The Budget: Whom Can You Believe?

When President Clinton came out this June for a balanced budget within ten years, he returned to the economic approach that brought him significant support from many business leaders and economists in 1992. That approach included reducing the deficit in order to achieve lower interest rates and higher rates of capital investment; and it also included encouraging greater US productivity and competitiveness and support for free trade. In putting forward his ten-year program, the President joined congressional Republicans in advocating the principle of fiscal balance, despite their obvious differences on how to achieve it.

The President’s position provoked criticism from both his Democratic supporters and his Republican opponents. The opposition of many Democrats was understandable. Clinton’s position, they said, would inevitably require cuts in the rate of growth of many popular and largely Democratic programs, such as Medicare and Medicaid. These cuts would create political problems for the Democrats that otherwise would have remained the sole responsibility of the Republicans. Clinton’s plan genuinely offended the convictions of many Democrats. As a Democrat, I understand those views; but I believe Clinton was essentially right in what he did. If it is to have a leading part in the country in the twenty-first century, the Democratic Party must show that it can combine fiscal responsibility with social progress. I believe the President showed political courage as well as economic realism in taking his position; if he made a mistake it was in not taking it earlier, and in not sticking to his 1992 plan.

The Republicans have criticized Clinton’s plan to balance the budget for lacking financial credibility and convincing statistics to support it. Their argument can be divided into two categories, both of which are questionable in my judgment:

1) The Republican plan balances the budget in seven years; the Clinton plan would take ten years. In reality, it makes very little difference whether the budget is balanced by 2002, 2004, or 2005. What is important is (a) to have a believable commitment to balancing the budget over a reasonable period, and (b) that the budget be balanced in ways that have defensible social consequences. There is no decisive argument to be made for balancing the budget in seven years instead of in ten; as a practical matter, if a bipartisan budget agreement is reached, it will probably set a date somewhere between seven and ten years.

2) More important, Republican criticism of the Clinton plan attacks the accuracy of the administration’s forecasts of revenue and growth. The administration was accused of sponsoring a Democratic version of David Stockman’s “rosy scenario” in order to appear to balance the budget with considerably less fiscal pain than the Republican plan would entail. The Clinton plan projected growth in GDP at 2.5 percent a year, while the Congressional Budget Office (CBO) predicted a 2.3 percent rate; and the CBO’s assumptions with respect to future Medicare and Medicaid costs were higher than Clinton’s. Over the ten-year period of these forecasts, the cumulative difference was inevitably…

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