Dec. 21, 2004
Don't bemoan gridlock in Washington. This year, it did some good.

It's been the holiday season in Washington, a festive time of year when industry trade associations hold lavish end-of-the-year cocktail parties. I attend some of them, not only to partake of the free food and booze (journalists are a shameless lot), but also because of the chance to renew contacts and -- especially -- chat up out-of-town visitors to find out what is on the minds of real-world industry executives outside the Washington Beltway. Invariably, this little scene occurs: I'm standing among the blur of suits near the food table, drink in hand. One of the out-of-town suits approaches, squints at my name tag, and notes that I am an IndustryWeek editor based in Washington. The suit launches a conversation. Often it is about politics and who I think will be elected President next year. I protest that people out in the hinterland have better insights on that than we alleged Washington insiders. Often, the conversation then switches to Congress and the fact that it hasn't accomplished very much lately. It's too bad, the suit observes, that Congress can't pass a tax cut, a product-liability law, OSHA reform, Superfund reform, or any of the other stalled top priorities of the business community. Gridlock, the suit sighs, is terrible. But maybe it isn't so terrible. It's true that an unusually high level of partisanship in 1999 resulted in very little of the business agenda making it into law. Yet, believe it or not, it can be argued that the first session of the 106th Congress actually turned out to be significant, even a positive one, for business. Why? Because in their hostile, name-calling struggle over the fiscal 2000 federal budget, both parties ultimately agreed not only to balance the budget, but to balance it without counting the Social Security surplus. Not many Americans realize this, for the unexpected display of fiscal rectitude has received little attention. Its significance, though, hasn't escaped the notice of economists or business lobbyists, who comment on it at these same Washington holiday cocktail parties. They shake their heads in wonderment that it happened. One top economist, former Congressional Budget Office (CBO) Director Robert Reischauer, has called it "the most profound fiscal policy shift we have seen for years." To understand why, it's necessary to realize that the budget Congress passes every year comes in two parts. One is the "off-budget" part that covers entitlements, mainly the Social Security trust fund; the other, the "on-budget" part, funds the rest of the government. Recently Congress has been able to balance the overall combined budget by diverting growing surpluses in the trust-fund part toward the non-Social Security, "on-budget" part, which traditionally has been in deficit. This year, however, the Clinton Administration and Republicans agreed to balance the non-Social Security part of the budget as well. To be sure, it took some fanciful accounting gimmicks to do it, but balance it they did. Don't conclude, however, that the two sides are entering the new millennium in a love-thy-neighbor era of cooperation. The policy turnabout happened strictly by accident- -- an unforeseen result of political gamesmanship and good fortune. President Clinton started it with his politically inspired warning to Republicans in his two most recent state-of-the-union speeches to "save Social Security first" before trying to pass tax cuts. Seeing that his message resonated with voters, the GOP then tried to trump him by proposing "lock box" legislation that would bar Congress from spending any of the Social Security surplus on other programs. That, too, proved politically popular. So Democrats, despite their spending proclivities, had to go along with it. As all this was unfolding, CBO came out with a revised forecast showing that the spectacularly robust economy was going to create a surplus for the 1999 fiscal year in the "on-budget" budget. That made it easier to cobble together a theoretical balance, however gimmicky, for fiscal 2000 and to pay down some of the federal debt. Clearly, that's good news. Industry lobbyists have been among the first to applaud. "Some people are in angst over gridlock," observes Bruce Josten, executive vice president of the U.S. Chamber of Commerce. "But because of gridlock, and the fact that neither party got its way -- Democrats didn't get their new spending, and Republicans didn't get their tax cut -- most of the surplus went to retire the debt. That will keep a damper on interest rates, which in turn will help economic growth, make housing and cars and other things more affordable to more people, and underpin the stock market." Those are all pretty positive accomplishments. Hurrah for gridlock! William H. Miller is an IndustryWeek Senior Editor based in Washington.

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