Those worrying about the potential cost of political gridlock over the next two years shouldn’t. If federal spending is any indication, gridlock promises to be cheaper. At least, that’s what the Congressional Budget Office’s early budget returns show.
Washington’s 2011 fiscal year began just over three months ago. During that time, Congress’ nonpartisan budget estimator, the CBO, reported a deficit of $283 billion.
Now, $283 billion may not sound like an exercise in federal frugality. Ironically, that figure is virtually the same as the 1990s entire $290 billion annual deficit, which caused President George H.W. Bush to break his “no new taxes” pledge. In today’s budget world, however, that two-month figure is actually $14 billion less than during the same two-month period last year. Still, saving $14 billion is unequivocally a good thing.
Most important in this early news, federal outlays rose by just 2 percent year-over-year. That’s a slower growth rate than the economy’s in the last quarter; keeping spending growth below the economy’s is crucial to starting to
reverse the government debt’s
burden on the economy.
That slower rate of spending growth came despite more rapid rises in defense and entitlement spending and interest on the debt — which is ballooning because of what the CBO laconically observes was “the sizable increase in borrowing in fiscal year 2010.”
So how did Washington get slower overall spending growth despite these prominent increases? From lower spending elsewhere.
The single largest “elsewhere” was in the category the CBO calls “other activities,” where spending fell by 3.6 percent.
“Other activities” are those domestic programs that Washington funds annually. Except in this current fiscal year, that is. This year, Washington has been operating under a so-called “continuing resolution” for its first two months. Unable to reach agreement on its annual appropriations bills, Congress has resorted to simply “continuing” roughly at the levels set in the previous year’s annual appropriations bills. In short, this is a budgetary gridlock outcome.
How well has gridlock budgeted thus far? Well, this year’s spending is rising at a remarkably lower rate than last year’s. As the CBO pointed out then, “excluding outlays for TARP and net cash infusions for Fannie Mae and Freddie Mac . . . spending in 2010 rose . . . 10 percent.” So without the bailouts, overall federal spending was increasing at a 10 percent rate then.
To further test the gridlock theory, let’s look again at the CBO’s “other activities.” While this category of spending has fallen 3.6 percent during the first two months of this fiscal year’s gridlock, it rose 6.2 percent during the absence of gridlock in the first two months of the last fiscal year.
Admittedly, simply holding overall federal spending to a slower rate of growth isn’t sufficient. After enormous increases in the last few years, the spending status quo isn’t sustainable. Since fiscal year 2007, the last before the recession, federal spending has risen from $2.7 trillion to $3.5 trillion in 2010 — more than a 25 percent hike. During the same period, the federal deficit exploded from 1.2 percent of GDP to 8.9 percent.
When you are in a hole, the first thing you need to do is stop digging. But even putting down the shovel — or at least picking up a smaller one — is still an improvement.
Gridlock certainly won’t on its own cure America’s budget bloat. Decisions to cut spending must be made and implemented — and that requires political cooperation, of which we’ve seen precious little in Washington. Despite some bold and overdue proposals to control spending, the president’s deficit commission couldn’t reach the required consensus of 14 of its 18 members because of gridlock there.
So the first three months of budget gridlock is no more than a small step, or rather, a standstill. But in a place where the steps have been backward and so big over the last three years, standing still is progress of sorts. Maybe the potential for gridlock will be bad in some policy areas, but in terms of fiscal policy, it appears for now to be the cheaper alternative.
J.T. Young served in the Treasury De partment and the Office of Management and Budget from 2001-’04 and as a con gressional staff member from 1987-2000.