Budget Deals & Government by Make-Believe


Caught up in the blow-by-blow accounts of the budget battle in Washington, one might suppose that something of historic importance is happening. It isn’t. We’ve gone down this road before, to no avail.

In 1974 President Richard Nixon observed that previous fiscal arrangements did "not impose sufficient discipline on the Congress to stop the passage of pork-barrel legislation or to resist the pressure of special interest groups. This lack of discipline in Congressional procedures has been one of the major factors behind the sizable increases in Federal spending over the past decade." To remedy this condition, he signed into law the Congressional Budget and Impoundment Control Act.

This law created an elaborate system, still in operation, to insure that the federal government would exercise its fiscal powers in an informed, coordinated way. It established House and Senate budget committees and the Congressional Budget Office, imposed a new appropriations process and a new budget-making calendar, and required the government to reconcile its separate appropriations acts with an overall spending limit.

Obviously, it didn’t work. Since its creation, the deficit has grown by an order of magnitude, and the budget-making process has been anything but orderly. By the mid-1980s, spending was so far out of control that Congress, like Ulysses lashing himself to the mast to resist the sirens’ song, passed a law to constrain its own budgetary decisions. This was the infamous Gramm-Rudman-Hollings Act of 1985, which stipulated that Congress would gradually reduce the deficit to zero in 1991.

But Gramm-Rudman worked no better than the 1974 law. Congress pushed the day of reckoning farther into the future, played accounting tricks, and deployed smoke and mirrors. When 1991 arrived, the deficit missed its original zero target by $269 billion. Despite blatantly breaking its own law, Congress exercised mercy by not throwing itself into prison.

Finally, in the budget deal of 1990, President George Bush and Congress scrapped the ineffectual legal restraints, raising taxes in violation of the President’s read-my-lips campaign pledge. Still the deficit rose to $292 billion in 1992, helping to seal Bush’s reelection fate before receding to somewhat smaller but still historically gargantuan levels under Clinton.

Now, having endured months of huffing and puffing by both sides in the budget battle, are we to conclude that once the requisite compromises are made and a new agreement is reached we can look forward to a balanced budget in seven years? Do you believe that pigs will soon fly?

Even if the two sides really cared about balancing the budget, the nature of their deal makes manifest its make-believe character. The balanced budget, like pie in the sky, will arrive by and by. In politics, seven years is approximately an eternity. Neither side proposes to impose much pain on any important special-interest group before next year’s elections. The GOP’s proposed spending for fiscal 1996 comes to $1,590 billion, the administration’s to $1,579 billion, or 99.3% as much.

The Republicans promise to get tougher later. Their projected spending grows by 2.9% over the next seven years, as compared to 3.8% for Clinton’s. Even under the GOP projection, however, government spending grows faster than GDP, which is forecasted by the 50 prominent private economists surveyed by Blue Chip Economic Indicators to increase at 2.4% annually.

However we might regard the politicians’ sincerity, deals about spending and taxing in the remote future carry no weight. As budget expert Allen Schick has written, "Budgeting has become an improvised activity in which each year’s rules and roles are adapted to the needs and opportunities of the moment," and "as conditions change, so does the form of improvisation."

To gain bargaining leverage, both sides have pressured their in-house forecasters -- the CBO and the Office of Management and Budget -- to produce biased forecasts. Allegedly because of unanticipated third-quarter economic growth, the CBO recently revised its estimates, narrowing the difference between the two sides by a whopping $135 billion and prompting House Budget Committee chairman John Kasich to say that "there are additional resources now on the table."

But such statistical manipulations have no substance. No one knows what the state of the economy, and therefore the federal finances, will be years from now. As forecasters, both the OMB and the CBO have deplorable records. Kasich’s "additional resources" are utterly ethereal.

Even if both sides were genuinely knowledgeable about the economy’s future performance and serious about their budgetary commitments, the current Congress cannot bind any future one. Any deal cut this year can, and almost certainly will, be overturned by future deals.

Robert Higgs is a Senior Fellow in Political Economy at the Independent Institute and Editor at Large of the Institute’s quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, the University of Economics, Prague, and George Mason University.

  From Robert Higgs
CRISIS AND LEVIATHAN (25TH ANNIVERSARY EDITION): Critical Episodes in the Growth of American Government
The size and scope of government power has grown in response to crises of war and economic upheavals. Such increased power remains long after each crisis passes, threatening both civil and economic liberties, all at the behest of special interest groups.