Ax Gramm-Rudman-Hollings? : Political Forecast

The Gramm-Rudman-Hollings Act aims to curb the federal deficit by forcing congressional and White House negotiators to come up with a budget plan or face deep cuts in government programs. No matter what happens to the latest plan, was Gramm-Rudman a positive or negative force in bringing it about? Should it be retained? The Times asked seven economic analysts:

William E. Simon, secretary of the Treasury in the Nixon and Ford administrations:

The Gramm-Rudman process is a workable instrument to impose a degree of fiscal discipline on the Congress. The Congress tried its best to evade the law’s (deficit-reduction) targets by raising the spending limits each year when it became apparent that the required belt-tightening would be too painful. Despite congressional manipulation, the process did serve as a restraint on spending.

The fact is that our deficit problem lies in the Congress itself, not in the Gramm-Rudman process or in various gimmicks designed to restrain the Congress’ insatiable appetite to spend taxpayers’ dollars. Members of Congress are driven by one overwhelming objective: their own re-election. Everything else--including the integrity of our currency or the long-term health of our economy--takes a back seat.

Congressmen discovered long ago that they get re-elected by redistributing taxpayer funds to interest groups that will support their next campaign. Since virtually all 535 members of Congress behave this way, the result is absolute fiscal chaos in Washington, and we have to go to the brink of financial ruin before Congress will act. . . .

I have long believed that one solution lies in fixing clear limitations on congressional terms of office. This would force our representatives to consult the long-term interests of our nation and put an end to the idea that a politician can use the federal budget to ensure his re-election term after term after term. . . .

In short, the Gramm-Rudman process should be retained as a measure to restrain spending, but it must be undergirded by other disciplining measures such as congressional term limitations and a presidential line-item veto.

Martin Anderson, senior fellow, Hoover Institution at Stanford University:

There is only one way out of this deadly economic trap that our budget generals have fought their way into. We need to adopt the “Lithuanian Solution”--just suspend Gramm-Rudman-Hollings for a year. Instead of raising taxes and plunging this economy into a recession that will create a deficit that really is dangerous, we should live with our relatively small deficit a while longer, defeat Saddam Hussein and resolve the gulf crisis, control spending as much as we can, enjoy Christmas and see how things look in 1991.

Robert J. Kuttner, author of the forthcoming book, “The End of Laissez-Faire”:

There was a point in time, circa 1985, when it made sense to enact something like Gramm-Rudman as a way to hold Reagan’s feet to the fire, to force him to choose between his military buildup and his tax policy. But Gramm-Rudman has become a chronic way of paralyzing government. It’s been overtaken by events.

The whole budget is now so totally out of whack and the numbers are so big--and they keep changing Gramm-Rudman, anyway--that it’s become, on balance, more of a negative. I think they should scrap it.

The only way the budget is ever going to get back into balance is by restoring the tax rates on rich people to what they were pre-1981. Gramm-Rudman, coupled with the Administration’s refusal to entertain taxes on the rich, turns it into a chronic game of pass the buck. I think it would be ridiculous to extend it, and tinker with it, one more time. It’s like a mirage in the desert. It’s always 20 miles away from you.

Kathryn Eickhoff, former chief economist, Office of Management and Budget during the Reagan Administration:

Gramm-Rudman has performed a useful function in the four years since its enactment in 1986. Eleven billion dollars in true savings resulted from the first sequester. The brief sequester forced by (OMB Director Richard) Darman early in fiscal 1990 also produced savings. It is doubtful that savings in other years were greater than what would have been achieved in Gramm-Rudman’s absence.

By shifting budget ground rules, Gramm-Rudman has produced new opportunities for “smoke and mirrors.” It has also provided a needed discipline to the budget process. However, in and of itself, it has not been able to solve the budget crisis nor prevent it from getting much worse.

If Gramm-Rudman is to continue, the targets must once again be amended. The budget compromise proposal is a step in this regard.

If there were no Gramm-Rudman, it would have to be invented to give the budget committees the clout they need to enforce the budget resolution. It is better to improve the Gramm-Rudman that we know than try to get along without it.

Lester Thurow, dean of the Sloan School of Management at Massachusetts Institute of Technology:

Under Gramm-Rudman-Hollings as passed, we’re already supposed to have balanced the budget. And, in fact, the budget deficit in 1992, even with a budget package, is going to be bigger than it was in 1991. It’s like canoeing very rapidly up a river that’s running very fast so that you’re actually going backward, even though you’re paddling like crazy.

I think the event that makes the (budget negotiators) more serious this time is that the Germans and Japanese have basically been funding the deficit, and the Germans have notified the world that they’re not going to be lending money to the rest of the world. They’re going to be borrowing money and putting their money, plus the borrowed money, into East Germany.

Because of the events in the Tokyo stock market, as well as the interest in building more housing in Japan, it seems highly likely that the Japanese are also going to be lending less money to the world in the future. That basically makes it impossible to evade (the deficit) in the way in which we’ve evaded it in the past.

I don’t think it’s Gramm-Rudman that’s essentially put our feet to the fire. Effectively, we’ve already scrapped Gramm-Rudman. It’s a perfect example of why a constitutional amendment to balance the budget doesn’t work, because the people running the country who make laws cannot make laws. All they did was keep the budget imbalance from getting as bad as it would have been without Gramm-Rudman.

Claude Barfield, resident fellow, American Enterprise Institute:

I think that Gramm-Rudman, on balance, has been a very positive force over the last few years and was a force in getting the Administration and the Congress to get together. The people who often criticize Gramm-Rudman say that it represents a bankruptcy of the political process, that it’s throwing decision-making to some kind of institutional gimmick. The problem with that is it gets it backward. The political process was bankrupt in the first place, and therefore turned to something like Gramm-Rudman.

It’s like a killer who writes on a mirror, “Stop me before I kill again.” And that’s what Congress did, in effect, when it passed Gramm-Rudman.

. . . The Congress does need some form of discipline, because I see no signs that it will discipline itself.

Arthur Laffer, former economic consultant for President Reagan:

Real or perceived deadlines only encourage bad decisions. Gramm-Rudman has, for several years now, introduced an artificial deadline with a national threat--the sequester of enormous sums of government spending. The stock-market crash of 1987 was a direct consequence of Gramm-Rudman. The deleterious implications, however, are nowhere more apparent than they are with the recent budget compromise. The Gramm-Rudman deadline forced polarization within the legislative and executive branches and tried to achieve its resolution by confrontation, not by reason.

. . . The political dynamics are bad enough under normal times, but with Gramm-Rudman they are catastrophic. Gramm-Rudman should be legislated out of existence.