- The Washington Times - Monday, November 29, 2004

Something very important happened to President George W. Bush at the recent Asia-Pacific Economic Cooperation summit in Chile, an experience that just might turn him into a consistent deficit hawk.

The critical meetings with Pacific Rim nations were with Japanese Prime Minister Junichiro Koizumi and Chinese President Hu Jintao. The president, like his father, listens to and respects national leaders who meet the same challenges as he, even if to a lesser degree, especially if he views them as allies.

The president pressured Mr. Hu to moderate China’s exchange link to the dollar. But it was Mr. Hu who responded that the U.S. needed to do more to sustain its own dollar.

More important, Mr. Koizumi bluntly told Mr. Bush he must deal with the American twin deficits in government spending and trade to stabilize the currency, echoing the concerns raised by Federal Reserve Chairman Alan Greenspan the same week.

President Bush responded immediately and publicly, acknowledging his “concern about whether or not our government is dedicated to dealing with our deficits.”

That Japan and China are the two largest holders of U.S. debt and funds made an appropriate response essential. If they lost confidence and redeemed these obligations, it would cause economic catastrophe. So the president promised: “the best way to affect those who watch the dollar’s value is to make a commitment to deal with our short-term and long-term deficits.” And he headed home, unlikely, in our opinion, to change his mind and disappoint his foreign friends and allies.

At the same time, Congress was finishing work on the Omnibus Spending Bill.

Lo and behold, on Nov. 20, Congress passed the smallest increase in domestic federal spending since 1995, following Republican takeover of both houses. In the final weeks of the campaign, the president began to speak of restraining government growth and cited the pending bill as only increasing nondefense discretionary spending by 1 percent, as opposed to his previous 8 percent yearly average rise.

Cynics, including yours truly, fully expected spending projects to be restored in the postelection lame-duck session. Given a few tricks on “emergency” spending and the possibility of later supplemental bills, by and large, they were not.

What happened? How did the spending bill remain so frugal? To some extent, congressional Republicans had buyer’s remorse after increasing spending by 39 percent over four years. To some extent, they realized the spending — except for local pork, which frankly is not all that expensive even if it makes an easy media target — did not help them politically.

Both the drug and education spending splurges were outbid by Democrats demanding more, denying additional support from these senior and education constituencies for all of the money expended. So why not vote one’s heart? There would be plenty of time to spend more later if things look too dangerous for 2006. But they just might be surprised this time that the White House — which did hold their feet to the fire on the 1 percent solution — might not just continue on the road to austerity.

Reining in nondefense discretionary spending is an essential first step. Yet, that represents only 14 percent of federal spending. Entitlements must be restrained if confidence is to be restored in the dollar and Medicare and Social Security are to avert bankruptcy. The president has already proposed private accounts for Social Security but most speculate he will devote only 2 or 4 percent of the payroll tax to the matter.

The Democrats already propose adding any private accounts on top of the present tax, which will do nothing to deal with the red ink. Even if the president were fully successful with his proposal, it is not large enough to avert the crisis — and Medicare is the larger problem anyway.

The president might as well be bold, for his opponents will attack whatever he proposes as hurting the old and poor. He might as well be hanged as a sheep as a goat and try to solve the problems of both Medicare and Social Security.

In any event, he has promised his foreign friends he will begin dealing seriously with spending, and that is a great start. Mr. Koizumi may not have repaid our postwar aid but if he has helped avert the coming economic crisis, it will go a long way toward settling the score.

Donald Devine, former director of the U.S. Office of Personnel Management, is editor of ConservativeBattleline.com, the American Conservative Union Foundation’s opinion journal.

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