In all the wrangling over the fiscal 1980 budget deficit, Congress has all but lost sight of just how much the budget is going to restrain an economy already moving into recession.
The real danger is not that the 1980 budget deficit will be too large and add to inflation, but that it will be so small that it will make the recession much worse.
The narrow focus on the size of the actual deficit, which has characterized much of the debate over the Senate and House budget resolutions this week, has obscured the fact that this deficit will occur largely because of the current recession.
Without the recession, the 1980 deficit would probably be only about $5 billion, instead of the approximately $30 billion forecast in the budget resolutions.
By the measure most economists use to estimate the impact of the federal budget on the economy, the budget will move, over the course of fiscal 1979 and 1980 in the direction of restraining the economy to the tune of nearly $50 billion.
Carter administration economists, who acknowledge the size of the swing toward restraint, defend it on grounds that it is needed to contain inflation. At the same time, they understand there is no small risk that the policy could turn out to be too tough.
Even in today's inflated dollars, that $50 billion swing is equal to about 2 percent of the nation's output of goods and services. Most economists believe it takes a change equal to only 1 percent of gross national product to affect economic activity significantly.
The swing in fiscal policy, as measured by the so-called full employment budget concept, is only partly the result of holding down the growth in federal spending. Most of it is the result of a soaring inflation pushing up wages and salaries and, of course, real income tax burdens.
The Social Security tax increases that took effect this year, adding more than $11 billion to receipts during fiscal 1980, have added to this as well.
The full employment budget was created by economists to eliminate the effect of swings in the business cycle on the regular budget so they could assess changes in fiscal policy. Using it, one calculates what receipts and outlays would be if the economy were operating at full employment.
Over the years, the concept has often been plunged into controversy because of disputes over what rate of unemployment constitutes "full employment." Today, the Council of Economic Advisers and the Federal Reserve Board use a 5.1 percent unemployment rate in their calculations. The Congressional Budget Office uses 5.1 percent, and then does the whole thing again using 5.5 percent.
But whichever rate is used makes little difference when one wants to know whether the budget is changing so as to add stimulus to the economy or to restrain it over a period of time. All of the current calculations show about the same shift: nearly a $50 billion move toward restraint. And that is what economists agree is significant.
"It's a pretty hefty swing," said Nancy Teeters, a member of the Federal Reserve Board and a budget expert. "A swing of 2 percent is substantial. That's a restrictive policy."
The size of the shift in fiscal policy can be seen in the actual budget numbers, too, not just the estimates of a full employment budget. In the first quarter of calendar 1978, the deficit was running at nearly a $50 billion annual rate, according to Commerce Department estimates.
Quarter by quarter since then the deficit has been trimmed. Revised figures for the second quarter of this year, released by Commerce Wednesday, showed the deficit running at only a $7 billion annual rate.
Part of that improvement was due to the drop in unemployment over those six quarters, but most of it was the result of a steady tightening of fiscal policy.
When the federal budget balance is added to that of state and local governments -- a procedure not all economists think is entirely proper -- the combined total has been in surplus ever since the second quarter of 1978.
"Total government is in surplus in this country," noted Brookings Institution economist Arthur Okun. "This is the only industrial country on the globe about which you can make that statement. That tells the story."
That small rate of deficit in the second quarter may well turn out to be the low point for this business cycle as far as the federal government is concerned.
As the recession takes hold, the actual deficit will begin to rise. Workers will be laid off and the taxes they have to pay will drop. Sales will fall, and business taxes will go down, too. Meanwhile, a variety of government payments, such as welfare and unemployment benefits, will be rising.
Meanwhile, by the calculations of Teeters at the Fed, the full employment budget surplus will be rising by $28 billion.
None of the administration policy-makers wants to talk about the possibility of a tax cut that would take effect during 1980, but they will undoubtedly do so if the economy slumps more seriously than they now anticipate.
Meanwhile, the House has rejected the proposed budget resolution, primarily because the estimated deficit of $29.3 billion was too high for its taste.
The federal budget deficit has become a symbol of inflation and many members of Congress evidently are unwilling to appear to be voting for inflation. While there have been links in the past between the deficit and inflation, a $29 billion deficit for fiscal 1980 can hardly be called inflationary. Under the circumstances, it is tight indeed.