Of all of the indictments of the Gramm/Rudman budget-deficit proposal -- and there are many -- one of the most effective was delivered by former Economic Council chairman Walter W. Heller: it is bad, almost horrible, economic policy.
Unhappily, Heller's testimony to the Joint Economic Committee got lost as national media attention was focused on the Navy's splendid intercept of the Egyptian airliner trying to take those four Palestinian hijackers to safety.
The proposal by Republican Sens. Phil Gramm of Texas and Warren Rudman of New Hampshire would require a balanced budget by fiscal year 1991 and, in the interim, would trigger automatic spending reductions of $36 billion each year. This seductive, simplistic notion is supposed to satisfy the yearning of Republicans and Democrats alike to "do something" about the budget deficit, in the same thoughtless fashion that Congress has been asked to "do something" about the trade deficit by passing counterproductive protectionist import surcharges.
Said Heller: "Like any mandated and rigid formula, it would undermine, perhaps even pervert, the role of the federal budget as an economic balance wheel in the economy. Rigid reductions of the deficit through thick and thin -- through recovery and recession -- could wreak havoc on the economy."
For example, suppose a recession hits the economy in 1987 (which many economists think quite possible), but is followed by a modest recovery in 1988. Under terms of the Gramm/Rudman bill, the federal deficit in fiscal 1988 would not be allowed to exceed $108 billion, which is a smashing $162 billion less than the $270 billion now forecast by the Congressional Budget Office for such a 1987-88 economic scenario.
Says Heller: "Imagine the economic setback it would cause to slash spending and the deficit by 1988 to try to reach the $108 billion deficit level fixed by the Gramm/Rudman formula!"
Obviously, it couldn't be done. If in that circumstance the president actually tried to find the $162 billion by raising taxes or by forcing cuts in spending, it would further depress the economy, throwing more people out of work and throwing the budget even more out of whack. "A dog chasing its own tail comes to mind," Heller said.
Or let's say that the economy faces a "growth" recession, like the one it's been in for the past year -- no negative result in GNP, but not enough growth, either, to cut the unemployment rate. Over a two-year period, that would cost about $60 billion in tax revenue that otherwise would be received by the Treasury. And in that case, Gramm/Rudman would not only require that $72 billion be cut from the deficit ($36 billion a year for two years), but enough to make up for the $60 billion shortfall.
Heller, a good phrase-maker (who is sorely missed here) snaps: ". . . that would simply kick the economy in the groin and bring on an actual recession."
But sadly, a passel of veteran "liberal" Senate Democrats was played for suckers by junior Republicans Gramm and Rudman. They weren't paying attention to the economic-policy shortcomings of the proposal, but to the political benefits of being seen as willing to "do something" about the deficit. And in doing so, they fell into a neat trap, transferring authority to President Reagan to do whatever he wants, unilaterally, with the nondefense part of the budget. According to the Center on Budget and Policy Priorities, at least half of the budget would be exempted from the Gramm/Rudman cuts.
Among 27 Democrats who abandoned almost everything they've ever said they stood for on economic issues was Edward M. Kennedy of Massachusetts, who has been trying to carve out a more "responsible" image looking to the 1988 presidential election. Said Kennedy: "We are all crying 'fire' in the overcrowded theater of the federal deficit. We cannot continue to debate endlessly which fire extinguisher to use while the fire rages on." Since low- income programs would bear the brunt of the automatic $36 billion annual reductions, Kennedy's rationale is somewhat reminiscent of the U.S. military officer at Ben Tre during the Vietnam War who said: "It became necessary to destroy the town in order to save it."
Sens. Bill Bradley (D-N.J.) and Gary Hart (D-Colo.) argue convincingly that -- in short -- Gramm/Rudman is a fraud, cleverly designed to protect the defense program from more than token cuts; to avoid a tax increase; and to lay the entire burden of cutting the deficit on monies for education, child care, environmental and other nondefense programs that so far have partially eluded the ax of Reaganomics.
It's now up to House Democrats in conference to rescue the nation from the worst of the Gramm/Rudman mischief.