After the Deficit

When the East-West standoff that drove America's foreign policy for 40-plus years evaporated, what was the average Cold Warrior to do but go find a new line of work? Eight years after the fall of the Berlin Wall, the die-hard anti-Communist intellectuals at the Committee for the Free World have long since closed up shop. Soviet Prospects, a think-tank newsletter put out by the Center for Strategic and International Studies, has become Post-Soviet Prospects. Elliott Abrams, onetime Iran-contra stalwart, is now head of a think tank devoted to religion and public policy; he recently wrote a book on the future of American Jewry.

Which brings us to the budget deficit. Just as the Cold War dominated post-World War II foreign affairs and gave birth to an entire class of analysts and interest groups, the often-alarming gap between what the U.S. government spends and what it collects in tax revenues has ruled domestic politics since at least the early 1980s. And the steep rise of the deficit was accompanied by a swelling of the ranks of budget wonks in general and deficit hawks in particular.

But now, to everyone's surprise, the deficit has almost disappeared. In late October, the Administration announced that the deficit for the just-ended fiscal year 1997 was $22.6 billion--a drop in the bucket compared with the $120 billion-plus forecasts made at the beginning of the year by both the Office of Management and Budget and the Congressional Budget Office (CBO).

Because of a combination of economic good times and budget disciplines enacted in recent years, the deficit stands at just 0.3 per cent of gross domestic product (GDP). This figure is so low--the deficit was last at this percentage of GDP in 1974--that it's widely viewed as the equivalent of no deficit at all. Now Washington is placing bets on (a) how soon the seemingly inevitable budget surplus will materialize, and (b) how to deploy the extra dollars the minute they show up in the Treasury's coffers.

So where does all this leave the capital's budget prognosticators and deficit-busters? Will the hawks be grounded? Is there life after the deficit? Or will the budget warriors, like the Cold Warriors before them, simply take their bows for a noble mission accomplished and quietly move on?

Budget gurus have certainly given some thought to their predicament in the post-deficit world. "That's why I've been shifting into Medicare for the last five years," quips Robert D. Reischauer, a former CBO director who now holds forth on fiscal matters from his perch at the Brookings Institution. For a decade and a half, he said, "troop strength in the budget battle has grown significantly. Now we're going to go through a downsizing period."

But why downsize if you can retool instead? The groups that have battled to keep government spending in check have at least one thing in common with the self-perpetuating federal bureaucracies that they have long assailed, said Stephen Moore, director of fiscal policy studies at the libertarian Cato Institute. "Just as they say that government programs are immortal, so are think tanks and public-interest groups," Moore said. "When their mission goes away, they find new missions."

Reforming Entitlements, Protecting Surpluses

Naturally, advocates say they're not obsolete. "Are we like the March of Dimes and we have to get a new disease?" rhetorically inquired Martha Phillips, executive director of the Concord Coalition. Not at all, she said.

So what if Phillips's grass-roots organization--founded in 1992 by the late Sen. Paul E. Tsongas, D-Mass., former Sen. Warren Rudman, R-N.H., and former Commerce Secretary Pete Peterson--has all but realized its long-standing goal of wiping out the deficit? For Phillips and other fiscal-responsibility crusaders, the looming problem of funding Social Security and Medicare for retiring baby boomers--which is projected to cause big future deficits--is the new public enemy No. 1.

Phillips insists that deep-sixing the deficit was never her group's sole raison d'etre. "Balancing the budget we've always seen as just a good base camp from which to launch the next big push," she said. With the huge baby boom generation still in the workplace, now is the perfect time, Phillips contends, to mount an assault on the summit: the "unsustainable burden" of paying for their future Medicare and Social Security benefits. Concord recently launched its "Paul Tsongas Project," which features public forums and role-playing exercises on the need for entitlement reform.

Like-minded organizations also are substituting entitlement reform for deficit-obsession. Since its founding in 1982, the Committee for a Responsible Federal Budget has devoted itself both to bringing order to the federal budget process and to spreading the message that--as its brochure proclaims--"huge, continuing deficits" threaten "the very fabric of our nation's economic and political life." Now, with funding from American Express Financial Advisors, the nonprofit group is kicking off a 10-city tour in January that's designed to focus attention on entitlements. The "Graying of America" project will focus on the "ticking time bomb" of government spending in an aging society, according to the organization's vice president, Susan Tanaka.

To be sure, reining in spending on the nation's massive social insurance programs had long been an agenda item for these groups. But they moved entitlement reform to the top of their lists right around the time the Clinton Administration unveiled its five-year balanced budget plan in early 1997. White House officials were not amused. "They were moving the goal post even before we'd scored," said one Clintonite, dismayed that the deficit hawks slammed the President's plan--and the final balanced budget deal reached over the summer--for not doing enough to address long-term funding of government pensions and health care.

The deficit warriors' new focus comes with one big problem: The proverbial entitlements time bomb is ticking quite a bit more slowly these days. A General Accounting Office (GAO) report in October projects that if no action is taken to curb federal spending on entitlements such as Medicare and Social Security, the deficit will reemerge in 2012 and gradually "escalate" as the baby boomers retire. By 2024, the GAO projects, the deficit will be about 4 per cent of GDP.

Although longer-term predictions are more dire, that's a vast improvement over projections made just a couple of years ago--and well within the bounds of recent experience. In 1992, the deficit was 4.7 percent of GDP. "You look at those figures and you say, `We're talking 30 years before we get to something that's as big a crisis as what we endured in the early '90s,' " Reischauer said.

This postponement of the day of reckoning "makes our job harder," Phillips conceded. "Instead of saying disaster's right around the corner, now it's down the road and around the bend."

Because the entitlement problem, while still serious, is "receding," Phillips and company may have trouble finding an audience, Reischauer said. "It's the Lord's work--but will anybody listen to the Lord? This is a town that focuses on a few immediate and serious issues. It's going to be awfully hard to get the political system to address problems in a preemptive fashion." For politicians, he said, fiscal shortfalls that emerge a couple of decades into the next century are "two political lifetimes away."

Meanwhile, the prospect of short-term budget surpluses has Washington politicos and interest groups salivating. Anti-deficitologists say that means there's another kind of work to be done: playing defense.

Every month or two during 1997, government forecasters seemed to issue a new deficit projection that was even rosier than the one before it. And it wasn't long before congressional Republicans began quarreling among themselves about whether to devote budget surpluses to tax cuts, reducing the country's $5.4 trillion debt or spending on everything from highways to defense to scientific research. For their part, liberal Democrats such as Sen. Edward M. Kennedy of Massachusetts started drawing up wish lists in areas such as education and child care.

In the face of these pressures, "Concord and other organizations have to switch from calling for further policies to balance the budget to watchdog mode," Phillips said. "We've become `surplus hawks.' And believe me, maintaining the surplus is going to take as much work as, if not more than, getting rid of the deficit."

"A Whole Class of Priests"

Some budgeteers maintain that the new era of surpluses could actually bring them more business than ever before. After all, the age of the deficit didn't spawn just deficit hawks--it also created what Reischauer calls "a whole class of priests" to whom outsiders could turn to interpret the often-arcane and complicated budget process that was put into place to restrain spending.

Some members of the order, like Reischauer himself, can be found in think tanks and on the academic seminar circuit. Others have turned the deficit--and the intense interest in budgetary matters that went along with it--into a private-sector bonanza.

Perhaps the consummate budget entrepreneur is Stanley E. Collender, a onetime Capitol Hill aide who's now in the Washington office of the public affairs giant Burson-Marsteller. Collender pens a fortnightly budget newsletter, consults for an assortment of Wall Street and corporate clients, and produces a book-length Guide to the Federal Budget each year around the time the President's budget is introduced. (He also writes a weekly column for Cloakroom, a Web site operated by National Journal Group Inc.)

Although Collender has gotten plenty of attention over the years for his projections about government red ink, he maintains that the era of surpluses will be just as good to him. "I'm expecting to be busier than ever next year," Collender said. That's partly because fiscal constraints made the annual budget process fairly predictable in an age of deficits, he said, whereas the post-deficit era introduces so much uncertainty that a tour guide may be more necessary than ever. "This is a whole new world," he said. "The average person sitting in a corporate office or a Washington lobbying office is saying, `Wait a minute. What do you mean, "surplus"? And what does it mean for me?' "

Collender is already spending lots of time advising corporations and trade associations on the ins and outs of the President's new line-item veto authority. They want to know everything from how to draft a budget provision that won't be susceptible to the veto, to how to find out if an item they favor is in the crosshairs of the White House, to how to persuade the Administration to shoot down a provision that they don't like.

Beyond the interest groups and the analysts, what will happen in the post-deficit world to the politicians who have made fiscal discipline their calling card? How will the likes of Ross Perot and House Budget Committee chairman John R. Kasich, R-Ohio, spend their time now that the prospects of such measures as a balanced budget amendment to the Constitution seem dim indeed?

Kasich says he isn't worried. "There's probably some people fumbling around, but I'm not," he said in an interview. He's been holding hearings on what comes next after the budget is balanced and is contemplating a presidential run.

Kasich says he won't miss having the deficit to kick around. In fact, he maintains he never really cared all that much about the mechanics of balancing the government's books. "You don't think I ever had any interest in the dry bones of the federal budget?" he said. "The reason I became Budget chairman is because it gave me the opportunity to essentially be in everybody else's business. . . . The budget was never about dollars and cents. It was the vehicle to talk about people."

That observation will remain true, of course, deficit or no: Government budgets are about the nation's values. In fact, without the intense fiscal pressures that in recent years have frustrated conservative tax cutters and liberal spenders alike, the post-deficit budget debate will highlight more than ever ideological differences over the proper role of government. Wherever that leaves deficit hawks, it could be good for the country.