If President Bush and Democratic leaders give up too easily on their earlier target of slicing $50 billion off next year's budget deficit and $500 billion over a five-year period, Saddam Hussein will have chalked up another hostage victory. The conventional wisdom in Washington, since the onset of the Persian Gulf crisis a month ago, is that the budget "summit" process that resumed this week will do well to find $25 billion in savings.

Political experts and commentators were too quick to bury the prospect of a peace dividend. It can't be denied that Saddam's invasion and annexation of Kuwait, followed by a huge American military commitment to defend Saudi Arabia, altered the economic landscape.

Sen. Sam Nunn (D-Ga.) estimates that a full year's cost of the troop buildup in Saudi Arabia, plus the economic aid to be given to friendly nations suffering because they've joined in theA "real world" deficit figure for next year, short of actual war, is $400 billion. blockade of Iraq, will come to $50 billion. And that assumes no shooting: If war breaks out, the military costs alone will run to about $1 billion a day -- four to five times the financial cost of Vietnam.

But facing this reality makes it all the more imperative that the budget-summit exercise be carried through, not dropped as "too hard." Of course, attention must be focused more intensively on cutting non-defense spending programs and on raising taxes.

It goes without saying that the Pentagon's needs for the Persian Gulf have to be met fully. But that shouldn't give Defense Secretary Dick Cheney carte blanche -- as much as he'd like it -- to continue wasteful, pseudo-sophisticated systems, mostly designed to level the Evil Empire.

The best guess at the moment is that the deficit for fiscal 1991 will run around $300 billion, including the true costs of paying off the savings and loan obligations to depositors. But that figure is understated by about $100 billion, because of the still-permitted use of Social Security and other trust-fund surpluses to pay ordinary bills.

So a "real world" deficit figure for next year -- again, short of actual war with Saddam -- is $400 billion. A deficit-cutting exercise should look at a $50 billion reduction for fiscal 1991 as a minimum. Uncle Sam is so short of cash that Secretary of State James A. Baker III and Treasury Secretary Nicholas Brady this week are going hat in hand to the Gulf, Europe and Asia to demand that our allies share the monetary burden of the confrontation with Saddam. In principle, this is wholly justified, and especially relevant to wealthy countries such as West Germany, Japan, Taiwan and Korea. They have no armed forces standing shoulder to shoulder with Americans on the front line in Saudi Arabia.

However, the real need for America to beg for financial support in this circumstance tells us dramatically that the excesses and failures of economic-policy making of the decade of the '80s have finally caught up with us: Uncle Sam is broke. We not only don't have the money with which to match our leadership in the necessary business of crushing Saddam, we don't have the money to rebuild our educational system and our roads and bridges and to pay other bills on the home front.

Worse, the nation appears to be heading into a real recession for part of this year and calendar 1991. This will boost expenditures for unemployment insurance and reduce normal tax revenues. Brady told reporters at the start of the Persian Gulf crisis early in August that inflation resulting from higher oil prices would cut the sputtering economic growth rate, then around one percent, about in half.

Many business economists are even more pessimistic. They think that government data lag behind actual results and that the economy already is in a recession, with many commercial banks and corporations facing a true crisis.

There is too much at stake, given what may be a long-term commitment in the Persian Gulf, to allow the budget to soar out of control. An extension of the deficit in these boxcar numbers means that we must continue to depend on imported capital -- a dependency even more serious than that relating to oil, especially at a time when it appears that Japanese will have more difficulty in finding the multibillions they have been pumping into Treasury obligations.

To a major extent, we can and should reduce our dependency on petroleum. But when we borrow foreign capital to finance the deficit, we transfer our wealth abroad on a near-permanent basis, as interest costs multiply over the years.

Given the problems in the banking and financial community, a majority at the Federal Reserve Board knows they can't tolerate a deep or extended recession. In this situation, the economy desperately needs the lubrication of lower interest rates. Normally, the Fed is willing to accept slower growth than is really healthy for the economy -- say, around the 2 percent level -- so long as it keeps inflation under control.

But Brady's 0.5 percent real economic growth projection is too close to zero for comfort. To give the Fed the opportunity to move promptly and dramatically enough to cut interest rates, the budget summit must do its part.