As an economist usually labeled "conservative," I was supposed to be doing handsprings at the recent announcement of an agreement to achieve a balanced federal budget by 2002. The political attraction of the budget accord between Congress and the Clinton administration is obvious. At a time of concern about gridlock in government, the accord takes the White House and Congress, both Democrats and Republicans, off the hook - at least for the time being. The specter of closing down the government has been eliminated.
The agreement seems to have something for everyone. Supply-siders are delighted by the prospect of tax cuts, although more modest than they would like. Conventional conservatives like the idea of balancing the budget, even if it is five years from now. And liberals are pleased by the prospect of new money for education and protecting other worthy endeavors, even though specific budget reductions will come later on.
But, as I tell my students, a cynical explanation carries you a long way in Washington. For starters, consider the different timing of tax cuts and spending cuts. In federal parlance, the tax cuts are "front loaded" while the spending cuts are "back loaded" - until after the end of President Clinton's second term. In plain English, that means the tax cuts come fairly quickly, while the main reductions in expenditures (or, as we are reminded, slowdowns in the rate of increase) are deferred to the next century (the years 2000 to 2002). Not too surprising, when you look at the fine print you find that the budget deficit goes up for the next three years before it goes down.
But all this is the good news, so to speak. The seriously negative message is that the budget accord does little if anything to deal with the expected explosion in the deficit just a few years after the accord expires in 2002. Even the modest adjustments in Medicare outlays focus on curbing reimbursements to providers rather than introducing incentives to inhibit demand.
Every serious analyst of the federal budget predicts a massive expansion of deficit spending when the "baby boom" generation starts to qualify for Social Security and Medicare benefits in large numbers. Rather than raising this issue when it is still manageable, leaders in both parties are sweeping it under the rug. The result? Future political leaders will have to deal dramatically with a fiscal crisis likely to arise by 2010 or 2020.
We can recall an unfortunate parallel. In the early 1970s, President Nixon's Treasury Department appointed a blue ribbon group on the future of financial institutions (the Hunt Commission), which urged phasing out the savings and loan associations on the grounds that they had outlived their usefulness. Of course, the report was ignored. Two decades later, when the S&L crisis loomed large, federal taxpayers spent tens of billions of dollars bailing out the bankrupt system. If serious reforms had been enacted in the 1970s, a great deal of grief - financial and otherwise - would have been avoided.
It is not written in the stars that the American people will face the entitlements problem only when it too becomes a crisis. However, the widely praised budget accord, unfortunately, is a cogent straw in the wind.
Budget conferees did not even deal with the technical issue of adjusting the consumer price index to more accurately reflect the rate of inflation. Such action would have helped ratchet down the future growth of entitlement programs while contributing to greater accuracy in an important statistical series. Nevertheless, the key unmet challenge in the accord is the failure to reform the basic structure of entitlements in order to eliminate the fundamental, continuing imbalance between revenues and benefits.
* Murray Weidenbaum is chairman of the Center for the Study of American Business at Washington University in St. Louis.