THE BUDGET agreement between the president and Congress last year contained a self-destruct mechanism in case of recession. The device has now been triggered. The Senate will have to vote in the next few weeks on a joint resolution suspending the agreement. It should vote no, and the House, which has a choice, should not even take up the proposition.
The rules provide for a vote to suspend whenever either the Congressional Budget Office or the Office of Management and Budget believes the economy is headed into two consecutive quarters of negative economic growth, the rule of thumb for a recession. CBO Director Robert Reischauer has now notified both houses that both agencies think such a period is upon us.
Some senators have already urged that the budget constraints be set aside so Congress can provide relief for the unemployed and apply the traditional restoratives to the economy. Relief may well be a good idea, but this time it needs to be financed by either cuts in other spending programs or a selective tax increase. The budget agreement leaves room for the deficit to grow in the usual countercyclical ways with the recession, as well as with the costs of the savings and loan bailout and the war. And it will grow, most likely to well over $300 billion this fiscal year and next. That's fiscal stimulus enough. The problem, sadly, is not that the deficit is now too small, but that for too long it has been too large.
The deficits of the last 10 years have cost the president, Congress and the Fed the maneuvering room they once enjoyed in fiscal and monetary policy alike. Federal Reserve Board chairman Alan Greenspan warned the House Budget Committee the other day that an increase in spending and borrowing to combat the recession could easily be self-defeating in that it could have "adverse effects on long-term interest rates;" Congress would unwittingly be stimulating and braking the economy at the same time.
The chairman suggested standing pat so long as the recession proves no worse than now expected. He gave similar advice as to the costs of the war. Some members of Congress have urged a surtax; Mr. Greenspan said first they need a much better idea of what the net costs will be. Without either a spending or a tax increase, he said, the budget agreement should produce a much smaller deficit once the recession, the bailout and the war have passed. Would you believe that the best thing Congress could do right now is . . . nothing?