It was only a month or so after Election Day in 1992 that the incoming Clinton administration held what was labeled an economic summit in Little Rock, Ark. About 300 economists, business leaders, academics and political officials attended the meeting, and the president-elect himself presided over the sessions.
[IMGCAP(1)]There are many opinions about why this happened. Some insisted it was to show that, as he repeatedly said during the campaign, the new president would be focused like a laser beam on the economy. Others have said it was because the president-elect wanted to show he would be a hands-on, policy-loving leader who would be personally in charge of getting things done. Others said it was simply a public relations effort to get airtime that evening on the substantive issue that was most important to voters.
I have a different theory: At least part of the reason for the summit was to give the Clinton folks a way to let everyone know that the budget situation was worse and, therefore, that it was not going to be possible to do everything they had promised during the campaign.
I still remember the presentation on the budget by John White, a former deputy director of the Office of Management and Budget during the Carter administration who was eventually named deputy secretary of Defense by Clinton. White told the president-elect the budget situation had deteriorated significantly and the deficit would be much higher than previously projected. As a result, the incoming administration would have to deal with a budget picture that was much worse. Clinton responded by telling White he was grateful for the analysis and the presentation had been well-done.
And with those very few words the Clinton administrations restatement of the federal fiscal outlook was complete. As far as the budget was concerned, from that moment on everything was different than had been previously discussed. Priorities stated during the campaign could be changed. Policy changes that had been promised could be set aside. A worse-than-expected budget outlook could become the primary focus.
And … it was not the president-elects fault.
Whoever he is, somehow the newly elected president very likely will do the same thing Clinton did. Shortly after the election, the new administration will likely find a way to restate the governments budget outlook and it almost certainly will look much worse than it did before.
In fact, the situation today is so similar to what happened in December 1992 that we absolutely should expect a budget restatement after the 2008 election is over.
For example, the Clinton restatement was possible because the incumbent was not reelected. Had he been re-elected, George H.W. Bush wouldnt have been able to restate the budget forecast as painlessly because he would have been restating his own outlook. It would have looked like the president either had known about the deteriorating forecast during the campaign and had lied to get re-elected, or that his administration hadnt realized it was going to be worse and so its budgeting abilities were inept. Either way, the criticism at the start of the second term from Congress and others would have been harsh.
George H.W. Bush also didnt have the luxury of a restatement when he was first elected in 1988. Because he was Ronald Reagans vice president and was running to continue Reagans policies, he couldnt throw the previous administration under the bus.
This year, neither the president nor the vice president is running for reelection, so whoever succeeds George W. Bush will have the same incentive Clinton did: Get the bad news out in the open not just as early as possible, but while the outgoing administration can be blamed for the restatement.
Also as was the case in 1992, the current official budget outlook shows a positive long-term situation that few think is actually going to occur. The 2012 surplus the Bush administration is projecting is based on a number of questionable assumptions about spending restraints and economic growth. In addition, a number of big items are simply missing. For somewhat different reasons, the long-term budget outlook in the just-adopted fiscal 2009 Congressional budget resolution is similarly questionable.
All of this means that no matter who is elected, the grandiose plans stated during the campaign either will be unaffordable, will require a large revenue increase or will substantially increase the federal deficit. To explain why he cant fulfill all of his promises, President-elect McCain or Obama will have to explain why the budget outlook is so much worse than the one that had been presented by the Bush administration.
This will be especially important because the disparity between what the outgoing and incoming administrations project for 2012 and beyond could be substantial. The Bush/Congressional budget resolution surpluses could easily turn into a McCain/ Obama-projected $400 billion or higher deficit.
For perception reasons alone, that will make a restatement that much more important for the new White House. A few tweaks to the assumptions used by the Bush administration could quickly change the 2012 surplus into a substantial deficit. A few further changes to reflect updated economics and the new presidents first budget could actually look like it was improving the situation compared to what would have otherwise occurred.
But the answer to the bottom-line question being asked these days as the candidates talk about their plans is actually quite simple. They wont be able to do everything theyre promising because the budget situation wont allow it. We just havent been told yet.
Stan Collender is managing director at Qorvis Communications and author of The Guide to the Federal Budget. His blog is Capital Gains and Games.