It's depressing. The cynics may be right after all. For several months, it has appeared that a balanced-budget compromise was on the cards in Washington. Sure, a lot of details needed to be worked out, and there were tough compromises to be made--over Medicare, the Commerce Dept., and other funding priorities. But the Senate, the House, and President Clinton had all signed on to the goal of bringing the budget under control shortly after the turn of the century. This year's rallies in the stock and bond markets have been premised on these signs of fiscal rectitude.
But now, it looks like business as usual in Washington. Inside the Beltway, sophisticates are all abuzz over the budget "train wreck" that'll happen when it becomes necessary to vote on increasing the government's debt ceiling in the fall. Here's the problem: Republican legislators will attach a highly partisan budget-balancing provision to this fall's bill to raise the debt ceiling. If President Clinton dares to veto the legislation, the federal government won't be able to pay its bills--and the U.S. will default on its debt.
The lunatic tactic of goading the President at debt-ceiling time was frequently used by congressional Democrats against Republican Presidents in the 1980s. It's a suicidal game in a world of global capital markets. If the government really did default, no matter how briefly, the financial market sell-off would be horrendous. Of course, the betting is that someone, probably Clinton, will blink. But is this any way to show political leadership--threatening to undermine the full faith and credit of the U.S. government?
The economic payoff from fiscal discipline is too high, and the damage from failure too great. Now is the time for policymakers from both parties to negotiate a credible blueprint. Balancing the budget would raise savings, investment, and productivity. There's an added bonus, according to DRI/McGraw-Hill, the economic consulting firm: If the deficit starts to decline now and if balance is reached by the early years of the 21st century, publicly held debt per household, currently $37,442 will decline to $29,962 (measured in 1995 dollars). If it's business as usual, public debt per household will jump to $45,069. No train wrecks, please.