In Hobart Rowen's column yesterday, a government forecast cited by Richard Darman should have been described as predicting an increase - - not a decline -- of 0.9 percent in real GNP this year. (Published 2/8/ 91)
There's good news and bad news in President Bush's $1.45 trillion budget for the next fiscal year.
The good news is that the government is no longer tempted to lie about the deficit because of artificial "ceilings" imposed by the ill-advised Gramm-Rudman-Hollings law. The phony deficit "targets" were scrapped by the budget deal negotiated last October and replaced by "caps" on various spending categories.
That enabled Richard Darman, director of the Office of Management and Budget, to be candid: "The inescapable reality of the near term is: The deficit outlook is not good."
Unabashedly, Darman could announce the two biggest budget deficits in history -- $318 billion for the current fiscal year, 1991, and $281 billion for fiscal 1992. In the face of recession, it's the right course to let the deficits run and not reach for Draconian measures to satisfy the artificial restraints that would have been required by Gramm-Rudman-Hollings.
Moreover, freed from the old game of shading the truth on prospective deficits, Darman and Economic Council Chairman Michael J. Boskin could keep their economic assumptions comfortably within the range of guesses offered by most private economists. Darman could even gleefully point out that the government's forecast of a recession, with an 0.9 percent decline in real GNP during this year, was more pessimistic than that of the Congressional Budget Office.
No "rosy scenario" there, Darman says with pride -- although all forecasts have been infected to some degree by the administration's underlying assumption that the war in the Persian Gulf will be a short one.
Also on the good news side is the sensible proposal that individuals with annual incomes of at least $125,000 pay more of their own way for Medicare and get less generous farm subsidies. There is no reason for poor and middle-income taxpayers to be subsidizing the rich. The principle should be extended to Social Security income.
So if we have a new era in which smoke and mirrors are out and hard-nosed reality is in, where is the bad news?
The bad news lies in the budget's assumption that "the longer-term trend is favorable by several different measures of 'the deficit.' " In essence, Darman assures us, those $318 billion and $281 billion deficit figures are temporary, overblown by three special circumstances -- of which two, the recession and the S&L bailout, are huge. The third is the cost of the Persian Gulf war, as yet undetermined.
In effect, Darman is saying: Once we get out of the war, out of the recession and stem the deposit-insurance hemorrhage, we will be back to normal. The $318 billion deficit for this year becomes a comfortable surplus of $20 billion in fiscal 1996.
The trouble with this reasoning is that it casually assumes that once out of recession, the war and the S&L debacle, there will not be any other "special" circumstance to throw calculations out of whack. But every president during the past 20 years has promised a balanced budget by the end of his term, or earlier, and it never happens.
Miscalculations are the rule, not the exception, because the future is unpredictable. Darman admits that the $318 billion deficit for fiscal 1991 represents an unexpected increase of $105.5 billion for thrift and bank insurance (overwhelmingly for the S&Ls) and a loss of $87 billion in Treasury receipts because of the recession.
At budget time last year, Darman put a "place-holder" in the budget for deposit-insurance costs of only $7.3 billion, not being sure of what the eventual cost would be. It turns out, in this budget estimate, to be $111 billion. And at the end of the fiscal year, it could soar even higher as problems with banks mount.
This year's place-holder wild card relates to the Gulf war. Since he can't know its eventual cost or the magnitude of contributions from America's allies, Darman's fiscal 1992 place-holder for Desert Storm is a scanty $15 billion. Only time will tell how that works out.
But even if Darman's place-holder for the Gulf proves to be a better guess than his place-holder for deposit insurance, this budget document makes no allowance for rising postwar costs for rehabilitation of the Gulf region and for financial aid to Israel, Turkey, Egypt and other allies -- to say nothing of expenditures on the domestic economy for "the investment in the future" that Darman would like to stress.
How will those eventualities -- and others not yet in view -- affect that $20 billion surplus figure for fiscal 1996? The implied response of the Bush-Darman budget is that declining defense costs set in motion by the defanging of the Evil Empire will free up enough resources to do all these things -- and still set the long-term deficit on a path toward balance.
Don't hold your breath.