Magazine article Insight on the News

Q: Can Republicans Really Be Trusted to Stem Runaway Spending in 2004? YES: The GOP Budget Plan Is Steering the Nation and the Economy out of the 'Perfect Storm.'

Magazine article Insight on the News

Q: Can Republicans Really Be Trusted to Stem Runaway Spending in 2004? YES: The GOP Budget Plan Is Steering the Nation and the Economy out of the 'Perfect Storm.'

Article excerpt

Byline: Richard Nadler and Dan Perrin, SPECIAL TO INSIGHT

The ability of Republicans to control spending will be determined not by the size of the deficit in 2004 but by the incentives enacted to combat it. And the budget proposed by the Bush administration for fiscal 2004 is rich in such incentives.

No one doubts that President George W. Bush inherited what Office of Management and Budget Director Josh Bolten calls "a perfect storm" an imploding market punctuated by a symptomatic series of corporate scandals, exacerbated by a costly terrorist assault on American soil.

The deficit magnitudes are not in question. The shortfall for the fiscal year ending Sept. 30, 2003, was $374 billion. The projected deficit for fiscal 2004 may exceed $500 billion. It is how the president addresses this imbalance that draws fire, left and right. While attacking the spending side, these critics pay little heed to the transformational changes that accompanied them in national security, entitlement reform and economic efficiency.

The deficit, a product of multiple crises, is surely steep. But it is below its historic peaks. The shortfall equaled 3.5 percent of gross domestic product (GDP) in fiscal 2003 and may reach 4.5 percent of GDP in fiscal 2004. By contrast, Reagan-era deficits reached 6 percent of GDP.

Bolten observes that spending growth unrelated to national security has declined consistently relative to the 15 percent increase in the final Clinton budget to 6 percent in fiscal 2002, 5 percent in fiscal 2003 and no more than 4 percent in fiscal 2004.

But the debate over the Bush budget concerns its magnitude less than its tendency. From 2001 to 2003, the federal budget increased $296 billion. Roughly 34 percent of this increase went to defense; another 11 percent to homeland security. But entitlement outlays accounted for most of the rest: roughly 15 percent for Social Security, 9 percent for Medicare and 14 percent for Medicaid. The combined impact of these programs defense, homeland security, Social Security and medical care thus encompassed 83 percent of the total budget increase.

The deficit means different things to its different critics: an indictment of defense costs or tax cuts to those on the left; an indictment of spending, particularly of entitlement growth, to those on the right.

Let's start with the military budget. The $87 billion supplemental request shocked only those who didn't understand the stakes involved. The low-tech, mass homicides of 9/11 cost this country roughly $150 billion in reduced GDP. Testifying before the Senate Appropriations Committee, Defense Secretary Donald Rumsfeld recently listed some of the damages incurred: $50 billion in costs to the insurance industry; $33 billion in private-sector security expenses; $21 billion to New York City for direct damages; $18 billion in cleanup costs at the World Trade Center site; $11 billion in lost business to the airline industry; $7.8 billion in lost income for the families of the roughly 3,000 murdered victims; $6.4 billion in lost wages for nonvictim New York City workers; $4 billion to the victims' compensation fund; $1.3 billion by state governments for homeland security; and $700 million to repair the Pentagon.

The capitalist order depends on a baseline of respect for persons and property "Thou shalt not kill" and "Thou shalt not steal." Terrorism on the scale of 9/11 threatens that order's existence. Through such acts terrorists could manipulate capital markets to finance their future activities. Creative destruction, the hallmark of market economics, would be replaced by cancerous destruction.

President Bush undertook the effective response that was available: to disincent the terrorist enterprise. That meant killing the terrorists in their persons while placing a military presence at the throat, or in the face, of their state sponsors. Thus far the dividends have surpassed expectations: mass terror extinct on U. …

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