Selected leaks of the Clinton budget project a misleading picture of extreme austerity, with 115 federal programs to be eliminated, another 185 to be cut and Uncle Sam's payroll to be reduced by 118,000 persons within the next 20 months.
When the official numbers are released today the full dimensions of the president's offsetting "investment agenda" will be known. Then it will be seen that the crunch comes not so much from last year's deficit reduction initiative as from the administration's determination to establish a different set of priorities for domestic spending.
Howls of displeasure can be anticipated, for what is one politician's prudent use of federal money is another politician's boondoggle -- and vice versa. Thus, the White House proposes to slash funds for public housing, mass transit and fuel aid for the poor, which suggests troubled big cities like Baltimore are going to take a hit. But a massive emphasis on job training, Head Start for pre-school children and public works could ease the blow.
Last week's White House "spin" may have been designed not only to soften up Congress but to discourage the Federal Reserve from increasing short-term interest rates. If so, the strategy didn't work. Fed chairman Alan Greenspan, true to his recent testimony that these rates were "abnormally low," nudged the overnight federal funds rates for bank borrowing to 3.25 percent from 3 percent -- the first increase in five years.
In announcing this publicly, Mr. Greenspan reiterated that his anti-inflation move is intended not to cut short the current recovery but "to sustain and enhance the economic expansion." Wall Street panicked, however, as the Dow dropped 95 points. Higher interest rates make bonds more attractive and stocks less so. The Congressional Budget Office has predicted that interest rates on three-month Treasury bills could rise to 4.5 percent.
The key thing is to keep fiscal policy and monetary policy running roughly in tandem. There is indeed a much-needed cap of $517 billion on discretionary domestic and defense spending, but so long as mandated entitlement spending (especially Medicaid and Medicare) continues to expand unchecked, there will be a need for monetary restraint as the economy heats up.
To eliminate or slash federal programs, each of which has its own special supporters on Capitol Hill, will be difficult, and may trigger disharmony in Democratic ranks. So how much spending will actually be shifted to reflect the president's priorities remains a question mark, especially since Mr. Clinton will need every vote he can muster for his health-care reform. With the new budget, a contentious year in Congress really begins.