The first question analysts and commentators were asking immediately after the Yankees won the World Series this year was whether they will be able to repeat next year. This is infuriating for at least two reasons. One, we should let the champs and their fans enjoy the moment for at least a few minutes. Two, with free agency, possible injuries, retirements, contract battles and the like, there really is no way to know at this point what will happen next season.
The current speculation about the 1999 surplus is only slightly less infuriating. Even before the Treasury Department last week released the final 1998 figures showing a $70 billion surplus, many were downplaying its importance either because it might not be repeated or because it might be less in 1999.
As Budget Battles said last month, let's stop for a moment and smell the surplus.
First, even though it happened more by accident than design, the fiscal 1998 federal surplus was still the first in 30 years. We would all be moaning about it if the deficit had accidentally gone up last year. That entitles us to enjoy its demise even if it is short-lived.
Second, even if the surplus is less in fiscal 1999 than it was in 1998, that means there still will be a surplus. If it happens, it will be the first time since 1956-57 and only the second time since 1930 that the budget will be in surplus two years in a row.
Third, even if (as Chase Securities projected last week) the surplus falls by $20 billion or so from fiscal 1998 to 1999, that seemingly impressive 29 percent drop will be virtually insignificant both as a percentage of total federal spending and of the economy. Wall Street may not appreciate the direction in which the surplus is heading, but the drop will hardly be enough to be of much concern to traders who will be focused more on the fact that the amount of newly-issued government debt continues to fall.
Fourth, the news of the death of the surplus may not only be greatly exaggerated but also based on a misunderstanding about forecasting. Federal budget projections are not based on an assumption that the current good news will continue unchanged. Whether the fiscal 1999 surplus is higher or lower than in 1998 will depend to a large extent on how the economy performs relative to previous expectations which are not necessarily the same as the past year's excellent economic performance.
Unlike the early days of the Reagan administration-when rosy scenarios were the norm and it was always hard for the economy to perform as well as projected, both OMB and CBO for some time have been assuming a worse outlook next year, including slower growth and higher unemployment. This means that the economy can perform somewhat less robustly next year without hurting the current surplus forecast. Even a much worse economic outlook will not affect the previous projections as much as many are now saying because the change will not be that big compared to prior expectations. The surplus may be lower, but-in light of the slowdown already assumed-the economy would have to really tumble for it to be wiped out completely.
Fifth, as a senior OMB career official reminded me this past week, over the last few years the biggest change to the projected and actual results has not been because the economy has performed better than anticipated. Instead, it has been because of "technical" adjustments, essentially mathematical revisions to previous estimates that last year resulted in spending being lower and revenues coming in higher than expected.
The best way to think about this is to return to today's Budget Battles headline. The 1997 Yankees' third baseman Scott Brosius had a .202 batting average in 1997, was not expected to hit more than about .250 this year, but actually hit .300. In federal budget terms, the difference between .250, the projection, and .300, the actual batting average, is a technical adjustment. If Brosius continues to hit as well as he did in 1998, the expectation will eventually change, a .300 average will be projected, and anything less than that will look like a deficit. For now, however, analysts are likely to look at Brosius' 1998 results as a one-year aberration; the analysts will return to something closer to Brosius' career average when projecting what might happen next year.
All of this means it is far too early to say whether the more optimistic technical revisions that have so reduced the deficit in recent years will continue to hold in fiscal 1999: We do not even have the results from the first month of the year. These technical adjustments have wreaked havoc with standard budget forecasting as old assumptions about spending and revenues have turned out to be wildly wrong. In addition, much of the speculation about a lower surplus next year does not take these adjustments into account so the economy could perform worse, but the 1999 surplus could still be the same or higher than it was in 1998.
Like most analysts, I will continue to crunch numbers over the next few months to get some idea of what could happen, and I will be watching closely for trends and changes. But as a life-long Yankee fan as well as a budget wonk, I also want to spend a little bit of time enjoying what has just happened.
Question Of The Week
First, some unfinished business. The Treasury Department last Thursday reported the fiscal 1998 surplus was $70.0 billion. This means that Bill Hagan of the Department of Energy is the winner for responding to the Oct. 13 question-of-the-week by guessing (or estimating, as we say in Washington) that the surplus would be $68.8 billion. Bill cannot win an "I Won A Budget Battle" T-shirt, however, because he won one on May 19 and, in keeping with the "Blum Rule" (named for CBO Deputy Director Jim Blum), he cannot get more than one shirt every six months. But let's give Bill a big round of applause for playing.
Last Week's Question. Sorry, but no T-shirt winner from last week's contest either, which offered an "I Won A Budget Battle" T-shirt to the reader who suggested the most interesting question-of-the-week for a future Budget Battles column. All of the questions sounded like the topics for a Ph.D. thesis or were far too difficult to be answered by anyone. But take another shot at it. Any question selected for a future column will win you a T-shirt and a mention.
This Week's Question. Want to win a T-shirt and maybe start a new career? Answer this week's question, and who knows what will happen. It's November "sweeps" in television-one of three months when the ratings of the networks are monitored, advertising rates set, and all of the shows have what are thought to be the story lines most likely to attract big audiences. Let's say there is a drama called "The Big Budget" and you are responsible for coming up with the idea. In one or two sentences, what story would you suggest to get the biggest audience? Send your response to scollender@njdc.com.