. 1, 1987, and ends Sept. 30, 1988--would operate once again at a deficit of more than $100 billion.

That will be the sixth year in a row for such a large deficit, so you can anticipate the now-familiar outcries from economists and other heavy financial thinkers that debt is out of control or that the nation’s economy is doomed to fall into depression because Washington can’t, or won’t, balance its budget.

But you’d be wise to ignore that kind of talk and to concentrate instead on what the federal budget really is--a political document, not an economic one.

Consider the latest edition. The White House predicted on Monday that the federal deficit would fall to less than $108 billion next year from an anticipated $173 billion in fiscal 1987--the year that ends next Sept. 30. The Administration plans to accomplish that reduction by cutting expenditures for such things as Medicare, education, food stamps and farm subsidies, while increasing spending on military programs.

Won’t Buy Proposal

But almost nobody believes that a Congress in which both houses are now controlled by the Democrats will buy that. Most likely Congress will hold off on cuts for Medicare and the like and trim the President’s request for a $312-billion defense budget back to about $290 billion.

The likeliest result is that the total budget deficit will come in at more than $108 billion--the target specified by the Balanced Budget and Emergency Deficit Control Act (better known as 1985’s Gramm-Rudman-Hollings Act)--but at less than $150 billion.

At most that’s about 3% of what the gross national product is expected to be in 1988. So it looks less like a threat to the economy than a case of Washington-as-usual as summed up by the late, great Illinois Republican Senator Everett McKinley Dirksen when he said: “A billion here, a billion there, and pretty soon you’re talking real money.”

Does the federal deficit really matter? Not as much as all the hand-wringing over it would have you believe. You don’t have to look back very far to recall when the deficit was blamed for high interest rates, which were blamed in turn for the overvalued dollar. There were dire predictions that borrowing by the federal government to fund the deficit would crowd out productive private sector borrowers, such as young couples wishing to buy homes or businesses wanting to invest and expand.

Rates Have Fallen

Well, interest rates have fallen and so has the dollar, but the federal deficit goes on. As for private sector borrowing, there appears--happily--to be plenty of mortgage money around and, with $100 billion invested in “junk” bonds and the banks lending billions more for hostile takeovers, it would be hard to argue that the federal deficit has caused a scarcity of money in the private sector.

Why then all the furor over deficits? Because it’s how politics is argued in the 1980s. Take, for example, military expenditures. In the 1970s, in the aftermath of Vietnam, defense spending declined steadily until in 1979 it fell below 5% of GNP, a 40-year low. Then the wind changed, and it became politically unwise to oppose the military build-up that the Reagan Administration was elected in 1980 to carry out.

So Congress debated about budget deficits instead, passing the Budget Control Act in 1985 when defense spending had got back up to 6.6% of GNP. In the new budget the President requests $312 billion for the military--7% of GNP--but most defense industry analysts expect Congress to cut that back to about $290 billion--or 6.6% of what GNP should be in 1988. Again, the exercise is more political than economic. The cuts, observes defense analyst John Simon of Seidler Amdec Securities in Los Angeles, are mostly weapons-program stretch outs--a form of false economy that reduces the funding in any one year but makes the eventual weapons more expensive.

Yes, but why should there be more spent on weapons but less on agriculture and education? Because that’s the way the body politic wants it in this decade. The assumption underlying all the federal budgets of the 1980s is that what the government doesn’t do, private individuals and businesses will take up--whether it’s paying for education or reorganizing farming. This does not hold for defense because, as economist Albert M. Wojnilower has written, “when the government spends less on the military, the private sector does not compensate by buying more tanks and missiles.”

The real issue in the coming debate on this budget is whether the electorate now wants government to pay for some other things such as medical care and job training as well. If so, presumably they’ll pony up the taxes to pay for them. Meanwhile, don’t be frightened by gloomy warnings about deficits out of control.