'Train Wreck' Explained
ATENCIN...Achtung...Hora....Since this paper circulates to readers around the world, we hope our American subscribers will indulge us while we explain the financial impasse currently gripping the capital of the nation with the world's largest GNP (also the nation that has gone from being the biggest creditor to biggest debtor).
Washington has for decades claimed to live by Keynesian economics. That system stipulates that governments run budget surpluses in fat years in order to stimulate the economy with deficit spending in lean years. (Recall Joseph and Pharaoh's granary.)
Washington politicians (like their counterparts in Europe) have enjoyed the latter half of the Keynesian formula. But they have gradually ignored the first half. The US has not posted a surplus since 1968. Congresses and presidents have added layer upon layer of spending - funding many proposals to make citizens' lives easier - and many for special supplicants (read lobbyists). Few programs have been shrunk or terminated. Many have grown by at least the rate of inflation, plus, in some cases (social entitlements), the rate of eligible population growth.
After years of fretting, Congress (suddenly controlled by Republicans) pledged to cut the deficit to zero in seven years (there's Joseph again).
To the dismay of many fellow Democrats, President Clinton countered with a pledge (not a detailed plan) to do the same in 10 years. He also agreed with Republican opponents on reforming welfare. And he said he could live with some of the program trimming of moderate Republicans in the Senate. But he would veto any Republican funding bills that cut too deeply or too quickly at the 60-year-old Roosevelt welfare state, expanded 30 years ago by Lyndon Johnson.
Which leads to this week's collision. Republican congressional leaders crafted a strategy using Congress's constitutional control of the the nation's purse strings and debt ceiling to force Clinton to sign their seven-years-to-zero-deficit plan. Clinton countered with his constitutionally-provided veto, which Republicans don't have the votes to override.
As has happened four times in recent years, government then goes into partial closedown. As has not happened before, the treasury secretary revealed plans to borrow from various government pension funds to stave off default on US bonds.
This brings us to the moment of truth: Who blinks? Part of the answer will come later this month. Larger issues may stretch out over next year's election campaign. That will be largely Mr. Clinton's decision. He obviously is torn. He may say, a la Churchill, that he doesn't want to preside over the dissolution of the Roosevelt New Deal, but go ahead and start to do so. Or he may make this battle over reversing the growth of government the giant issue of the 1996 election.
One final word: America needs a Churchillian call for shared sacrifice. Readjusting social programs to fit national growth calls for balancing the taxes, pensions, and subsidies of the present and future generations. The first baby-boom president has not yet shown real awareness that his generation is about to weigh heavily on the big social programs. And on its own children's taxes.
US politicians (like European politicians) enjoy the easy half of Keynesian economics.