Son of Voodoo Economics

The federal government, enthralled by an ever-growing projected budget surplus, is making bold plans to fix Social Security, wipe out the nation’s accumulated debt, increase spending on programs and, with what’s left over, cut taxes. “That is an amazing thing,” said President Clinton of the extra $1 trillion now expected to materialize by 2015. Amazing, yes. And fanciful.

The government estimates are based on the highly improbable assumption that the U.S. economy will continue growing at historically high levels and that inflation, joblessness and interest rates will stay low. And, while spinning bold plans on a 15-year paper gain, both the administration and Congress are working on a real-life budget that would bust spending limits Congress set for itself two years ago. Combining imaginary savings with real spending increases is bad economics by any standards.

To be sure, the booming economy and government spending cuts over the last eight years have produced healthy surpluses. But economic forecasting is tricky, even in the short term. The Office of Management and Budget, which issued the 15-year forecast, was off by nearly $20 billion when it predicted just six months ago that the fiscal 1999 budget surplus would be $79.3 billion; now it estimates the surplus at nearly $99 billion. The Congressional Budget Office, which issues its own estimates, also makes frequent revisions. And, in 1992, in California, forecasters did not accurately gauge the deepening recession and the state was slammed with a $7.5-billion budget shortfall--a huge chunk out of a $41-billion budget plan.

Meanwhile, with the dreary inevitability of a Greek tragedy, the White House and Congress are heading for a deadlock on next fiscal year’s appropriations. The Clinton administration hopes to come within the spending limits by proposing policies that are not allowed under the budget rules, as well as revenue increases--through fees and charges--that it knows the Congress won’t approve. Congressional Republicans are also resorting to gimmicks. On top of it, the Republicans and Clinton, both eyeing next year’s election, are talking about tax cuts, undermining even the projected surpluses.

Clinton deserves praise for insisting that future budget surpluses should be spent first on fixing Social Security and Medicare and paying down the debt. It is essential, however, that reforms of the programs, which have so far consisted only of proposals for greater spending, also include economies.

What got the United States out of the deep spending deficits of the 1980s was a real decline in government spending and high revenues from a healthy economy propelled, in part, by lower government consumption.

Let’s make sure the credit card Clinton says the government has ripped up is not replaced by another credit card with an even higher spending limit.