News: Analysis & Commentary: THE ECONOMY
BIG GOVERNMENT READS ITS OWN OBITUARY
Ever since their landslide election last November, congressional Republicans have vowed to bring a revolution to Washington. Now, stepping beyond the slogans, they have begun to show the public just what their vision will mean. On May 9-10, the GOP-controlled House and Senate Budget Committees unveiled fiscal agendas that not only propose to balance the budget but would profoundly restructure government.
Medicare would be overhauled to slow spiraling costs. Medicaid and welfare would be cut and turned over to the states. Funds for national parks, federal law enforcement, highway and mass- transit building, environmental protection, and export incentives would be slashed. The Senate panel would kill more than 100 programs and agencies, including the Commerce Dept., while the House would ax more than 300.
Even Social Security--which the GOP pledged to leave unscathed--would take a modest hit, though it would come through the back door. By proposing to lower the official measure of inflation, the House Budget panel would reduce annual cost-of-living increases for retirees.
BUSINESS UNSPARED. Ultimately, the GOP would dismantle many of the corporate subsidies they created, as well as the social safety net built by Democrats. "You're talking about the biggest structural change of our government in decades," says Steven E. Schier, a political scientist at Carleton College in Northfield, Minn. Adds House Budget Committee Chairman John R. Kasich (R-Ohio): "We're about a revolution in this town."
The GOP leadership has a long way to go before the spending targets produced by the budget panels actually become law. Their ambitious blueprints will be under tremendous pressure from Democrats and from traditional GOP constituents--farmers upset over cuts in crop supports, veterans angered by curbs on benefits, and corporate executives who don't want to lose their business subsidies. "Republicans are going to take incredible political heat for the next nine months," says Stephen Moore, director of fiscal policy studies at the libertarian Cato Institute. "They're going to have to have the fortitude to pass a budget that's going to be very unpopular."
Ultimately, indeed, there is little chance that spending cuts of the magnitude of those proposed by the House Budget panel--slashing $1.4 trillion from spending in seven years--will be enacted. Even if such a plan made it to the White House, President Clinton would never sign it. But the Administration is hinting that it may be open to new spending cuts. And even if the GOP fails to balance the budget by 2002, it already has won the debate over whether to dramatically shrink government. Concedes liberal Senator Frank R. Lautenberg (D-N.J.): "There is a consensus we ought to do this. Now, the issue is how do we do it."
POTENT MESSAGE. Most economists agree that, over the long run, breaking the back of the deficit will be a winner. That's because it will cut interest rates and shift more resources from government to the private sector, which usually is more productive. In the next few years, though, such big spending cuts could magnify the impact of a cyclical downturn. "Transitional effects could be costly," says David H. Resler, chief economist for Nomura Securities International Inc. Adds Cynthia Latta, senior financial economist for DRI/McGraw-Hill: "Long term, it's good for the economy, but short term, you get one knock after another."
Still, the real impact of these changes will not be on macroeconomic policy but on the relationship between Washington and the public. This new government envisioned by Republicans would be far less costly than recent predecessors, but it also would do much less. Federal services taken for granted for a generation will be done by states, cities, private business--or not at all. Spending on children clearly will be hit (page 44). Government checks that everyone from senior citizens to farmers have come to expect may still arrive, but their purchasing power will erode as increases fail to keep up with inflation.
For example, while Medicare spending would continue to rise, annual increases would be held to 6.9%, below the current rate of health- care inflation. If medical inflation does not slow, in other words, patients will have to pay more or accept less care. Such changes in so-called entitlement programs will be hugely important. After all, nearly half of all families receive some government cash or in-kind benefits. Overall spending for the rest of government--discretionary programs ranging from Amtrak to job training--would be 12% less than today and 30% lower after inflation.
All these cuts, though, send a potent message: The GOP has drawn a stunning contrast to Clinton. Elected in 1992 as the candidate of change, he has now become a symbol of the status quo. Where the GOP would demolish, Clinton would do a little remodeling.
Who will the public back? To the GOP's critics, the draconian budget plans are destructive. "This is antigovernment," says Robert Shapiro, vice-president of the moderate Democratic Progressive Policy Institute. He argues that voters want Washington to act as an "efficient and effective partner" but they don't want to give up their benefits. Cato's Moore, a frequent adviser to Republicans, counters: "I hope what they want is substantially less government." Want it or not, by 1996, that likely is what the public will get.By Howard Gleckman, with Dean Foust and Mary Beth Regan, in Washington