THE DEFICIT estimates continue to rise, and with every increase come new calls for Congress to act. What Congress needs to remember is that it has already acted. The deficit reduction agreement of last October was at least as real as it was awkwardly achieved; over time, if adhered to, it will have pretty much the intended effect. In the meantime, it would be as wrong to try to exceed it as to try to undo it.
Official deficit estimates in recent years have mostly been political confections, fiscal cotton candy. The earliest estimates for this year, fiscal 1991, were equally fanciful. The administration gave as its view last January that the deficit would be $100.5 billion, substantially down from the year before. But over the year the politics changed -- some would say the reality became harder to evade -- and the estimates progressed steadily upward.
By the so-called mid-session review in July the likely figure was said to be $169 billion, and more if you counted the probable cost of the savings and loan bailout. By the time of the budget agreement in October, it was said to be about $250 billion counting the bailout cost, more if you took into account the possibility of recession. Now it is said to be in the range of $300 billion counting the effects of a mild recession, more if you fold in the full cost of Operation Desert Shield. Nor is 1992 predicted to be much better.
A deficit this high at the start of a recession leaves no good policy choices. For structural reasons the deficit needs to come down even as, for cyclical reasons, it needs to be kept up. In terms of fiscal policy, the best thing for both the administration and Congress to do in the circumstances is nothing. To add to the deficit in order to offset the recession's effects would be wrong; $300 billion or $325 billion of deficit is fiscal stimulus enough. If Congress wants to aid the recession's victims -- as it should -- it must find ways to pay for the aid through offsetting spending cuts or careful tax increases.
Nor can the members afford to do the opposite and in the present circumstances try to reduce the deficit much beyond what was agreed last year; they risk deepening the recession. Politicians always want if not to act at least to look as if they're acting. Now they need instead to wait. In the 1980s the government -- in the final analysis both branches and both parties -- overspent, undertaxed and lied about the result. Only last year as they were running out of the time and means to do so did they take corrective action. It will take a while for the budgetary effects of the recession, the bailout and Desert Shield to pass and the corrective action to take hold. Meanwhile the moral of the story is to underestimate the deficit no more.