Thursday, September 14, 2006

The Real Budget Deficit and Partisan Gridlock

Allan Sloan wrote an important column in this week's Newsweek about how the federal government calculates the budget deficit. The gist of his essay is that the budget deficit number the feds will come out with at the end of September, $260 billion, is not what Sloan calculates to be the real deficit, which is closer to $558 billion.

Why the huge discrepancy? The feds get their number by taking the difference between its revenue, cash coming in, and its expenditures, cash going out. Sloan notes that this is a good number to use when looking at how the deficit affects capital markets because this is how much money the government has to borrow from public investors. But this number leaves out what the federal government is borrowing from various trust funds. To quote Sloan:
"But Uncle Sam will also borrow almost $300 billion from federal trust funds: $177 billion from Social Security, and an additional $121 billion from 'other government accounts' such as federal-employee pension funds."
Sloan reminds us that if we use "real-world math," the math that every accountant in an American corporation must use, we must include this borrowing; and as a result, we get a much higher number.

Sloan's conclusion is that we shouldn't believe the Bush administration's hype about what a great job it is doing to reduce the budget deficit. He suggests that we need to turn this thing around before the financial risks become unmanageable and weaken our nation. How do we do this? He harkens back to the Clinton administration as a starting place:
"The budget situation was improving then and got to be pretty good—though not as good as the Clintonistas wanted us to believe—thanks to fiscal responsibility, a surge in revenues and partisan gridlock that reined in spending."
I quote this section because I wonder if "partisan gridlock" really is the key to "fiscal responsibility." Many partisans, both Republican and Democrat, bemoan their inability to push through their agendas when they must share power. But this may actually be a good thing for Americans, economically speaking, because it discourages spending on frivolous pork projects.

Now, I realize that you cannot really prove that partisan gridlock is the single cause for reduced spending during the Clinton administration. Pork didn't magically disappear during his term. Instead, you could argue that the spirit of bipartisanship and compromise can carry our economic interests and fiscal responsibilities as well as, if not better than, the contentious partisan conflict that held sway in Washington then, and as it still does today. Unfortunately, the Bush administration has shown that it has no interest in compromise and bipartisanship, even though it frequently pays lip service to these "principles." Rather, it uses the Republican controlled Congress as its rubber stamp. It ignores Democratic proposals and compromises. It steamrolls over Democratic opposition. It plays politics with our budget to make its party look good and to insure that its members get reelected.

After six years of total Republican control of the instruments of government, we can see the results of not having a balance of power in Washington--out of control spending on Republican pet projects, an "off-the-budget" war in Iraq that is costing us billions, and continued proposals for irresponsible tax cuts for corporations and the very wealthy. The same conservative party that advertises itself as being "fiscally disciplined" has run up huge budget deficits and increased our national debt to $8.5 trillion.

If Democrats controlled the House, Senate, and the Executive branch, I think we might very well see this kind of reckless spending continue, only with Democratic pork projects taking priority rather than Republican ones (even now, under Republican leadership, Democrats still get their pork too). Historically, however, the difference has been that Democrats at least recognize that they have to pay as they go, usually through taxes, rather than ratcheting up our borrowing, which balloons our budget deficits and national debt.

So, at this point, I firmly believe our nation needs a check on Republican power, if only to restore some fiscal responsibility and accountability, even if that means, dare I say it, gridlock. Should the new wisdom be, "A government divided within itself cannot spend"? I think so. For the good of the economy, I say, "Bring back partisan gridlock!"


At 12:44 PM, Anonymous Tim said...

Very good - while I've not thought about this before or read others musing about how gridlock reduces government spending, it makes a lot of sense.

Note that Alan Greenspan pioneered the "borrow from the Social Security surplus" approach to U.S. government finances in 1983, for which, Ronald Reagan rewarded him in 1987 with the Chairmanship of the Federal Reserve.

Calculated Risk posts frequently on the sleight of hand practiced in reporting the budget deficit.

[Note: I recommend turning off the feature that automatically posts the picture of commenters with Blogger accounts. That way, those of us who prefer to offer our words without our mugs can comment using our Blogger login.]


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