The Great Pretender
The passage of President Clinton's budget plan inspires one overriding emotion: relief. The biggest casualty of this dreary debate, conducted with hype on both sides, has been public understanding. The whole process has perpetuated the myth that the budget serves mainly as a tool to manage the economy. Our debates are backward. They focus on the budget's immediate economic effects and ignore the broader issue: defining the scope of government - and finding the best ways of paying for it.</br></br>The budget package is better than nothing, because it makes a small start at controlling the government's mushrooming debt. But you should be skeptical of all claims, pro and con, concerning the instant economic impact. Ours is a $6 trillion economy. Modest changes in government spending or taxes - and these changes are modest - don't mechanically determine its behavior. Too many other things matter. Remember that the deficit reduction of $496 billion occurs over five years, when the economy's estimated output will total slightly more than $36 trillion.</br></br>The point is not that the budget has no economic consequences; it is that the important consequences tend to be gradual and cumulative, as opposed to sudden jolts that make (or break) the business cycle. Yet, the politics of the budget are just the opposite. It will be judged on whether the recovery continues and how strong it becomes. Clinton and the congressional Republicans have each staked their political futures on something over which they have little, if any, control.</br></br>Clinton calls the budget "my plan for economic recovery" and says that it has already reduced interest rates on mortgages and bonds. Well, maybe there's been a small effect. But the main reason rates have dropped is the decline of inflation that began long before Clinton's election. Investors accept lower interest rates, because the value of their money isn't eroding so rapidly. It's the Republicans, though, who really ought to worry. Recoveries, once begun, gather momentum. If this one does, gradually creating new jobs with low inflation, Clinton will boast, "My plan worked - and not one Republican voted for it."</br></br>What will they say then? Republicans seem to expect that the recovery will stumble on what Senate Minority Leader Bob Dole calls "the largest tax increase in world history." Dole must have amnesia. In 1982, when he was majority leader, Congress passed legislation raising taxes $214 billion over five years. Adjusted for inflation, that's larger than the five-year tax increase in Clinton's budget ($240 billion). Guess what? The economy didn't collapse. By 1987 it had created nearly 13 million new jobs.