Dancing With The Budget
This week's "Fiscal Fitness" column from Roll Call was inspired by my Beatiful and Talented Wife's (The BTW) enjoyment of the ABC hit, Dancing with the Stars. And, yes, in case you're wondering, we have indeed started to take ballroom dancing lessons.
Partners Have Been Chosen, So Let the Budget Dancing Begin
November 18, 2008
By Stan Collender
Roll Call Contributing Writer
Based on the headline above, you might think this is about some of the traditional dances typically performed during each year’s federal budget debate, such as the “Tax Tango,” “Spending Samba” and “Budget Bossa Nova.” That’s tempting, especially because “Dancing With the Stars” is one of the top-rated shows on network television, and mentioning those dances would almost certainly increase the number of hits this column gets when people Google those names.
But the specific dances that will be featured in this year’s budget debate will be far less important than has been the case at any time in the past decade or so. Instead, we need to discuss the masterful multiyear fiscal choreography that will make the coming budget debate successful.
The reason that careful choreography will be needed is that, instead of the one-act performance with a single highlighted dance that has been typical of the budget decisions of the past, the coming debate will need to look far beyond fiscal 2010, which will start Oct. 1, 2009. Those running the company need to stage a far more difficult multi-act, multi-dance number, where the decisions made this year are part of a longer-term plan with a larger troupe of dancers and a big finale.
The reason for this is actually quite simple: “The budget” won’t be much of a consideration in this year’s debate, but what’s done this year will have a huge impact on the budget debates ahead.
The reason, of course, is the state of the U.S. economy and the decisions that have been and will continue to be made to deal with it. Few economists of any political stripe are saying the deficit currently is a problem about which anyone should be concerned. Regardless of the cost, getting a recovery going has to be the No. 1 priority, they say, and the large deficits that will require and the huge increases in the national debt they will produce shouldn’t constrain policymakers as they do what has to be done.
What these same economists are not saying, however, is that the deficits and national debt won’t just return as an issue when the economy gets back on its feet; they will return with a vengeance. Even with a) a recovering economy, b) activities in Iraq and Afghanistan cutting back, c) at least some of the equity in financial and other institutions the government is buying starting to be sold, and d) some of the guaranteed loans Washington is or will be making starting to be paid back, the U.S. deficit is likely to remain comparatively high, the national debt will have been increased substantially, and annual interest payments will likely be more than 12 percent of total spending.
That is what will become the next big concern for the same economists who are saying not to worry about any of this at the moment. There will be talk about rising interest rates just as the economy is recovering because overseas investors in U.S. debt may no longer be willing to buy as much as they have in the past.
This is not just economic theory. In 2005, a comment by a South Korean official about the possibility of that country no longer buying as much U.S. Treasury debt quickly sent U.S. interest rates higher. The market only stabilized when South Korea said its previous comment about diversifying its purchases of sovereign debt had been misconstrued.
This reality may not, and perhaps should not, have much of an impact on what’s decided this year. But it likely will seriously constrain the budget debates and decisions that are ahead unless the next acts in this dance start to be choreographed now. That means that while deficit reduction may not be immediately appropriate, an ongoing discussion starting this year so that the dance can begin when it again becomes economically viable should not be delayed until everyone agrees we’re at that point.
This provides some outstanding opportunities for the Obama administration and the House and Senate Budget committees, all of which will be able to demonstrate their ability to see the big picture and choreograph the steps needed even if they won’t actually be performed on a big stage soon.
When presenting the Obama administration’s first budget early next year, the new director of the Office of Management and Budget should spend almost as much time and effort talking about the years after 2010 than what is recommended for fiscal 2010 itself. With the exception of the stimulus bill we’re now being told will be proposed by the president and considered by Congress early next year, the size and shape of the 2010 budget has largely already been determined. That means the Obama White House’s best opportunity to put its stamp on and be successful with fiscal policy will not be on the comparatively small changes it will be able to make in 2010, but on its vision for and proposals to deal with the budget aftermath of the economic recovery.
The Budget committees will have a similar opportunity. Instead of just focusing on the next fiscal year, which will be mostly determined by decisions made before the hearings and markups on the 2010 budget are held, the committees should begin to deal with the longer-term challenge by making recommendations about what will need to be done. Not only will that shape the coming debate, it will also make the committees increasingly relevant at a time when their counsel and input is not likely to be in as much demand.
That should mean that, while others are trying to do a budget jive or two-step, the OMB director and Budget committees will be choreographing the far more dramatic and difficult deficit and debt pasodoble.