Nation faces hard truth: Its prosperity is history

January 13, 1991|By Stephen E. Nordlinger | Stephen E. Nordlinger,Washington Bureau of The Sun

WASHINGTON -- America is up against the wall.

Although still the world's pre-eminent political and economic power -- the sole country able to mobilize international forces in the Persian Gulf crisis -- evidence is mounting that its resources are eroding and its ever-expanding standard of living seriously threatened.

The signs of tough times ahead abound as a recession of unfathomable dimensions grips the country.

To the shock of the aircraft industry, Defense Secretary Dick Cheney canceled a new Navy attack plane last week, the largest major weapons system ever terminated.

In flush times, the Pentagon might have followed its traditionalpolicy and scaled back the $57 billion system despite its cost overruns, and not demolished it, causing as many as 9,000 layoffs. But this debt-ridden country, ranked as the world's largest debtor nation, no longer has the money to afford such practices.

From Main Street to Capitol Hill, the go-go years of the 1980s are over.

"By now it is clear that this sense of economic well-being was an illusion, an illusion based on borrowed time and borrowed money," said Benjamin M. Friedman, an economics professor at Harvard.

More and more consumers, including once-affluent young professionals, now head for discount warehouses, passing up the high-fashion and luxury trends of the past.

And Washington, already drowning in a monumental pool of red ink, lacks the hard cash to deal with either the short-term pain of the recession or the long-term needs of the country, ranging from the health crisis in the cities, to the nation's decaying bridges, roads and sewer systems, to the mushrooming number of people without a home.

With the government running on empty, the White House will be forced again later this month to pass the hat among its allies to collect funds for the Persian Gulf operation. Secretary of State James A. Baker III said Friday that he was "very satisfied" with Saudi pledges to help cover added U.S. costs. And Treasury Secretary Nicholas F. Brady will be renewing the pitch at a meeting of international finance ministers in New York next week.

The need for this kind of handout is more urgent than ever.

Suddenly, as an outgrowth of the recession, the budget deficit this year is ballooning by $50 billion, to more than $300 billion, according to estimates last week by budget officials. That will add to an already huge government debt of more than $3 trillion, triple the level of the early 1980s.

Rules adopted by Congress last fall as part of the budget deficit reduction agreement between the White House and Congress no longer require meeting any specific deficit over the next three years.

But, reflecting the hard times confronting the country, any new spending increase or tax cut must be offset by either scaling back other programs or raising taxes, both tough nuts to swallow in the midst of an economic slide.

"Cheney's decision reflected the squeeze on the Pentagon budget," said Stanley Collender, a budget expert at the Price Waterhouse accounting firm. "If he had gone along with the Navy attack plane, then he would have had to find the money somewhere else in the Pentagon budget -- in personnel or operations and maintenance.

"There are very few resources left. Real choices are going to have to be made under the new rules."

In a similar predicament, President Bush was forced last month, after a two-year battle, to abandon one of his top priorities -- a cut in the capital gains tax rate -- because of the new budget stringency. Democrats had labeled the proposed cut a revenue loser, and the president was not about to embrace an offsetting tax increase.

All this is not to say the government is broke, in the usual sense of the term. It cannot reach that sorry state because of its unlimited capacity to print money and to borrow, if there are lenders and if the risk of rampant inflation becomes a secondary worry.

There are also no signs that the recession will degenerate into a full-fledged depression. Too many safety nets are available to the government to buttress the economy in an emergency.

But the severe cash pinch does mean that Mr. Bush, in the fiscal 1992 budget that he'll send to Congress Feb. 4, must hew strictly to the lean times confronting the nation.

There are expected to be further proposed cuts in such programs as Medicare and scant new funds going to education and drug control, once top priorities for the president.

So hesitant is Congress to spend money that it has held back from authorizing new funds to finance the savings and loan bailout even though the delay will add millions to the final bill.

Like the government, consumers and businesses also are up to their necks in debt, with many reeling from actual or threatened bankruptcies.

A big jump in debt occurred in the last half of the 1980s, when the ratio of private debt to the size of the economy jumped to 65 percent. It had been 52 percent in the late 1970s.

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