February 22, 1973
Page 5156
THE SIDE EFFECTS OF NIXON'S BUDGET
Mr. MUSKIE. Mr. President, in a brilliant article in this morning's Wall Street Journal, economist Walter Heller analyzes "The Side-Effects of Nixon's Budget." He writes:
Mr. Nixon's budget fails to recognize that a program that's worse than it might be is not necessarily worse than none. Mr. Nixon needs to be reminded that getting rid of the program doesn't get rid of the problem. Congress, in turn, needs to be reminded that saving the program doesn't necessarily solve the problem.
And as Congress continues to debate the pros and cons of the President's budget proposals, we would be well advised to consider Mr. Heller's suggestion that–
We need to define much more sharply the optimum role of the Federal Government in its various fields of responsibility.
Mr. President, Mr. Heller will testify tomorrow before the Subcommittee on Intergovernmental Relations on its ongoing hearings on the impact of the new federalism on State and local governments. Other witnesses tomorrow will be Richard Nathan, formerly Assistant Director of the Office of Management and Budget, and Robert Wood, formerly Undersecretary of the Department of Housing and Urban Development.
I ask unanimous consent that the text of Mr. Heller's article be printed in the RECORD.
There being no objection, the article was ordered to be printed in the RECORD, as follows:
[From the Wall Street Journal, Feb. 22, 1973]
THE SIDE-EFFECTS OF NIXON's BUDGET
(By Walter W. Heller)
In critiques of the President's budget, as in other matters, it's not just what you say but how you say it.
On "Meet the Press" last week I called attention to the sharp swing from stimulus to restriction in the Nixon budget. I noted that the full-employment budget, as measured in the national income accounts (the best short-hand way of gauging the budget's impact on the economy), will shift from a deficit rate of about $15 billion in the current quarter to a small surplus at the end of the year. Although I consciously avoided condemning this shift as too restrictive, I did characterize it as "slamming on the brakes."
That did it. The news dispatches (as well as a scientific sample of three viewers I questioned) confidently asserted that I had condemned the budget as too restrictive. Well, is it or isn't it? In the best tradition of economics, let me answer: "It depends."
It depends largely on the course of Federal Reserve policy. If tough fiscal restraint enables the Federal Reserve to pursue a more moderate monetary policy and avoid a credit crunch, the sharp swing in the budget deficit may be about right. But if the budget cutback is coupled with a ferociously tight monetary policy that would level the economy off at 4½ % or more unemployment or cut the growth of real GNP down to a 2 % or 3 % rate, the budget swing would be too sharp.
Given the likely slippage on the spending side, Mr. Nixon's crusade against tax increases, and the painful costs of a credit crunch, the President may be right in erring on the side of fiscal tightness in the face of a surging economy.
Not that the choice between bearing down on the fiscal brakes and bearing down on the monetary brakes can be made in a vacuum. One has to weigh the respective side effects. Much of the objection to tight money is distributional, namely, that it unduly squeezes housing, small business, and state-local government. So if Mr. Nixon achieves a tight fiscal policy mainly by squeezing civilian programs and low-income recipients rather than pruning the Pentagon or taxing the well-off, the choice between the two policies on social grounds becomes less clear-cut.
MILITARY FAT
Relentless, even ruthless, in its pursuit of evil among social programs, the Nixon budget shows no comparable ruthlessness in paring military fat or challenging tax privilege:
Item: In spite of saving about $4 billion on Vietnam, the fiscal 1974 defense budget goes up $4 billion, for a total rise of $8 billion in non-Vietnam spending.
Item: In the name of cutting waste and inefficiency, subsidies for low-income housing are being summarily suspended; but the even more inefficient and wasteful tax giveaway of about half a billion dollars in tax shelters for real estate investments is left untouched.
Item: Mr. Nixon wrings his hands over our unbearable tax burdens ("more important than more money to solve a problem is to avoid a tax increase," he said recently), blithely ignoring the fact that federal income tax rates have been cut by over $20 billion since he took office and more than twice that in the past decade.
Item: The White House takes pride in noting that "human resource" expenditures will rise faster than the military budget, but fails to mention that the great bulk of that rise is in Social Security benefits, self-financed by a giant increase of $10 billion in harshly regressive payroll taxes.
Item: Mr. Nixon is proud of redeeming his promises to hold spending and deficits in check, but what of his pledges (1) to provide possibly $7½ billion in rehabilitation aid to the two Vietnams? (2) to make property tax relief for the elderly "a first order of business in our next budget"? (3) to press ahead on welfare reform, any delay in which, he told us a year ago, would be "unwise" and "cruel"? Not a word and not a dime in the budget to redeem these pledges.
So much for priorities. What about economy and efficiency? Most economists will applaud White House moves to trim pork barrel projects, stop the flow of aid to wealthy school districts that are federally impacted, end 2 %n REA loans, drop subsidies for farm exports, drag the limestone lobby away from the public trough, and so on. In other words, many of Mr. Nixon's "one hundred budget blows" do hit the right targets.
But, in killing or gutting programs for urban renewal, model cities, community action, public service employment, college student loans, and the like, Mr. Nixon is on highly debatable ground.
The projected liquidation of the Community Action Program is a puzzling and poignant case in point. Here is a program that – after many trials and much error – was making steady progress in the complex and difficult task of helping the poor help themselves. And an administration "utilization survey" of 591 Community Action agencies had just concluded that the program offers "genuine help in making the decentralization of government succeed during the next few years" and that "the picture clearly shows that the administration's redirection of Community Action was on target."
Ironically, a President professing a deep commitment to decentralization and citizen participation is about to kill one of the few programs that was making documented progress on both fronts.
Even more revealing of the administration's mentality are:
Its sly directive to scuttle OEO by June 30 before its supporters "could muster enough strength or will to put Humpty-Dumpty together again."
The statement by the executor of the program, Howard Phillips, that he will liquidate the program with relish.
Apart from such inconsistencies, Mr. Nixon's budget fails to recognize that a program that's worse than it might be is not necessarily worse than none. Mr. Nixon needs to be reminded that getting rid of the program doesn't get rid of the problem.
Congress, in turn, needs to be reminded that saving the program doesn't necessarily solve the problem. Goaded by the President's arrogation of power, by his disdainful view of Congressmen as irresponsible instruments of special interests, and by his effort to give the 1974 budget the status of revealed truth, the Congress is venting its anger by trying to push questionable programs back on the budget. Instead, it should be hammering out alternatives that will strike the country as more reasonable and humane.
Both arrogance and anger are expensive luxuries, mortal enemies of rationality in the budget process. Far better that the White House should treat the Congress as a coordinate branch of government and seek a detente which recognizes (1) that the Democratic Congress also enjoyed a big victory at the polls in November and has every right to participate in the setting of budget priorities; and (2) that a cooperative advance toward a more rational budget, with some give on both sides, could pay rich dividends.
WHAT'S NEEDED
What would be the course of reason in a joint reconsideration of the 1974 budget?
First, all hands need to recognize that the tasks government has to tackle today – whether to curb pollution from 40,000 different sources, or upgrade the education of the disadvantaged, or assure decent medical care for the aged – are vastly more complex and demanding than such earlier tasks as transferring money to the unemployed and building highways and dams. This consideration calls for lesser promises and greater patience.
Second, we need to define much more sharply the optimum role of the federal government in its various fields of responsibility. As Charles Schultze has pointed out, this requires a careful sorting out of functions according to the type of federal support that will be most efficient and effective, for example:
Often, direct income support is best, as in the case of the aged, the blind, and the working poor.
To reduce sharp disparities in the ability of local units to supply government services, the revenue sharing instrument is appropriate.
In services like education and health with large geographical "spill-over effects," the national purpose can be served best by categorical aids (specifying not so much how the money should be spent, but where and on whom).
Certain critical services like medical care for the poor may have to be provided directly.
In others, as in preserving the environment, enacting taxes and effluent charges to make pollution costly and pollution abatement profitable may be even more urgent than a step-up in budget spending.
Third, once the priorities of Mr. Nixon's budget are recognized as other than God-given, money will have to be pried loose for such thrusts as a better welfare system, decent health insurance, and major efforts to equalize education and restore hope and opportunity to the inner cities and ghettos. This may require invading the sanctity of the military budget and the tax sanctuaries that are left untouched in Mr. Nixon's program.
Fourth, Congress should speedily equip itself with budget procedures and staff that will enable it not only to work within viable budget ceilings, but also to make informed cost-benefit judgments on such pigs-in-the-poke as the $1.3 billion-apiece Trident submarine.
Had Mr. Nixon approached Congress with a "let's reason together" attitude rather than trying to shove his budget intact down its throat (there is, he said in italics, "no room for the postponement of the reductions and termination proposed in this budget"), one might be more sanguine about a rational process of budget reformulation. Instead, he has thrown down the gauntlet, and Congress has picked it up.
A PROBLEM OF RHETORIC
Finally, while Mr. Nixon's budget actions are a mixture of good and bad, I find little of redeeming social value in his budget rhetoric. When a President urges citizens "to get big government off your back and out of your pocket," treats Congress with disdain, and conducts a national crusade against taxes, he can only defeat his own broader purposes.
Instead of restoring self-reliance, he is putting self-interest on a pedestal. Instead of restoring confidence in government, he is inviting contempt for government in general and Congress in particular. Instead of focusing efforts on a higher quality of life, he is appealing to instincts of crass materialism. Instead of "if at first you don't succeed, try, try again," his implicit motto on social programs seems to be, "if at first you don't succeed, give up."
The battle of the budget may yet result in progress toward more rational and efficient budget- making. But somehow, a crusade to think small, think simple, and think selfish does not strike me as the best path to either personal salvation or national greatness.