THE BUDGET negotiators for the president and Congress are said to be concerned lest they hurt the economy by cutting the deficit too much. What a wonderful problem that would be.
Plainly, they could cut too much -- if, for example, they went all the way to the unrealistic Gramm-Rudman deficit targets in one year. If the Federal Reserve lacked time to compensate with easier money, the perverse result could easily be a recession that, by reducing revenues while turning on countercyclical benefits, would increase the deficit. No pleasure there, but if recent levels of fiscal responsibility are any guide, no enormous danger either. The threshold question is not whether they will do too much but whether they will do anything at all.
The Gramm-Rudman process is widely mocked, and not without cause. But for all the evasions it has engendered, it has helped to keep the deficit below where it otherwise would have gone. It's been clear for some time that the target for next year neither would, could nor should be met. One need in adjusting it is indeed to figure out how much restraint the economy can stand in one year.
The negotiators should err on the conservative side. By that we don't mean a smaller amount of restraint but a larger amount to allow for the slippage that history teaches will always occur. Estimate realistically where the deficit is likely to be without restraint, aim $50 billion lower, divide that up about half in tax increases and half in spending cuts -- the latter about half in defense and half in domestic programs. Easy, and then all the negotiators have to do is pick the cuts and increases. For old hands who know as much about the government as they do, this could be the work of an afternoon.
A recession could come no matter what they do -- we have gone without one for more than seven years, and the economy seems soft. But what would be worse than the recession itself would be to misperceive its cause. For the last recession in the early 1980s, tight money was justly blamed, but tight money was required by the ease and inflation that preceded it and that it had to cure. So here. The country risks too much to go on with a deficit this large and with the drag of the interest rates required to offset and finance it. Higher taxes and lower spending are needed to move the economy out of the danger zone. It would be the ultimate irony of the last nine undisciplined years if the cure were mistaken for the disease.