Why Today's Soaring Deficits Don't Inspire Fears
Back in the 1980s, Ronald Reagan's advisers worried that his federal budget deficits risked causing an economic calamity. But the calamity never came.
That goes a long way toward explaining why politicians are more complacent over today's deficits -- and why, ironically, a deficit-induced crisis may be far likelier.
The main threat of deficits is that they consume scarce savings, money that could be more productively invested in factories, research and development, and must eventually be repaid -- with interest -- by future taxpayers.
Today there is also a smaller, but more hair-raising, deficit threat that is receiving increased attention from some economists: that the investors who finance our deficits by buying Treasury bonds and bills, especially the foreigners who buy a larger share of them than ever, will question our ability to repay them, and balk at lending more -- triggering a big drop in the dollar and much higher interest rates.
This is not a new concern. In his 1986 book, "The Triumph of Politics," former Reagan budget director David Stockman warned that deficits eventually would scare off investors and send the dollar plunging and inflation and interest rates soaring, bringing on a recession. Of course, he was wrong: Foreigners happily continued financing U.S. deficits, and while the dollar did go on a roller coaster, inflation stayed low. When recession finally arrived in 1990, it was mild.
Given that outcome, many of today's conservatives seem to have concluded that President Reagan's example shows that tax-cutting brings enormous political benefits while deficits come with few costs. Earlier this year, in his book "The Price of Loyalty," author Ron Suskind, a former Wall Street Journal reporter, wrote of then-Treasury Secretary Paul O'Neill being told by Vice President Cheney in 2002: "Reagan proved deficits don't matter." Asked for comment this year, Mr. Cheney said he believes deficits do matter, but the budget shouldn't be balanced at the expense of "adequately funding our military operations," or of "pro growth" tax cuts.
To be sure, the deficit -- the difference between federal expenditures and revenue in any given year -- though projected to be $521 billion this year, may come in smaller as the economy improves. Even at the high end of estimates, at 4.5% of gross domestic product, it would fall short of the record 6% in 1983. Meanwhile, the national debt -- that is, the total accumulated amount owed by the U.S. -- is smaller as a share of GDP than it was in the 1990s.
But the budget is actually on a much-less-sustainable path today, says Alan Auerbach, a University of California at Berkeley economist. That's because, starting in four years, the budget will begin to feel the strain of surging Social Security and Medicare expenditures as baby boomers start to retire in large numbers. Others note that a much larger portion of U.S. debt is now financed by sometimes fickle foreigners, who now hold 40% of all Treasury debt. During the Reagan era, the figure was 15%.
Yet amid debates about terrorism, war and jobs, the deficit has barely registered as an issue in this year's presidential election. President Bush rarely mentions it. At a recent forum organized by the antideficit Concord Coalition, Rep. Michael Castle, a Delaware Republican, wistfully recalled that Republicans used to run on balanced budgets. "Now, it's all tax cuts," he said.
For his part, presumed Democratic nominee John Kerry says he would restore deficit-control laws, but like Mr. Bush, has no specific plan to balance the budget.
Even the public seems largely indifferent. Just 17% of respondents called the deficit one of their two top priorities in a Wall Street Journal/NBC News poll last month. More respondents said they were concerned about Iraq, terrorism, employment and health care.
Views were quite different two decades ago. In 1983, 42% of respondents told a Gallup poll the deficit was a "great threat" to the economic recovery, and politicians -- including those in the Reagan administration -- agreed. As University of California at Santa Barbara historian Elliot Brownlee documents, Mr. Reagan's economic advisers thought deficits were the primary cause of sky-high interest rates.
In a 1982 memo prepared for a retreat of Reagan officials, future Fed Chairman Alan Greenspan wrote, "The markets believe that the federal deficit will continue to hemorrhage, inducing the Federal Reserve to create excessive money supply growth and hence inflation." Later that year, newly-installed Council of Economic Advisers chairman Martin Feldstein advised that deficit cuts would help lower interest rates "and accelerate the recovery."
At the time, politicians coalesced around deficit-fighting measures in part because concern was shared by both Republicans in Congress such as Sen. Warren Rudman and conservative Democrats. "Ronald Reagan signed 18 tax bills, 14 raising taxes and four cutting them," recalls Rep. Charles Stenholm, a Texas Democrat who has served in Congress since 1979. "He was willing and able to get compromises with his own party."
But the fact that Mr. Stockman's worst fears weren't realized seems to have drained deficits of the menace they once carried. "Oddly, the lesson many Americans seem to have drawn from the experience of the past two decades is that nothing need be done," Harvard University economist Benjamin Friedman said last month at a conference on fiscal policy sponsored by the Federal Reserve Bank of Boston.
But, he asserted, the idea that Mr. Reagan proved deficits didn't matter economically "is just wrong on the facts." Deficits crowded out private investment, reduced economic growth and, he estimated, left annual GDP $500 billion a year smaller today than it otherwise would be, an amount equal to about 5% of today's GDP.
Nor, he noted, did the U.S. simply grow its way out of deficits: It took painful tax increases and spending cuts by the first President Bush in 1990 and President Clinton in 1993 to eventually balance the budget.
While the thrust of Mr. Friedman's arguments aren't much disputed by mainstream economists, they make little impression on the public or politicians. At the same conference, former New York Fed President Gerald Corrigan reminded attendees, "The people here are hardly representative of the body politic, and are certainly not representative of the body politic who reside at 1600 Pennsylvania Avenue."
Just as he did 22 years ago, Mr. Greenspan is warning that the deteriorating budget picture will hold interest rates higher than they otherwise would be. But that argument resonated better with mortgage rates at 17% in 1982 than it does with rates at 6% today.
Peter Fisher, an executive at money manager BlackRock Inc., says bond traders care a lot more about what the Fed will do in the next few months than what the deficit will be in five years. Mr. Fisher, who spent seven years running open-market operations at the Fed and two years at Treasury during the current administration managing the federal debt, says the deficit will push long-term rates up a bit, but "not enough to grab the attention of the political process." He gloomily concludes: "I don't think we should expect the bond traders of the world to ring the warning bell."
Experience suggests that markets have to move violently before they galvanize politicians into action. The Sarbanes-Oxley Act intended to crack down on corporate accounting and governance abuses might not have happened if the stock market hadn't tanked in 2002. This is why some pessimistic deficit hawks conclude the budget will continue to deteriorate until a crisis occurs.
"What is the setting in which we might get meaningful long-term reform?" Mr. Rudman recently asked. "Unless the political climate changes profoundly, it will take a crisis."
Mr. Greenspan says the increased sophistication of markets allows the U.S. to run up bigger debts today than it could a few decades ago and makes a crisis less likely. Others disagree. They quote the late economist Rudi Dornbusch, who said of currency crises: "It takes longer than you think, but then it happens faster than you would have thought."
今天的美国人为何不怕赤字？
早在上世纪八十年代，美国前总统罗纳德?里根(Ronald Reagan)的顾问们就担心，联邦预算赤字有可能引发经济上的大灾难。但是，灾难并没有发生。
这一事实或许可以用来解释为什么今天的政治家对眼下的赤字更满不在乎了，反过来说由赤字引发危机的可能性或许更大了。
赤字带来的主要威胁是，它消耗了政府本来就不多的储蓄，而这些钱本来可以更有效地投向工业生产及研究和开发；而且，赤字最终必须由未来的纳税人连本带利的补回来。
美国目前的赤字问题产生的威胁虽然不大但很让人恐惧，它引起了一些经济学家越来越多的关注，那就是：那些购买中长期美国国债从而为美国的庞大开支提供资金来源的投资者，特别是那些购买量大于以往任何时候的外国投资者，他们早晚会对美国偿付债务的能力感到质疑，并对买进更多国债表现迟疑，而这将导致美元汇率下跌、利率进一步升高。
这并不是一个新问题。里根的预算主管戴维?斯托克曼(David Stockman)在他1986年出版的《政治的胜利》(The Triumph of Politics)一书中警告说，赤字最终会吓退投资者，并导致美元大跌、通货膨胀和利率水平上涨，从而引发一场衰退。
当然，他预测错了。外国人此后仍兴高采烈地购买美国国债，并且，虽然美元的确经历了过山车般的大起大落，但通货膨胀并没有上升；虽然后来到1990年经济有所衰退，但其程度相当温和。
眼下就有许多保守派人士，他们从上述事实得出结论说，里根时期的例子表明，减税的确能在政治上带来很大实惠，而伴随而来的高赤字并无大碍。
今年早些时候，曾担任《华尔街日报》记者的罗?萨斯金(Ron Suskind)在他的新书《忠诚的代价》(The Price of Loyalty)中写道，2002年，美国副总统切尼(Cheney)曾对时任美国财政部长的保罗?奥尼尔(Paul O'Neill)表示，里根时期的历史经验证明，赤字没什么影响。
但今年，当被问到赤字问题时，切尼说，他相信，赤字并非无关紧要，但不能以牺牲对军事计划提供充足的资金为代价或者牺牲“有利于经济增长”的减税来求得预算平衡。
诚然，今年实际的预算赤字最后有可能低于预计的5,210亿美元，因为经济已较当初制定预算时大为改善。即使达到预算值的高端，也就是占国内生产总值的4.5%，那也还低于1983年时的6%。同时，联邦债务总额占国内生产总值的比例也低于九十年代的水平。
但加州大学伯克利分校(University of California at Berkeley)经济学家艾伦?奥尔巴赫(Alan Auerbach)说，今天，美国的预算目标已经越来越难以维持。这是因为，随著婴儿潮时期出生的人大量进入退休年龄，预算将开始承受社会保障资金支出和医疗保险计划支出方面的巨大压力。
其他人指出，美国国债目前有相当大的比例是外国人购买的，这毕竟是个不确定的因素。目前美国国债总额中外国人持有的部分占40%，而在里根时代，这个比例仅为15%。
在围绕反恐、战争和就业等问题的争论之余，财政赤字的问题很少被认为是大选之年的一个重要问题。布什总统很少提及赤字。在由反对赤字政策的组织Concord Coalition主办的一个论坛上，特拉华州共和党人、众议员迈克尔卡塞尔(Michael Castle)意味深长地说，共和党人过去总是能保持预算平衡。现在呢，就是减税。
针对预算赤字问题，今年的民主党总统候选人约翰?克里(John Kerry)表示，将恢复有关控制赤字的法律，但他像布什一样，对实现预算平衡并无具体计划。
而大多数公众对这个问题似乎也并不关心。在《华尔街日报》和NBC新闻网上个月联合进行的民意测验中，只有17%的受访者将赤字问题列为他们最关心的两大问题之一。有更多的受访者表示，伊拉克、恐怖主义和就业及医疗保健才是他们关心的问题。
而二十年前人们的看法截然不同。1983年，接受盖洛普民意测验的受访者中，有42%的人表示，赤字对经济复苏是“很大的威胁”，而政治家们也持同样观点，其中包括里根政府内部的官员。加州大学圣巴巴拉分校历史学家艾略特?布朗利(Elliot Brownlee)援引资料说，里根的经济顾问认为，赤字是导致利率飞升的主要原因。
后来任美国联邦储备委员会(Fed)主席的格林斯潘(Alan Greenspan) 1982年在一份为里根政府的官员准备的备忘录中写道，“市场认为，联邦预算赤字还将继续恶化，Fed将大大提高货币供应增长幅度，从而将导致通货膨胀上升”。就在那年晚些时候，当时新任命的总统经济顾问委员会主席马丁?费尔斯坦(Martin Feldstein)建议，削减赤字将有助于压低利率、加速经济复苏。
当时，民主、共和两党的政治家们在设计应对赤字的措施上非常配合，其中部分原因是，共和党人（比如参议员沃伦?罗德曼(Warren Rudman)）与保守派民主党在赤字问题上有相同的担忧。
得克萨斯州民主党人、众议员查理?斯坦赫姆(Charles Stenholm)回忆说，里根共签署了18个税收方面的法案，其中14个是加税的，4个是减税的。斯坦赫姆自1979年以来一直在国会供职。他说，里根乐于并且能够在共和党内达成一致。
但是，斯坦赫姆最担心的事没有发生，这一事实似乎已经掩盖了赤字暗藏的风险。哈佛大学经济学家本杰明?弗里德曼(Benjamin Friedman)上个月在波士顿联邦储备银行主办的一个金融政策会议上说，许多美国人从过去二十年的历史经验里得到的教训竟然是，（面对赤字）什么也不需要做，这真是荒唐。
他断言，从事实情况看，那种认为里根时代赤字对经济没有影响的想法是错误的。赤字赶走了私人投资，抑制了经济增长，他还估计，预算赤字导致目前的年度国内生产总值比它应有的水平减少了5,000亿美元，即相当于目前水平的5%。
他还指出，美国并没有摆脱赤字的困扰：后来的老布什总统和克林顿总统在各自任内都不得不忍痛提高税收并大幅削减开支，最后才终于达到预算平衡。
虽然弗里德曼的批评意见基本得到了主流经济学家的认可，但公众或政治家们对它并不赞成。纽约联邦储备银行前行长杰拉德?克里根(Gerald Corrigan)也出席了同一次会议。他在会上说，与会各位并不能代表组成这个国家的人民，当然也代表不了在宾夕法尼亚大道1600号办公的政府官员。
格林斯潘则像22年前一样发出了警告，他指出，预算赤字恶化将抬高市场利率。不过，这个观点当年听起来会更有说服力，当时，美国的抵押贷款利率高达17%，而目前只有6%。
投资管理公司BlackRock Inc.的管理人士彼得?费舍尔(Peter Fisher)说，国债交易员对未来几个月Fed会采取什么行动比对5年后赤字会达到什么样的水平更在意些。
费舍尔曾有7年时间在Fed经办公开市场操作，并在本届政府的财政部供职两年，负责联邦债务的管理。他说，赤字将导致长期利率小幅升高，但还不足以吸引政界人士的关注。他不无沮丧地表示，你不能指望全世界的每位交易员都来敲响警钟。
经验表明，只有到市场出现剧烈震荡的时候，政治家们才会采取行动。如果不是2002年时股市几乎一败涂地，就不会有Sarbanes-Oxley法案的诞生。这项法案旨在打击公司在会计事务和企业治理方面的违规行为。正是由于同样的原因，一些悲观的赤字鹰派人士预计，除非出现危机，否则预算情况将继续恶化下去。
罗德曼日前在一次讲话中反问道，要在什么条件下才会发生有实质意义的长期性改革呢？除非政治气候发生深刻变化，否则，我们就只有借助危机的刺激作用了。
格林斯潘说，金融市场的日益成熟使美国得以组织比数十年前的规模大得多的债券交易，并使发生危机的可能性降低了。但其他人不同意这一观点，他们借用经济学家鲁迪?道布希(Rudi Dornbusch)有关货币危机的话反驳说，（危机）酝酿的时间比你想像得还要长，而一旦发生，它会比你想像的来得快多了。
