Alice Rivlin, the only director that the Congressional Budget Office has ever had, is leaving this month to become director of economic studies at the Brookings Institution. Congress has not yet selected her successor.
In an interview last week with Washington Post staff writer John M. Berry, Rivlin discussed the federal budget process, CBO's role in it, and some of the reasons why the nation is facing persistent deficits in the neighborhood of $200 billion--hardly a prospect the framers of the Budget Act of 1974 had in mind.
QUESTION: Dr. Rivlin, you're leaving CBO after two terms as director. You started the institution from scratch and hired the staff after the Budget Act created CBO and a new set of congressional budget procedures. Are we better off now as a result of that act, given all the budget problems we've got?
ANSWER: Oh, I think so. We haven't solved the budget problem. But we are very much better equipped--we, the Congress--to understand what is happening and to make decisions based on the best available information. That's what the CBO is for, not to prescribe solutions, but to give the Congress information.
Congress now has a good independent capacity at the CBO for economic forecasting and a staff which is expert at costing out programs, at projecting what the budget will be under various economic conditions and at providing analysis of the effects and the costs of alternative policies. That doesn't make the choices easy, but it gives a basis for making choices which is more informed than the Congress had before.
Q: There's a fairly significant amount of opposition in Congress right now to current budget procedures. Some of the legislative committee chairmen feel their toes are being stepped on, that the budget committees and their staffs have gotten too big and have gotten too much power. Do you see any changes that ought to be made in budget procedures that would make dealing with those difficult choices easier?
A: Basically, no. I think that the dissatisfaction reflects primarily the difficulty of the problem that the nation finds itself in. We have very large budget deficits. There are only two ways you can reduce a deficit; one is cutting back on planned spending, and the other is raising revenues. Neither is an easy thing to do and the problem is not in the process. It's always tempting to say there is something wrong with the process, rather than facing up to the difficulty of the problem.
Now, I don't want to say there's nothing wrong with the budget process. There are certainly ways of improving it, simplifying it, streamlining it, but I don't think the basic dissatisfaction now relates to the process.
Q: What changes might be useful?
A: As we have worked with the procedures under the Budget Act, it has turned out that there really isn't enough time in any legislative year to go through all of the steps that were originally contemplated in the Budget Act. The act basically had two budget decision stages: a first concurrent resolution which was supposed to set targets, and then after the individual pieces of legislation were passed, there would be another major debate on the second concurrent resolution on the budget that would wrap the whole thing up and reconcile the pieces with the total.
As it turns out, there really isn't time to go through that two-stage iterative process. If big decisions are to be made on the budget, for example, in cutting the deficit, they have to be made early. The first budget resolution has become the place where the important decisions are made, and reconciling the parts with the whole has been moved into the first resolution. The second resolution has become unnecessary and the act might be changed to reflect that.
Another thing that's happened is that the Congress has moved from one-year-at-a-time budgeting to multiyear budgeting. We have such a big deficit problem that we obviously can't solve it in one year and the Congress has been forced into thinking in terms of at least three years at a time. In a formal sense that's not in the Budget Act, although it could easily be put in.
A bigger change which is being talked about would be to give the Congress more time, by making budget decisions every other year, moving to a biennial federal budget as many states have. That has some disadvantages. You have to make projections for a longer period and they're more likely to be wrong.
But it has some major advantages. If you could make these hard decisions every other year, rather than every year, they wouldn't be any easier, but at least they'd be out of the way for two years and you could do something else in the intervening year. It would save a lot of time and energy in the executive branch and on the Hill and it would give both federal agencies and state and local governments more stability in their funding.
Q: We find ourselves today, as you said, with very large budget deficits. What has caused us to get into this situation?
A: Well, the basic cause is that we want more from our government than we want to pay for. Then in the last two years, we have made major changes in the federal budget, chief among which are increasing the defense budget and cutting taxes without a commensurate cut in other spending. There has been some cut in other spending, but not enough to make up for the increase in the deficit that came about because we were increasing defense spending and cutting taxes at the same time.
If you take a longer view, however, going back to, say, the '60s, the main thing that has changed has been the increase in domestic spending, principally for entitlement programs and principally for Social Security and Medicare.
We paid for that increase in the '60s and early '70s by letting the defense budget, as a percent of our total GNP, decline somewhat. We reversed that defense decline in the late '70s, and paid for that by allowing taxes to increase to an all-time high in 1981, mostly under the impact of inflation. Then we reversed again by cutting taxes in a major way, but we did not make the commensurate spending cuts.
Q: With these budget deficits, there is a considerable burden on the Federal Reserve to keep the economy moving forward at a modest rate so as to keep inflation from returning. How, in political terms, can you make fiscal policy fit the needs of the economy at this juncture?
A: Well, first I agree with your premise that the concentration now ought to be on bringing down the budget deficits so that we have less pressure, less upward pressure on interest rates and less danger of crowding out private investment as the recovery proceeds, crowding out due to the federal government borrowing so much at a time when the private sector needs to borrow to finance the recovery. That's our major problem at the moment.
There are only two ways to do that, cut spending and increase taxes. The budget resolution passed by the Congress last month provides for both. It cuts defense spending below what the president was recommending, albeit there is still a healthy real growth. It cuts back on some domestic spending and provides for an increase in revenues.
All those things are controversial, but if carried out, the budget resolution would result in substantial cuts in the out-year deficits. I think now the problem is that Congress and the administration must cooperate in actually implementing the budget resolution and reaching those goals.
Q: Normally, the president takes the lead, particularly in tax matters. This year the president has declared he wants no tax increases and that he would veto any that Congress passes. Sen. Robert Dole this week suggested a kind of budget "summit" to get the administration and Congress together. If the president continues to resist, can Congress implement the budget resolution?
A: Well, it's very difficult. It did work out quite well last year, if you think back to what happened on the fiscal '83 budget. There, the Congress did exert leadership. Particularly, the Congress believed that the deficits in the president's budget were too large and that a tax increase was needed. That originated on the Hill. It didn't originate in the White House, but the president eventually agreed and signed the bill.
This year, the situation is more complicated. If you look at the three-year period, fiscal '84 through '86, look at the congressional budget resolution and the president's budget, it's not quite clear why it is so difficult to reach a compromise, because the deficit goals, deficit reduction goals in those two budget plans are about the same. Both would like to get the budget deficit down to a range of around $130 billion, and both agree that it will take some revenue increase and some spending cut to do that.
Congress has somewhat different spending priorities, would take more of the spending cut in defense and less in domestic programs. Those would seem to be compromisable issues. The argument is really about the mix of spending cuts and timing of the revenue increase. And one would hope that the goal of reducing the deficit is so important that the president would agree to some compromise on the timing of tax increases and spending cuts that would make it possible to achieve the goals.
Q: Well, what would be the economic consequences if the compromise is not struck?
A: Well I think there's real risk to the republic. I think it's possible that interest rates are already higher than they would be if we had some firm plan for bringing the budget deficits down. But it seems to me that the greater risk is that we will have higher interest rates next year and the year after because of the budget deficits and that these higher interest rates will slow down or reverse the recovery.
Q: There are officials at the Federal Reserve and elsewhere, in the administration for instance, who suggest the recovery is already going somewhat faster than they think is wise. What's your view on that? Should some steps be taken right now to slow the pace of the recovery?
A: It doesn't look to me to be out of control. We have considerable pickup in housing and considerable buying; we have not seen pickup in investment yet, although one wouldn't expect that quite this soon. The export sector looks weak and probably will continue to be weak as long as the dollar is high and the rest of the world is in recession. That would not be helped by tightening up on the interest rates.
Q: We had growth in real GNP of around 6 1/2, 7 percent in the second quarter and there are forecasts now that we may be looking at 7 for at least another two or three quarters. At what point does this become too speedy in terms of carrying with it the dangers of a revival of inflation?
A: I don't think the inflation danger is very great at the moment. We'll have to watch what's happening with wages, but the high unemployment has taken a lot of steam out of rising wage demands. That's one of the hopeful signs about inflation. The possible collision between private sector and public sector borrowing is, as I've said before, a real concern, but I think the way to operate on that is to get the deficits down, not to slow down the economy.
Q: Let me go back to the congressional budget process and the role of CBO for a moment. CBO has to serve all members of Congress and all the committees that call upon you for assistance as well as those things that you do regularly and routinely as part of the budget process. You have a very wide spectrum of opinion and political views in Congress. Have you found it difficult to serve that wide spectrum of views?
A: Well, sometimes, but not as much as you might think. We provide information. We don't provide recommendations. The Congress is free to do with the information what they want.
Q: Have you ever gotten pressure from members of Congress who would like to have the information further a position that they hold?
A: I've never had pressure to change the numbers, if that's what you're talking about. The Congress has apparently wanted an independent analytical organization which provided as objective information as it could. Now congressmen and senators use the information in lots of different ways, and we sometimes are cited on different sides of the same debate. Sometimes they attack our information and say it's wrong if it doesn't support the position that they want to take. But at no time in all the whole history of the CBO have I ever been subject to any behind-the-scenes pressure to change the numbers or to suppress information.
Q: Does it make any difference whether your successor is a Republican or a Democrat?
A: I don't think it should. I believe that this is a nonpartisan office, that it should be a nonpartisan office and what the Congress should be looking for is a qualified, sensible person with budget experience and some administrative ability, preferably an economist.