Clash of visions over deficit

President Bush's economic team cheered signs of economic recovery at a forum Wednesday - with nary a tear shed for the prospect of rising federal deficits for years to come.

That marks a sharp shift from President Clinton's days, when official Washington was still riveted on curbing deficits as priority for economic growth. Since the early 1980s, budget battles in Congress turned on that goal.

And Clinton Treasury Secretary Robert Rubin codified it in a simple formula: Curb deficits and you lower long-term interest rates; businesses will invest, and the economy grows.

Today, from economic forums in Crawford, Texas, to decisions on Capitol Hill to cut taxes without cutting spending, all signs point to change in the fiscal rules.

The prospect of rising future deficits, some economists warn, is a key factor causing interest rates to edge up in recent weeks - a troubling sign for an economy that has lost 2.7 million jobs since George W. Bush took office in 2001.

So what happened to make official Washington turn its back on the Rubin mantra?

In part, circumstances themselves have changed. The concern of this administration is how to stimulate the economy, with interest rates already at 40-year lows, not how to bring interest rates down. And the 9/11 terrorist attacks created new mandates for national-security spending.

Then there's the sheer force of Mr. Bush's fiscal convictions: He has helped turn his party wholeheartedly back to the supply-side notion of Ronald Reagan: Cut taxes, and economic growth will follow.

"You've heard the president say very clearly and often that the deficit is important ... but the bigger priorities right now are getting people working, fighting the war on terrorism, and winning the war," said presidential spokeswoman Claire Buchan at his Crawford ranch Tuesday.

Reports of prospective budget deficits of $309 billion were enough to force President-elect Clinton to scuttle social spending plans in the early days of his administration. Now, the Bush administration faces even higher deficit projections, but is not backing down This year's deficit will be a record $455 billion, says the White House Office of Management and Budget. The Congressional Budget Office recently set the deficit at $401 billion, also a record.

Critics say that deficits of this magnitude could scuttle the economy's budding recovery and lay unacceptable burdens on the next generation of taxpayers. "The Bush fiscal policy is the worst policy in over 200 years," says George Akerlof, an economist at the University of California at Berkeley and 2001 Nobel laureate. He pegs the deficit over the next 10 years at almost $6 trillion.

"The consequences of these policies will be substantially higher long-term interest rates," adds economist Janet Yellen, a former Clinton adviser.

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