Rudolph G. Penner is an Institute fellow at the Urban Institute and a research associate of the Center for Retirement Research at Boston College. Dr. Penner's distinguished career as as senior government official includes being director of the Congressional Budget Office (1983-1987) and posts at the Council of Economic Advisers, the U.S. Department of Housing and Urban Development, and the Office of Management and Budget. He is past president of the National Economists Club and has advised senior government officials in the United States and many other countries on fiscal policy.
How Sound is the President's Budget?
Friday, December 28, 2012 - 11:30 AM
Original date: January 29, 1956 —
In this episode from Northwestern University Reviewing Stand, a panel of experts discusses Dwight Eisenhower's 1956 budget message. Were those different times? Former director of the Congressional Budget Office Rudolph Penner compares the budget struggles of yesteryear with today's.
Much of the panel discussion focuses on the tension between President Eisenhower’s strong belief that budgets should be balanced, as reflected in his budget message for fiscal 1956, and the notion that deficits may be appropriate under certain circumstances, as noted in the report of his more Keynesian Council of Economic Advisers.
It is clear that the now antiquated balance-the-budget rule restrained the natural political impulse to cut taxes and to spend lavishly. Keynes may have been right in his belief that deficits are appropriate from time to time, but today they have become the rule. It seems that they can always be justified because we are in recession, a recession may be imminent, or a recovery is inadequate. Keynesians have never developed a disciplining rule that has the force of the idea that a balanced budget is a good thing.
Eisenhower managed to balance the budget in three of the seven fiscal years over which he had full control. Except for a large 1959 deficit caused by a significant recession, Eisenhower’s deficits never exceeded one percent of GDP. In the 52 years since Eisenhower’s last balanced budget in 1960, the U.S. government has balanced the budget only five times. The fiscal 2012 deficit was about 7 percent of GDP.
The panelists (James H. McBurnie, David M. Kennedy, Roland Robinson, and Robert H. Strotz) also spend considerable time discussing the 1956 defense budget. That was appropriate, since it constituted 60 percent of total outlays. At $42.5 billion, it was fully $10 billion below the Korean War budget of 1953. The question was whether it was safe to cut defense so dramatically.
The Cold War was raging, but Eisenhower was tough on defense throughout his presidency. He was always worried about the military-industrial complex, although that memorable phrase did not appear until his farewell address in 1961.
The panelists comment on the enormous cost of the Nautilus, the first nuclear submarine. It was all of $55 million. How quaint. According to the Congressional Budget Office, the estimated average cost of constructing each Virginia class nuclear sub in the Navy’s plans for the future will be over $2 billion. Talk about sticker shock!