228. "Communitarian Economics: How to Cut the Deficit and Put America Back to Work," Challenge, (November-December 1992), pp. 53-55.


President-elect Clinton inherits severe economic problems along two fronts--growth and deficits. During his campaign, he built a mandate for public efforts to restart the engine of economic growth and put America back to work. We believe that he should begin immediately to build a parallel mandate for eliminating the federal budget deficit by the end of his second term.

Our recommendation is not based on pre-Keynesian green-eyeshade assumptions. There are of course significant differences between private households and the public fisc. But our current course is unsustainable. The ratio of national debt to GNP would continue to rise; interest payments would consume a far larger share of the federal budget; real interest rates would remain at high levels, hobbling private investment; and foreign confidence in the U.S. economy would be endangered, undermining the dollar as the medium of international exchange and risking global economic turmoil. For average American families, these developments would only intensify what they have experienced in recent years--impaired employment opportunities, declining real wages, and diminished public services.

We believe that Clinton should build a mandate for fiscal change by explaining to the people our shared stake in deficit reduction and by acknowledging to them that the situation we face is even worse than many realize. The appropriation of funds needed to continue the S&L bailout has been deferred until after the election. And after December 19th, banks will require a bailout whose costs are estimated at $50 billion, if not higher. For these reasons, he should declare a national fiscal emergency and ask for strong public support for the deficit reduction legislation needed to meet it.

The president-elect faces a crossroad even before he takes office--either to confront the looming deficit while he still has a chance of taking bold action, or to allow it to dog his administration from beginning to end. It is clear that if he does not tackle this problem early on, he will be much less able to do so later. It is equally clear that such action could not be undertaken without broad, mobilized public support; the alternative is the fate of Governor Florio's program in New Jersey, or of the Maastricht Treaty in Europe. To his credit, H. Ross Perot began the job of instructing the people about the deficit; President-elect Clinton should build on that foundation to gain support for his own bold program.

The path forward: a national interest budget

Our proposals for fiscal reform are based on one simple principle: We need a national interest budget, not a special interest budget. We are convinced that the American people will accept such a budget--indeed, that they will demand it once it is properly explained to them. Our approach rests on the principle, not of inflicting needless pain on the people, but rather of asking groups that have accumulated special privileges to forego some of them for the good of their country.

Specifically, the president-elect should ask every major interest group to accept at least one significant concession: from the AARP, taxation of 80 percent of Social Security benefits received by well-off beneficiaries; from the real estate lobby, the elimination of the mortgage deduction for second homes; from the agricultural lobby, reduced farm subsidies; from the oil companies, a phased-in gasoline tax; from the tobacco lobby, a dramatically higher interstate tax on cigarettes; parallel increases in broad-based alcohol taxes; from the wealthy, higher marginal rates; from corporate CEOs, a cap on salary deductibility; from the denizens of Gucci Gulch, elimination of tax deductions for lobbying expenses; and so forth.

Even if it were not five minutes to midnight on the deficit, Clinton would be well advised to stand up early to the special interests. The first rounds of his administration will be carefully watched. For example, if he bows to local politics and agrees to fund weapons systems even the Pentagon says we do not need, the word will go out that his administration is an easy mark for narrow pressure groups. On the other hand, if he establishes a reputation for holding them at bay, his chances will be enhanced of enacting complex measures such as health care reform. In short, his overall political fortitude will be tested along with his ability to curb the deficit.

Deficit reduction and employment growth

As we said earlier, the president-elect will inherit economic as well as fiscal problems, and his policies must address them both, simultaneously and coherently. Indeed, there are compelling reasons to combine deficit reduction with a public investment drive.

To begin with, a policy restricted to deficit reduction might well exacerbate the current recession and turn it into an outright depression, sparking the collapse of major financial institutions, risking wider social unrest, and preventing reasonable economic policies from being implemented. As we learned sixty years ago, it is easier to depress an economy than to revive it.

Second, while a higher level of economic activity will not by itself suffice to get us out of our deficit mess, the deficit will be easier to overcome when millions of people return to employment and the tax rolls rather than unemployment insurance and the welfare rolls.

Finally, recessions exact a huge human cost, in the form of increased suicides, marital breakdowns, mental illness, and disrupted lives. The Bush recession should not be prolonged a day longer than necessary. For these reasons, the funds obtained from higher revenues and lower special-interest expenditures should be divided about evenly between reducing the deficit and putting people back to work through publicly funded activities.

These projects should reflect, and balance, a handful of key principles: they should represent long-term investment as well as short-term stimulation; they should be as labor-intensive as possible; they should focus on sectors where leakage to foreign suppliers is limited; and they should be strictly tied to funds actually saved through the president's fiscal strategy. Not just Congress, but the entire political system, will be tempted to run to the candy but from the medicine; a program of "public works now and deficit reduction later" is a formula for deficit reduction never--and political disaster for the new administration as well as economic disaster for the country.

Sequencing is an essential factor if the program we are advocating is to succeed. The deficit reduction legislation must be approved by Congress before the new President signs into law new expenditures for the infrastructure, retraining, or a public works drive. Indeed, we urge that the size of the stimulus be directly tied to the amount of funds to be raised through deficit reduction and that it be lower, because otherwise there would be no net deficit reduction.

At the same time, the two programs should take effect in the opposite order in which they are to be passed by Congress: the one enacted first--deficit reduction--should largely take effect in 1994, while the new stimulus should be provided in 1993. The reasons for the recommendation are that if a significant net deficit reduction were introduced in the current economic environment, it could well put the country into a depression. On the other hand increasing further investment and expenditures now would not enlarge the overall deficit if over the two years (1993 and 1994) the deficit reduction amounts were to exceed the new expenditures.

The moral basis of economic sanity

Our suggestion that it is possible to face up to the deficit, that the American people can be trusted to support such measures, is based on a moral vision that helps clarify the practical choices we face. To begin with, we believe that our political community represents a covenant between past generations of Americans, ourselves, and Americans yet to be born. We have no right to squander our inheritance; we have a responsibility to pass on a nation at least as united, prosperous, and filled with opportunity as the one we received. A legacy of declining living standards and shrinking opportunities represents moral, not just economic, failure. To the extent that deficits and debt contribute to this outcome, their reduction is not an option but rather a duty.

Second, communitarians believe in the possibility of public moral dialogue and in the capacity of citizens to respond to it. We reject--as false, cynical, and incalculably damaging--the proposition that democratic citizens are moved only by particular interests and never by shared principles. We endorse Abraham Lincoln's view that the highest responsibility of democratic political leadership is to unite the citizenry by appealing to the better angels of our nature.

Third, communitarians believe that our nation's economic policies should promote our shared purposes and reflect our shared values. Economic growth expands opportunity; fairness helps bind us together; but subsidizing narrow groups increases nothing but public division and doubt.

The combination of communitarian budget deficit reduction and a back-to-work program rests squarely on our moral vision--a due regard for the capacities of our fellow-citizens and a responsibility to future generations. We reject the facile and evasive optimism of supply-side views, liberal and conservative. At the same time, we reject the spirit of uncompensated sacrifice characteristic of fiscal traditionalism. Budgetary balance makes sense only in the context of, and as a means to, an expanding economy with opportunity for all.

The stakes could not be higher. The social divisions of recent years can only intensify under the stress of continued economic stagnation. It is far from clear that American democracy itself can indefinitely survive the relentless constriction of opportunity. President-elect Clinton holds our common fate in his hands. The time for him to act is now.

WILLIAM GALSTON Professor at The School of Public Affairs, University of Maryland.

AMITAI ETZIONI University Professor, The George Washington University, Founder and first president of The Society for the Advancement of Socio-Economics.

 

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