Budget Mavens Give Clinton a Good Mark
PRESIDENT Clinton told the nation Wednesday that the federal deficit would plunge to $180 billion in fiscal 1995.
Maybe. But government deficit forecasts are notoriously inaccurate. Alan Auerbach, a University of Pennsylvania economist, calculates that if the errors of the past decade in the Congressional Budget Office deficit forecasts were extrapolated into the future, the cumulative error over the next six years would amount to $250 billion.
Errors in deficit forecasts are bipartisan. Both Republican and Democratic administrations have made huge mistakes.
``The game isn't to be accurate,'' says David Wyss, an economist with DRI/McGraw-Hill, a Lexington, Mass., consulting firm. ``The game is to be believable.''
Mr. Wyss speaks from the experience of working for two years with the Council of Economic Advisers under President Carter.
During President Reagan's years at the White House, the budget forecasts were far too optimistic. ``Reagan was terrible,'' Wyss says. ``He didn't even bother to make them believable. Bush wasn't too much better.''
Even the most conscientious effort to be honest in budget projections may produce massive errors. One reason is mathematical. The deficit is the difference between two far larger numbers - total federal revenues and total federal spending. So, for example, a mild downturn in the economy will shrink revenues and swell outlays a little, but greatly enlarge the deficit.
As for the Clinton 1995 deficit forecast, Wyss suspects it will more likely be $190 billion, down from about $220 billion in the current fiscal year and an actual $255 billion in fiscal year 1993, which ended last Sept. 30. ``He is a bit optimistic,'' Wyss says.
But a Wall Street economist, Douglas Schindewolf of Smith Barney Shearson, puts the 1995 deficit at $165 billion - better than the Clinton prediction. If the administration makes a mistake in its deficit forecast, it would prefer to err on the high side, Mr. Schindewolf says. So in their calculations, Mr. Clinton's budget officials use ``conservative'' estimates of economic growth.
Stanley Collender, a budget expert with Price Waterhouse, describes Clinton's last budget as having ``fewer gimmicks'' to shrink the deficit forecast than any ``in the last few decades.''
How much credit does Clinton deserve for the better deficit picture? Seventy-five percent, says Mr. Collender. The administration hasn't done away with the deficit problem, ``but it certainly is a lot better.''
Positive factors for the budget include faster economic expansion than anticipated. Economists expect the Commerce Department to release data today indicating that the economy grew at more than a 5 percent real annual rate in the last quarter of 1993.
``That is a fluke,'' Wyss says. He predicts growth this year of about 3 percent after inflation. But because of the California earthquake and the cold in the East and Midwest, output may rise at only a 2.5 percent rate in the current quarter, he says.
Wyss describes the deficit-reduction package pushed through Congress by Clinton last year as ``a major factor'' in sufficiently bringing down long-term interest rates to encourage sales of houses and automobiles - two key elements in the recovery.
The costs of Medicare and Medicaid also went up last year by the smallest amount since 1976, far less than forecasted. Wyss says a repeat is possible this year. ``People are a bit scared of health-care reform, so they are being good,'' he says. Businesses are shopping for lower-cost care for their employees. Medical facilities are trying to keep costs down to stay competitive.
The president's interest in health-care reform has increased the pressure for cost savings, Wyss maintains.
Clinton may also have helped boost consumer confidence, he adds. Taking a poke at the relative inactivity of George Bush in the White House, he says the public now figures ``someone is running the place.''
As for the fiscal 1995 budget Clinton will send to Congress Feb. 7, Mr. Collender expects spending to amount to $1.6 trillion, up only $100 billion from the current fiscal year, and revenue about $1.42 trillion. That pattern makes Clinton look like a ``real conservative'' when compared with the much more rapid spending growth under Mr. Reagan, he says.