Monday, September 12, 2005

Approaching budgetary calamity

Stan Collender, a leading budgetary expert, has the following to say about Katrina's likely influence on federal budgetary politics:

"A $500 billion deficit in fiscal 2006, which begins in about two weeks, not only would be not surprising, at this point it should probably be anticipated ...

"But a higher deficit isn’t the only thing that was changed by Katrina: Federal budget politics and procedures have clearly been altered as well.   Indeed, the revised rhetoric of the past week or so, the still dazzlingly and dizzyingly demands for all types of federal aid, and the weakened position of the Bush administration mean that Katrina is likely to be looked at as a defining moment for fiscal as well as physical reasons.
 
"The first big change is that the deficit is now even less of an issue in Washington than it was before Katrina hit.
 
"In the short term, which in this case will likely last at least all the way through fiscal 2006, concern about the deficit easily and continuously will be trumped by the need to respond to the situation in the Gulf states.
 
"Some Katrina-related spending, such as what is now expected to be a significant increase in the budget for the Federal Emergency Management Agency and other types of disaster planning and assistance, will be permanent rather than one-time changes.   And if history is any guide, some spending that should end relatively quickly -- such as aid for industries whose operations supposedly have been affected in some way by the hurricane, will continue long after Katrina has ceased to have any appreciable impact.
 
"The federal budget process will also be affected significantly, perhaps even overwhelmingly, because most of the additional spending will be approved throughout the year in supplemental appropriations.   As the Bush administration has shown with its funding for activities in Iraq, this additional spending does not need to be included in the president’s budget, and it almost certainly will not be assumed by Congress when it considers the congressional budget resolution each year.
 
"As a result, the official deficit forecasts are very likely to be wildly wrong.   The claims the White House and Congress make about the projected deficit when the president’s budget is released or budget resolution adopted will not, therefore, be as accurate or newsworthy as they have been up to now.
 
"And they haven’t been that accurate up to now.
 
"The growing use of supplemental appropriations may make both the president’s budget and congressional budget resolutions into nonevents.  This will be even more true if, as typically happens, emergency supplemental appropriations become legislative trains for spending that has little to do with Katrina or Iraq.  For example, there is little doubt that a good deal of ongoing funding for various departments and agencies will be approved in supplementals rather than in their regular annual appropriation.  This will allow everyone to claim he or she is holding the line on spending when the truth will be just the opposite.
 
"It will also severely limit the amount of oversight on what is being spent.   Especially when they are supposedly related to an emergency, supplemental appropriations virtually never receive the same level of review or scrutiny as other bills.   They are typically drafted, debated, adopted and signed quickly -- either because the funds are needed within a very narrow timeframe or because the leadership doesn’t want people to see what the bills actually include ...

"Barring some type of unexpected offsetting event such as Wall Street demanding the deficit be reduced, [the deficit] issue is simply gone for the foreseeable future."

Back to me. Given that we had about a $70 trillion fiscal gap before any of this happened, I would say that a calamitous Weimar Germany-style crisis involving hyper-inflation and the collapse of US government credit has become both significantly more likely to happen, and likely to happen sooner. Barring a dramatic change in the rate of healthcare expenditure growth, which would have to happen on its own since no one in Washington is addressing it, we have known for quite a while that the US is going to face fiscal collapse UNLESS Congress and the President address it responsibly in time, and in the interim retain credibility with financial markets as planning to address it responsibly.

That seems less likely than ever.

The Bush Administration's total lack of concern about this is truly astounding. The Reagan and Bush I Administrations were run by grown-ups who took much less adverse fiscal situations very seriously. But the current Administration never has addressed, and never will address, any crisis, no matter how predictable, until it has hit in full force (and even then not until it has My Pet Goat-ed for a while). "Bin Laden Determined to Attack in US" didn't do it. Warnings that Iraq would have postwar unrest and a likely insurgency didn't do it. And needless to say, days of warning about the hurricane, and even the first few days after the levees burst, didn't do it.

A budgetary crisis is completely predictable, but there will be no planning for it and absolutely no consideration given to heading it off until either (1) it is too late, or (2) some other Administration that has both the will and the political leeway to start addressing it is on the scene.

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