In a letter this week to his Republican colleagues, Rep. Bill Gradison sharply contradicts a Special Report from the Republican Conference asserting that austerity measures aren't needed because "America can grow its way out of the deficit." Mr. Gradison is not surprised that such optimism persists, but he is dismayed that the conference would espouse "so improbable a view as if it were Republican policy."
Rep. Gradison does not object to optimism in public places. "Optimism is useful and perhaps necessary for those of us in public office," he notes. What concerns him is that the "super-growth optimism" of Conference Chairman Jack Kemp and his followers, based on a distortion of economic facts, may lull Congress into believing that no strong action is neded to narrow the deficit.
The super-optimists' argument starts off with the breathtakingly ignorant assertion that the "conventional wisdom is that deficits are independent of economic conditions." In fact, no forecaster has ever doubted that a poor economy increases the deficit and a good one decreases it. The point that the super-optimists insist on ignoring is that despite the unarguably beneficial effects of strong growth, even the most optimistic plausible forecast produces enormous deficits. For example, the Office of Management and Budget forecasts that even under the Chamber of Commerce's high-growth assumptions -- average growth 35 percent higher than in the booming '60s -- deficits will still hover near $200 billion.
Of course, as Mr. Kemp's report points out, you could assume still faster growth and lower interest rates to boot. Then the budget models would show smaller deficits. And you could also assume that wishes were horses and beggars could ride. But as Mr. Gradison points out, it is not at all likely that interest rates would come down with the economy booming along in overdrive. Far more likely, inflation -- and interests rates -- would move up sharply.
The super-optimists like to talk about the fast growth and modest average inflation of the '60s -- but you don't hear them mentioning that inflation at the end of the decade was three times the starting rate. And, like the president in his recent press conference, they often point to the inaccuracy of past budget projections -- although you don't hear them mention that, with rare exception, those forecasts have been wrong not because they were too pessimistic but because they were too optimistic.
House Republicans are going to have to decide whether to carry on an opposition based on a set of assumptions that everyone else -- including Senate Republicans and administration economists -- find irrational or whether they are going to face up to the steps needed to increase the economy's real chances for a healthy future.