What Does It Mean?
Why was this agreement made in 1990, and not before? The most obvious reason is the target. George Bush obviously told himself that he would break the tax promise only once, and long before the next election. The Democratic leaders could end, at least for a while, the budget battle that had been making their lives miserable—and, given the fall of the Berlin Wall, most of the package had to be in a form they would like.
A second obvious reason is George Bush. The argument for a "responsible" deal always had a subtext: one side would have to attack its own core constituency. Bush did it, or at least so the Gingrich faction believed, by accepting extensive tax increases. As a traditional Republican, we should add, the president presumably cared more about who got taxed than avoiding taxes altogether. From that standpoint the summit agreement was a good deal for Bush, and his right wing screwed it up. Put another way, it "shared the pain"—so both left and right opposed it.
We also must admit that Gramm-Rudman helped. As we have argued, it never made any sense to think that a threatened sequester of, say, $40 billion would force other action of the same size, for the items subject to sequester were those with least political support. A $230 billion sequester is another matter; in the face of that one might find $30 billion of something else to do. Once Darman chose not to mask the deficit—and then it became too large to mask—the artificial crisis did have some impact.
Changing the target and doing much less than Gramm-Rudman was possible because, after years of battle, notions of responsibility had begun to shift again. It is hard to continually hold the system to an impossible
standard, especially when that standard is based on predictions of a disaster that doesn't occur. By 1990 a number of respected commentators, such as the editorial board of the New York Times and economist Herbert Stein, were urging what we called balance.[39] Yet many deficit-reducers would not say publicly that a balanced budget was unnecessary because they wanted to maximize the pressure for action.
This desire to maintain the pressure was most evident in one of 1990's non-events. By September it seemed that an assessment of economic performance during the second and third quarters of 1990 would show two successive quarters of less than 1 percent real growth in GNP. Under the law, such a report would automatically trigger a vote on whether to suspend Gramm-Rudman, and under the circumstances of late October many politicians might have seized the opportunity. The budgeteers who understood this angle chose not to ask for a report, and CBO had no interest in volunteering one. Once the deal was made, however, the same players took the pressure off. Economists' demands for more savings were conspicuous by their absence. The deficit is still huge and savings low, but with the policy community's shift to feeling that what has been done is all right, the drumbeat from the editorial pages, and of politicians against themselves, has ceased.
We therefore are as convinced as before that the budget battle has been defined by elites and constrained by masses. The elite provided the panic, and the masses constrained the solutions. The 1990 deal, like all its predecessors, moved continually closer to the public's priorities at the time. On the other hand, the public paid most attention to the deficit when the politicians and media worried about it most.[40] In the end, or so we hope, the elites adjusted their panic to the masses' constraints.
The final question, then, is what the battle tells us about the future of American politics. Does the distributional tilt of the final package mean that the long-awaited revival of the Democrats is at hand? Is the long swing to the right about to be reversed?
Perhaps, but we are more impressed by what the battle has accomplished. The success of populist rhetoric on taxes in 1990 is deceptive. Once the public is told, "There will be a tax increase; you have a choice between a gas tax and taxing the rich," it is easy to sell taxing the rich. When the public hears about taxing the rich in isolation, however, the common thought is, "I'm next." There is no evidence from 1990 that the public is demanding higher top rates to pay for social programs.
The era of less-is-better is over. Domestic discretionary spending was increased in this deal because of an elite near-consensus that they wanted to spend some money for general government. The Appropriations Committees get to fund their programs in peace, without worrying about
the rest of the budget process. Yet under the new agreement there can be no expansion above the new baseline; more is not better quite yet.
The Republican right viewed the 1990 agreement as an abomination. And so it would have been had Ronald Reagan been president. With George Bush in the White House, however, the summit was the best the party's economic conservatives could expect. To a traditional Republican with a long memory, like Bush, even the final agreement should not look so bad at all. What, one wonders, would Gerald Ford or Richard Nixon have said if you had told them that in 1991 the top income tax rate would be 31 percent, and there would be budget rules so even extra revenues from economic growth could not be used for more domestic spending? We suspect they would have thought you were abusing an illegal substance.
Our readers can decide for themselves what they think of this conclusion to our story of political economy. We believe the public interest is not what is in nobody's interest, but rather resides in meeting public preferences by compromising between the party positions, and so the agreement of 1990 is an example of the government serving the public interest.