The next president's fiscal crisis
President Bush and Congress didn't mean to run such a profligate fiscal policy. They just didn't really care, ex-White House economist says.
By Justin Fox, FORTUNE editor-at-large

NEW YORK (FORTUNE) - There are enough former Bush administration economic officials kicking around by now that you might think we'd be having some frank and interesting discussions about what the man in the White House hath wrought on the economic front.

But so far it's been a disappointment. Former economic advisers Larry Lindsey, Glenn Hubbard and Greg Mankiw have all been infuriatingly judicious in their statements since leaving the administration, while Steve Friedman - the former Goldman Sachs co-chief who ran the White House economic show from 2002 to 2004 - has been downright silent.

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Former Treasury Secretary Paul O'Neill did let loose with a great noisemaking screed in 2004 in the form of journalist Ron Suskind's book "The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill," but hasn't been heard from since.

All of which makes Douglas Holtz-Eakin a wonderful breath of fresh air. He wasn't any kind of big cheese in the Bush White House - just chief economist of the Council of Economic Advisers - but followed that up with three years as director of the Congressional Budget Office.

He gained the reputation there of being a straight talker, but since leaving last year for the Council on Foreign Relations he's been outdoing himself on a regular basis in speeches and interviews.

I caught up with him Wednesday morning at a breakfast chat sponsored by Syracuse University's Maxwell School of Citizenship and Public Affairs, and the opinion-research group Public Agenda. He did not disappoint. It's not that he's some kind of embittered apostate - he's still conservative, still believes low tax rates are a good thing, and doesn't have anything positive to say about the Democrats. But neither does he sugarcoat.

"There is no rational linkage between what's coming in and what's going out," he said, describing the current fiscal-policy mindset in both the White House and Congress. "There's an adherence to tax cuts and an adherence to increased spending. It just doesn't add up."

He reminisced fondly about H. Ross Perot's focus on the deficit in the 1992 presidential campaign. "What he brought to that era was a moral outrage about the way things were being done," he said.

Part of the problem in today's Washington, Holtz-Eakin said, "is that the staffs at the White House and in Congress are chiefly campaign staffs."

Independent, straight-talking analysis is no longer valued, and even a lot of the people like him who come to Washington from academia (he'd been a professor at Syracuse) "have gotten sucked into this perpetual campaign mentality ... The culture has shifted to the way you say it rather than what you say."

Holtz-Eakin did make the point, as I have in this column, that the current budget deficit - which he predicted will weigh in this year at about $370 billion, or just under 3 percent of GDP - isn't a big problem. But he added, "These are the good old days. We should savor them."

By the time the next president is nearing the end of a hypothetical eight-year term, the cost of Social Security and Medicare will have forced a fiscal crisis. "I don't see any easy way to get from here to there," he said. "Why would you want to be president in 2008? I don't understand it."

Despite some high hopes early on from Holtz-Eakin and other Republican economists that Bush would rein in future entitlement spending, it is looking like the current president's chief budgetary legacy will be deficits as far as the eye can see.

When a questioner in the audience asked if this was part of a conservative plot to squeeze future social spending, Holtz-Eakin said that while he'd certainly heard statements to that effect by conservative think-tankers, he'd seen no evidence of a "well-oiled conspiracy."

Instead, he said, "we ran deficits because of the administration's take on things, which was ad hoc and very short term." First there was the 2000 campaign promise to cut taxes, then an economic slowdown, then Sept. 11. And in general there was a tendency to put budgetary policy well down on the priority list.

One obviously higher priority has been the military: "There is no readiness to discuss the Pentagon's budget in the administration," Holtz-Eakin said. "The military has received gloriously preferential treatment from the word go."

But it's not just that. Holtz-Eakin noted that the administration's initial plan for a Medicare drug benefit included provisions aimed at keeping costs down in the future - provisions that were abandoned as soon as they ran into opposition on Capitol Hill.

So there you have it, from an authorative source: The President and Congress didn't mean to run such a profligate fiscal policy. They just didn't really care. Top of page

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