THE difference between $492 billion and $500 billion in deficit cuts over five years would not be significant economically, the Clinton administration's top economist observed at a Monitor breakfast yesterday.
The latest estimates of the size of the deficit cuts in the budget-reconciliation bill under negotiation in Congress fall into that range.
"It remains the largest deficit-reduction effort in the nation's history," says Laura D'Andrea Tyson, chairwoman of the White House Council of Economic Advisers.
She notes that the financial markets showed no negative reaction, even to an indication Friday that the deficit would be cut only $490 billion.
Although White House Press Secretary Dee Dee Myers told reporters Friday that the final number would probably fall around $490 billion, interest yields in the bond markets fell anyway.
Interest rates still hover in their lowest range in decades, which the administration takes as the best vote of economic confidence in their plan rendered by politically cold-blooded bond traders.
Some conservatives counter that the bond markets dropped interest rates when President Clinton unveiled his plan, not because traders expected deficits to fall, but because they expected new taxes to torpedo economic growth.
If that were true, Dr. Tyson says, then business investment and the stock market would have dropped. But the stock market has risen since Mr. Clinton introduced his budget, she notes, and business investment in the April-June quarter was the second highest in five years.
Tyson says the most-direct effect of cutting budget deficits is to slow the economy down. But these cuts are gradual enough so that the economy should be able to grow through them, she says. The earlier-than-expected drop in interest rates should help bring earlier growth, she says.
"We thought about the size of this package a long time," she says, trying to balance the credibility of the deficit cuts against the risk of going too far and dragging the economy down in the next several years.
The impact of lower interest rates in stoking growth take time, she notes. Usually only about a third of the impact is felt during the first year after rates drop.