[Congressional Record Volume 141, Number 25 (Wednesday, February 8, 1995)]
[Senate]
[Pages S2324-S2329]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                                 MEXICO

  Mr. D'AMATO. Mr. President, last week, the President of the United 
States went around the will of the people to bail out a mismanaged 
Mexican Government and global currency speculators. That was wrong.
  I am outraged that American taxpayers are being forced to do 
something they did not want to do. The President went around the 
people 
[[Page S2325]] knowing that Congress would not approve a $40 billion 
bailout of Mexico.
  Never before has a president used $20 billion from our exchange 
stabilization fund to bail out a foreign country. The ESF is not the 
President's personal piggy bank. This fund is supposed to be used to 
stabilize the dollar, not the peso. The President was wrong, and I am 
outraged.
  The President has used scare tactics to justify going around Congress 
to bail out Mexico. The President claimed that world stock markets 
would crash and floods of illegal immigrants would cross our borders. 
The President was wrong, and I am outraged.
  As former FDIC Chairman Bill Seidman testified last week, Mexico's 
credit crunch can be solved by letting the market work. Mexico and its 
creditors should be forced to renegotiate its debt. That's the 
capitalist way. Investors in Mexico might get 50 or 60 or even 70 cents 
on the dollar. That is fair. Investors in Mexico took a gamble. If they 
wanted a United States-guaranteed investment, they should have put 
their money into a 6-percent C.D., not a 20-percent Mexican pesobono.
  The President has given in to economic blackmail. Will American 
taxpayers have to send Mexico $40 billion next time to protect our 
borders from illegal immigration? I am outraged that the President has 
used our exchange stabilization fund to pay blackmail to Mexico.
  The President has set a terrible precedent. What happens next time 
the peso collapses? What happens when some other country's currency 
collapses? The American taxpayer cannot afford to be the world's 
banker. We cannot afford to bail out global currency speculators every 
time a foreign currency collapses.
  The President should not be sending $20 billion to Mexico when 
Congress must cut United States domestic programs to put our own 
economic house in order. The Governor of my home State has to cut $5 
billion from the state budget. We should send $20 billion to New York 
or Florida or California or other States that are in need before we 
send it to Mexico.
  Make no mistake about it. Two years from now. Five years from now. I 
predict that this bailout will go down as one of the President's 
biggest blunders.
  I predict that this bailout will not work. It is a quick fix and will 
come back to haunt American taxpayers. They will wind up paying.
  Let us look at the facts.
  Mexican political bosses got into this mess to win the August 1994 
election. They printed pesos at an outrageous rate. They created the 
illusion that the Mexican economy was still thriving, and then they 
devalued the peso. That was wrong. It hurt poor and middle-class 
Mexicans. We should not bail out mismanaged foreign governments.
  The President's plan will not force Mexico's ruling party to make 
needed economic or political reforms. Once our money is shipped to 
Mexico, we will have no leverage.
  Let us look at some of the promises Mexico has made for the $20 
billion of American taxpayers' money--promises Mexico cannot keep.
  Mexico has promised to keep inflation low. But they cannot do that. 
The peso's devaluation has set off 20 to 30 percent inflation, and the 
Mexican Government will have to keep printing pesos to prevent more 
unrest in Chiapas.
  Mexico has promised to cut spending and to maintain a budget surplus. 
But that is impossible. Mexico must pay sky-high interest on more than 
$160 billion in debt and faces a recession.
  Mr. President, let me ask the question. If we cannot balance our 
budget here, here we are promising $20 billion to Mexico, not a loan 
guarantee. We are going to give it to them. We say as one of the 
conditions we expect you to have a budget surplus. I ask, is that 
realistic? We cannot balance a budget here. We are not saying Mexico is 
going to have a budget surplus. That is ridiculous. It is ludicrous. 
And no one could promise you that would take place.
  Mexico has promised to raise $12 to $14 billion through 
privatizations. But who is going to invest in Mexico now? How are they 
going to bring about privatization?
  I am outraged that the President's bailout of Mexico will leave 
American taxpayers holding the bag. Now, when we have to make painful 
cuts in the Federal budget, is not the time to be risking American 
taxpayers' money.
  The administration assumes that Mexico will pay off its debt. But 
Mexico could not pay back United States banks in 1982.
  The President claims that assured sources of repayment exist. But if 
assured sources of repayment really existed, banks and private 
investors would provide money to support Mexico's debt.
  The President has not obtained real collateral. Mexico has already 
pledged its oil reserves as collateral for its existing debt.
  The President relies solely on a security mechanism involving the New 
York Fed. But this security mechanism is a mirage. It goes into effect 
only after a default. Mexico can sell oil only to customers who do not 
pay through the New York Fed.
  When Congress provided $1.5 billion in loan guarantees to New York 
City and Chrysler, Congress demanded much more collateral. I am shocked 
and outraged that the President has not demanded more collateral from 
Mexico for $20 billion.
  What will the President do if Mexico refuses to pay us back? Will the 
President send in the 82d Airborne to seize the oilfields? Of course 
not. It is preposterous. Will he try to raise U.S. taxes to replenish 
our exchange stabilization fund?
  The President's bailout will not win us friends south of the border. 
Already the Mexican people resent the fact that we are making those 
moneys available on conditions that they speak about. Most Mexicans 
oppose the $40 billion bailout.
  The administration says that it was taken totally by surprise when 
Mexico set off this crisis by devaluating the peso on December 20. But 
the signs of serious trouble in Mexico were present months ago. 
Congress must determine what the administration knew about Mexico and 
when.
  The New York Times, January 24, 1995, reports that the CIA advised 
the administration in July 1994--6 months before the peso's devaluation 
in December--that Mexico's ruling party was borrowing and spending at a 
furious pace.
  We have an obligation to investigate whether the administration's 
inaction or silence caused this crisis. We must find out if the 
administration advised Mexico to devaluate the peso. Devaluation was a 
terrible mistake. We all admit that now. But who was there and when? 
What advice did this administration give, if any, to the Mexican 
Government?
  On January 26, Senators Dole, Lott, Mack, and Abraham asked for 
documents concerning the administration's advice to Mexico on currency 
devaluation. Twelve days later, we still have not received this 
critical documents.
  Why have we not received these documents? When will we get them? What 
is the administration hiding? The American people have a right to know.
  The Banking Committee will hold oversight hearings on the 
administration's use of the ESF to bail out Mexico.
  Senator Mack and I will introduce a sense-of-the-Senate resolution 
that the Treasury should, in conjunction with the minority reports 
required by the ESF statute, provide the Banking Committee with monthly 
information on: First, economic conditions in Mexico, and second, how 
Mexico is spending the $20 billion.
  American taxpayers have the right to know whether their money is 
being wasted in Mexico. They have the right to know if the Mexican 
Central Bank has slowed the peso printing press. They have a right to 
know if Mexico has stopped spending and balanced its budget.
  We must hold the administration's feet to the fire. We must blow the 
whistle if the administration does not make Mexico live up to its 
commitments--to stop the peso press, to balance its budget and to 
privatize. We must fight for middle-class American taxpayers, not for 
mismanaged foreign governments and global currency speculators.
  Thank you, Mr. President. I yield the floor.
  Mr. KENNEDY addressed the Chair.
  The PRESIDING OFFICER (Mr. Thompson). The Senator from Massachusetts.

[[Page S2326]]

  Mr. KENNEDY. I thank the Chair.
  (The remarks of Mr. Kennedy pertaining to the introduction of S. 376 
are located in today's Record under ``Statements on Introduced Bills 
and Joint Resolutions.'')

             BALANCED BUDGET AMENDMENT TO THE CONSTITUTION

  The Senate continued with the consideration of the joint resolution.
  Mr. HATCH. Mr. President, opponents of the balanced budget amendment 
have raised the specter that the balanced budget amendment may somehow 
endanger Social Security. This simply is wrong.
  First, the balanced budget amendment does not write any particular 
mix of spending cuts or tax increases into the Constitution. It merely 
forces Congress to come up with a plan to balance the budget by a date 
certain and to continue to balance the budget yearly in the future.
  Why do we need to do that? Because if you look at the Balanced Budget 
Amendment Debt Tracker--this chart right here--just look at what has 
happened during these 10 days we have been on the amendment. We have 
gone from $4.8 trillion of national debt with an increase the first day 
of $829 million and each day thereafter right up to where we are now up 
to $8,294,400,000 additional debt from when we started on day 10. While 
we are debating this amendment, the debt is going up almost $1 billion 
a day.
  (Ms. SNOWE assumed the chair)
  Mr. HATCH. Madam President, I have to tell you if we keep doing that, 
Social Security is going to be very, very badly harmed.
  I have always maintained that I would personally oppose Social 
Security benefit cuts. I believe we have made an obligation to our 
retirees that we must keep.
  What the balanced budget amendment does is to force Congress to 
choose between spending options constrained by the amount of available 
funds. This means Congress will have to set priorities in a way it does 
not now do. I have no doubt that Social Security is well protected in 
today's political world and would compete well against all other 
spending.
  But the balanced budget amendment does not require any particular 
cuts. Suggestions that it would result in Social Security cuts are 
simply scare tactics by those who wish to defeat the balanced budget 
amendment by any means.
  Second, those worried about the security of the Social Security trust 
fund should support the balanced budget amendment. Robert J. Myers, who 
has worked in many capacities for the Social Security Administration 
for nearly four decades, including Chief Actuary and Deputy 
Commissioner said, ``the most serious threat to Social Security is the 
government's fiscal irresponsibility.'' Mr. Myers suggests our current 
profligacy will result either in the Government raiding the trust fund 
or printing money, either of which will reduce the real value of the 
trust funds.
  The real threat to Social Security, our mounting national debt, is 
the problem we have to face. Although the trust fund is running a 
surplus now, it will not for long. Under current projections, the trust 
fund will grow until the year 2019, at which point it will begin to 
deplete its savings. At that point the fund begins living on the 
principal and interest built on past principal. In the year 2029, the 
trust fund will be completely insolvent, having used up all capital and 
interest earned. At that point Social Security will worsen the national 
deficit picture substantially and seniors will either have to receive 
benefits from increased payroll taxes or from general Treasury funds, 
or simply go without. If Congress continues to borrow at current rates, 
it is not clear how able it would be able to borrow or tax enough more 
to cover Social Security deficits.
  Furthermore, seniors or others living on fixed incomes would be 
hardest hit if the predictions of many noted economists result from our 
huge national debt. If the country should ever decide to monetize the 
debt, that is, simply print more money to cover its interest payments, 
the resulting inflation would hit hardest those living on fixed 
incomes. The Federal Reserve Board would probably avoid that, but if we 
should ever go down that path, seniors would bear a large part of that 
burden. If inflation returns in any other form because of our debt 
burden, seniors would again be hit very hard.
  Third, the money in Social Security trust funds is invested in 
Government bonds. What this means is the trust fund is simply full of 
IOU's from Congress's increasing debt. In other words, the Government 
is using Social Security taxes to fund our growing deficits, and 
leaving the IOU's in the trust fund. The trust fund reserves are in 
large degree only a claim on the general Treasury funds, with no 
capital backing up that claim. If the country ever gets to the point of 
defaulting on its debts, the Social Security trust fund would be one of 
the hardest hit.
  The country will not be able to pay off that stack of paper that 
builds up every day and every month as we borrow from the trust funds 
to pay for the daily running of Government programs. For this reason 
alone Social Security recipients, both current and future, and those 
who are concerned about them, should strongly support this balanced 
budget amendment--the only opportunity we have, and frankly the only 
real opportunity in history to really do something about these 
budgetary deficits that are running us into bankruptcy.
  We must get our entire fiscal house in order and keep it that way for 
seniors, for their children, and for their grandchildren.
  Mr. President, I would now like to address the exemption proposed by 
the Senator from Nevada. As politically attractive as this exemption 
amendment may be--I am talking about the Reid amendment--it will harm, 
rather than help, senior citizens and thwart the balanced budget 
amendment. So I urge its defeat for five reasons.
  First, the Constitution is not the place to set budget priorities. A 
constitutional amendment should be timeless and reflect a broad 
consensus, not make narrow policy decisions. We should not place 
technical language or insert statutory programs into the Constitution 
and undercut the simplicity and universality of the amendment.
  Second, exempting Social Security would open up a loophole in the 
amendment, which could avoid the purpose of the amendment or endanger 
Social Security. What do I mean by that? Congress could pass 
legislation to fund any number of programs off-budget through the 
Social Security trust fund. The budget could be balanced simply by 
shifting enough programs into the Social Security trust fund. Moreover, 
if this amendment succeeded in exempting Social Security from the 
balanced budget rule, as the trust funds begin running deficits, as 
they are projected to do, there would be no requirement that the trust 
fund remain solvent and no incentive to make it solvent. Under a 
balanced budget requirement, however, the trust funds would be 
protected because the Government would be required to have enough 
revenues to meet its obligations, including those who rely on the trust 
funds.
  Third, exempting Social Security would tempt Congress and the 
President to take irresponsible actions that threaten the integrity of 
Social Security. If Social Security is off-budget, Congress would be 
tempted to slash Social Security taxes to trade off other taxes hikes 
or shift the cost of other programs into the Social Security Program to 
avoid a three-fifths vote to unbalance the budget. Exempting the Social 
Security trust fund would create an incentive for Congress to use the 
trust fund as an instrument of countercyclical stimulus or social 
policy or other uses other than as a retirement program, threatening 
the ability of the trust fund to fulfill its obligations to retirees.
  Fourth, Exempting Social Security from the amendment is unnecessary 
because it preserves the ability of Congress to protect Social 
Security, which is politically well-protected.
  Does anybody doubt that Social Security would compete with any and 
all other Federal programs? I do not think anybody doubts that.
  The current statutory protections for Social Security would not be 
eliminated by the amendment. Congress would be able to further protect 
Social Security in implementing legislation. Given political realities, 
Congress almost certainly would choose to protect Social Security.
  The fifth reason why we should not go this route is that the concerns 
underlying this exemption are misplaced. The motivation for exemptions 
like this is to ensure that Social Security 
[[Page S2327]] benefits will not be cut. This concern is misplaced for 
two reasons. First, passage of the balanced budget amendment does not 
in any way mean Social Security benefits will be reduced. It only 
requires Congress to choose among competing programs, and Social 
Security will compete very well. Second, the biggest threat to Social 
Security is our growing debt and concomitant interest payments, both 
because the effects of debt-related inflation hurt those on fixed 
incomes and because the Government's use of capital to fund debt slows 
productivity and income growth. They way to protect Social Security 
benefits is to support the balanced budget amendment and balance the 
budget so that the economy will grow, thereby fostering growth in 
Social Security tax revenues, and by requiring that the government have 
revenues to meet its obligations, including obligations to retirees.
  For these reasons I urge the amendment be defeated.
  Mr. MOYNIHAN. Mr. President, on Monday I spoke to the Senate at some 
length describing the economic policies of the Kennedy, Johnson, and 
Nixon administrations which were directed to the problems associated 
with persistent budget surpluses. It will no doubt surprise many 
persons now proposing to amend the Constitution so as to deal with the 
problem of persistent budget deficits to learn that only a few decades 
ago our tendencies appeared to be just the opposite of those of the 
last decade or so.
  On Monday, I spoke to the long tradition that democracies were 
inherently disposed to vote themselves largess, a majority would abuse 
its responsibilities in one way or the other. But, in fact, two 
centuries of the American experience has not produced
 that, save for this particular time. It happened that, this morning, 
our hugely gifted Secretary of the Treasury, Mr. Robert Rubin, came 
before the Finance Committee with the President's budget and he showed 
the effect of the deficit reduction program which we put in place in 
this floor in moments of high drama in July, 1993, when we provided 
$500 billion in deficit reductions which, in turn, brought about a 
lowering of the deficit premium that had been riding on top of interest 
rates, such that in the end we had a cumulative effect of about $625 
billion in deficit reduction.

  That effect could be shown right here. This is Secretary Rubin's 
chart. It says, ``Spending on Government programs is less than taxes 
for the first time since the 1960's.'' A large event.
  Now, when he says spending on Government programs, that is all 
Government programs excepting payment on the debt, which is not a 
program but a requirement.
  With that provision, in 1994 to 1995, we will have a budget surplus 
of a little less than 1 percent, six-tenths of 1 percent, but a surplus 
for the period.
  Now, that is in blue, as the distinguished Presiding Officer can see, 
as are these two blue bars over on the left side of the chart, which is 
the surplus of 1962 to 1965 under Presidents Kennedy and Johnson; 1966 
to 1969, and that is President Johnson; and there was a slight surplus 
and then a slight deficit in the period 1970 to 1973 under President 
Nixon.
  Our Government then ran surpluses, which its principal financial 
officer considered to be a major problem to the economy, that being an 
obstacle to full employment, which, under the Employment Act of 1946, 
was to be the largest economic goal of the country.
  On Monday, I cited the Office of Management and Budget's explanation 
of the budget for fiscal 1973. This was written by George P. Schultz, 
then director of the newly established OMB, George Shultz, who was 
later a most eminent Secretary of the Treasury and Secretary of State. 
He stated as such:

       Budget policy. The full-employment budget concept is 
     central to the budget policy of this Administration. Except 
     in emergency conditions, expenditures should not exceed the 
     level at which the budget would be balanced under conditions 
     of full employment.

  Which is to say he had built a deficit into the budget which was the 
difference between outlays and that would equal revenues at full 
employment and the actual revenues which came in from less than full 
employment. We were coping with surpluses, a lag in the revenues that 
come into the Government in the upward slope of the business cycle, and 
our disposition to spend, if you will, those revenues here in the 
Congress.
  And once again this surplus in revenues as against programs has 
appeared. It comes miraculously, if you will, but not accidentally. 
That seems an oxymoron. But I do now know how many really believe that 
what we did in 1993 would have this result. But it has done, and there 
it is.
  And my purpose in all this has been plain enough. I make the point 
that there is nothing inherent in American democracy that suggests we 
amend our basic and abiding law to deal with the fugitive tendencies of 
a given moment.
  These are the tendencies, Mr. President. And, again, by sheer 
happenstance, I prepared these remarks to be given this afternoon. This 
morning the Secretary of the Treasury presented us this chart which 
shows us these tendencies. Right here goes the deficit of the period 
from the late 1970's to the early 1990's.
  I rise today to provide documentation as to how a series of one-time 
events of the 1980's led to our present fiscal disorders even as events 
in the 1990's point to a way out of them; and, again, to state I 
prepared these remarks before I saw this chart. And, indeed, there you 
see that emergent surplus.
  On January 26, at the request of Chairman Bob Packwood, the 
Congressional Budget Office, in the person of Director Robert D. 
Reischauer, presented the Finance Committee with data comparing current 
economic forecast and budget projections with those made by CBO before 
the enactment of the Economic Recovery Tax Act of 1981, ERTA as it is 
generally known. Here is Dr. Reischauer's testimony.

       Unlike the current ``Economic and Budget Outlook'', CBO's 
     budget reports issued before enactment of the 1981 tax cuts 
     routinely projected that a continuation of current tax and 
     spending laws would lead to large budget surpluses. CBO also 
     warned that such levels of taxes and spending would act as a 
     drag on the economy.

  Mr. President, that is a direct continuation, that view, of the view 
that went from Walter Heller, as chairman of the Council of Economic 
Advisers in 1961 under President Kennedy, to Arthur Okun, as chairman 
under President Johnson, to Herbert Stein, as chairman under President 
Nixon, and budget directors such as Kermit Gordon and George Shultz. 
They saw the problems of the American Government very much in terms of 
persisting surpluses that depressed economic growth.
  I continue Dr. Reischauer's testimony:

       The primary reason for those projections was that high 
     inflation was expected to drive up revenues dramatically. 
     Because key features of the Federal individual income tax 
     were not automatically adjusted for inflation, periods of 
     high inflation--such as the late 1970s and early 1980s--
     pushed individuals into higher tax rate brackets and caused 
     revenues to increase rapidly. In response, policymakers cut 
     taxes every few years on an ad hoc basis--five times in the 
     1970s, for instance.

  Again, to try to reach back to a period which we seem to have 
forgot--and, in fairness, probably no more than a fifth of the Members 
of the House right now and somewhat more of the Senate were here in the 
1970's who could remember that--but we cut taxes five times in the 
1970's just to keep the surplus from growing too large.
  Note the continuity of the problems faced by our analysts at the 
outset of the 1980's with those faced at the outset of the 1960's. The 
Federal Government was running an unacceptable surplus; a sure remedy 
was to cut taxes. Dr. Reischauer continued:

       Illustrating this dilemma, in its February 1980 report 
     Five-Year Budget Projections: Fiscal Years 1981-1985, CBO 
     projected that revenues collected under current tax law would 
     climb from about 21 percent of GNP in 1981 to 24 percent by 
     1985. Simple arithmetic pointed to enormous surpluses in the 
     out-years. For example, current-law revenues exceeded outlays 
     by a projected $98 billion for 1984 and $178 billion for 
     1985. Similarly, in its July 1981 report Baseline Budget 
     Projections: Fiscal Years 1982-1986, CBO projected budget 
     surpluses of between $148 billion and $209 billion for 1986, 
     depending on the economic assumptions used.
       In the same report, CBO estimated that the 1981 tax cuts 
     and other policies that were called for in May 1981 budget 
     resolution would generate a balanced budget or a small 
     deficit, roughly $50 billion by 1984--again, depending on the 
     economic assumptions employed.
       That budget background led to the 1981 tax cuts. Given the 
     best information available at 
     [[Page S2328]] that time, the Congress and the Administration 
     reasonably thought that significant budget surpluses loomed 
     under current law. Analysts differed, however,
      on whether the 1981 tax cuts would put the government on a 
     balanced-budget footing or would lead to small budget 
     deficits.

  The Economic Recovery Tax Act of 1981 passed the Senate by an 
overwhelming 67-to-8 vote. I voted for it with the same measure of 
confidence that had led me to support earlier tax cuts. This was a 
familiar situation; well enough understood.
  So I and others thought. We were ruinously wrong. At a hearing of the 
Finance Committee on January 31, Dale Jorgenson, professor of economics 
at Harvard University, called the 1981 tax cut a fiscal disaster 
because the Federal Government stopped raising the revenue it needed.
  In an instant, deficits, not surpluses, because our problem.
  For certain, two things happened--beyond the bidding war that 
accompanied the enactment of ERTA, with Democratic Members of Congress 
seeking to outdo the new Republican administration. The first is the 
action of the Federal Reserve designed to bring down the double-digit 
inflation of the late 1970's. In a not unfamiliar sequence, the Fed 
brought down the economy with it. A deep, deep recession commenced. In 
1982, the unemployment rate reached 9.7 percent, the highest rate 
recorded since the Employment Act of 1946. Revenues fell off 
precipitously, largely the result of recession, but more steeply owing 
to the 1981 rate cut.
  Now to a second, and to my view, more important event. Beginning in 
the 1970's a body of opinion developed, principally within the 
Republican Party, which held that Government at the Federal level had 
become so large as to be unacceptably intrusive, even oppressive. There 
is a continuity here. All those years trying to spend down surpluses 
had indeed brought about a great increase in the size of Government. Of 
a sudden, deficits, if sizeable enough, gained a new utility. They 
could be used to reduce the size of Government.
  This was a powerful idea. Indeed, in July 1980, I contributed an 
article to the New York Times which argued that, the Republicans had 
become the party of ideas and thus that ``could be the onset of the 
transformation of American politics.'' I argued:

       Not by chance, but by dint of sustained and often complex 
     argument there is a movement to turn Republicans into 
     Populists, a party of the People arrayed against a Democratic 
     party of the State.
       This is the clue to the across-the-board Republican tax-cut 
     proposal now being offered more or less daily in the Senate 
     by Dole of Kansas, Armstrong of Colorado and their 
     increasingly confident cohorts.

                           *   *   *   *   *

       The Republicans' dominant idea, at least for the moment, 
     seems to be that the social controls of modern government 
     have become tyrannical or, at the very least, exorbitantly 
     expensive. This oppression--so the strategic analysis goes--
     is made possible by taxation, such that cutting taxes becomes 
     an objective in its own right, business cycles 
     notwithstanding.
       Similarly, ``supply-side'' economics speaks to the people 
     as producers, as against the Government as consumer.
       Within the Republican Party this is put forth as populism 
     and argued for as such * * *. Asked by a commentator whether 
     an across-the-board tax could rally lead to the needed 
     increase in savings, a Republican Senator replied that he 
     took for granted that the people would know what to do with 
     their own money.

  Then came the revolution.
  Some 4 months after I wrote that article, a new Republican President 
was elected, himself much committed to this view, and his White House 
staff fair to obsessed with it. They welcomed deficits for reasons 
wholly at odds with their Democratic, or for that matter, Republican 
predecessors.
  From the early 1980's, I found myself often on this Senate floor, and 
on several occasions in print, making the point that in the Reagan 
White House and Office of Management and Budget, a huge gamble was 
being made. A crisis was being created by bringing about deficits 
intended to force the Congress to cut back certain programs.
  I encountered great difficulty getting this idea across. No one 
believed what I was saying. The intentional nature of the Reagan 
deficits was not understood or admitted at the time, nor has it been 
very widely acknowledged since. Yet it did happen, and it has been well 
documented.
  In a television speech 16 days after his inauguration, President 
Reagan clearly stated it:

       There were always those who told us that taxes couldn't be 
     cut until spending was reduced. Well, you know we can lecture 
     our children about extravagance until we run out of voice and 
     breath. Or we can cut their extravagance by simply reducing 
     their allowance.

  The person principally involved, Mr. David Stockman, who was 
President Reagan's Director of the Office of Management and Budget, 
wrote a memoir of his time in Washington entitled, ``The Triumph of 
Politics.'' He described in detail what happened and how it went wrong: 
how the Reagan Revolution--as based on the immutability of the Laffer 
curve--had failed. According to Stockman, President Reagan's top 
economic advisers knew from the very beginning that supply-side 
economics would not and could not work.
  That superb journalist and historian, Haynes Johnson, wrote of this 
in his wonderful book, ``Sleepwalking Through History: America Through 
the Reagan Years,'' published in 1991. Johnson writes that the Reagan 
team saw:

     * * * the implicit failure of supply-side theory as an 
     opportunity, not a problem * * *. [The] secret solution was 
     to let the federal budget deficits rise, thus leaving 
     Congress no alternative but to cut domestic programs.

  I will simply quote a footnote on page 111, where Johnson says of 
this Senator:

       [Stockman's] former mentor Moynihan was the first to charge 
     that the Reagan Administration ``consciously and deliberately 
     brought about'' higher deficits to force congressional 
     domestic cuts. Moynihan was denounced and then proven 
     correct, except that the cuts to achieve balanced budgets 
     were never made and the deficits ballooned even higher.

  David Stockman writes in his book, ``If I had to pinpoint the moment 
when I ceased to believe that the Reagan Revolution was possible, 
September 11, 1981 * * * would be it.'' It was then that Stockman 
realized that no huge spending cuts would ever come. He pleaded with 
the President and his
 colleagues in the Cabinet to do something. But nothing was done. The 
President had claimed he would use his pen to veto big spending 
appropriations bills. But of the reality, Stockman wrote:

     * * * the President's pen remained in his pocket. He did not 
     veto a single appropriations bill * * *. Come to think of it, 
     he did use his pen--to sign them * * *. The 1983 deficit had 
     * * * already come in at $208 billion. The case for a major 
     tax increase was overwhelming, unassailable, inescapable, and 
     self-evident. Not to raise taxes when all other avenues were 
     closed was a willful act of ignorance and grotesque 
     irresponsibility. In the entire twentieth-century fiscal 
     history of the Nation, there has been nothing to rival it.

  And so, President Reagan became the biggest spender of them all.

       By the mid-1980's the Reagan transportation budget in 
     constant dollars topped Jimmy Carter's best year by 15 
     percent, Johnson's by about 40 percent, and Kennedy's by 50 
     percent. Big Government? That was something for the 
     speechwriters to fight as long as they didn't mention any 
     names * * *. Spending continued largely unabated in all 
     cases.

  I recall George Will speaking to a group of businessmen at breakfast 
in about 1984 and saying, ``I have a door prize of a toaster for anyone 
who can name one program that President Reagan promised to cut during 
his 1984 Presidential campaign.'' Everyone in the room started looking 
around at his or her neighbor, clearly wondering, ``Why can't I 
remember one?'' Whereupon Mr. Will came to their rescue, ``Don't feel 
bad about your memory. There was none.''
  They created a crisis. We indulged ourselves, in the early 1980's, in 
a fantasy of young men who perhaps had too much power and too little 
experience in the real world. They thought they could play with fire, 
create a crisis. Well, the fire spread, and the numbers--the damages--
are well known to all of us. On January 20, 1981, the Federal debt 
stood at $940.5 billion, which was no great cause for concern. Eight 
years later, it was $2.86 trillion. What had taken our Nation nearly 
two centuries to amass had been tripled in just 8 years. By the end of 
1992, it was just over $4 trillion.
  On December 31, 1983, I published an article in the New Republic 
entitled, 
[[Page S2329]] ``Reagan's Bankrupt Budget,'' in which I noted, ``The 
projected 8-year growth is $1.64 trillion, bringing us to a total debt, 
by 1989, of $2.58 trillion.'' As it turned out, the total debt in 1989 
was $2.86 trillion. Not bad shooting. Four years later it was a little 
over $4 trillion.
  I have spoken of two events of the 1980's. First, the tax cuts of 
1981 followed by the severe recession of 1982. Next, the development 
within the incumbent administration of a grand strategy of using 
deficits to bring about a reduction in the size of Government, followed 
by a disinclination to cut specific programs. Mr. Stockman's memoirs 
provide graphic examples of this latter development, including the 
celebrated counsel he gave the President on how much to cut them. Let 
me in passing mention a possible third event which led in part to the 
great increase in debt during the 1980's. This was recently alluded to 
by Lawrence J. Korb in an article in the Washington Post. Mr. Korb, now 
at the Brookings Institution, contends that ``the Reagan buildup'' of 
the military was part of a deliberate strategy of engaging the Soviet 
Union in an arms race that would leave them bankrupt. The buildup, Mr. 
Korb continues:

     * * * was based not on military need but upon a strategy of 
     bankrupting the Soviet Union. If the Reagan administration 
     had budgeted only for military purposes, the 1985 budget 
     would have been some $80 billion less. The 1995 defense 
     budget is still at about 85 percent of its average Cold War 
     level, and actually higher [even in inflation adjusted 
     dollars] than it was in 1955 [under Eisenhower] and in 1975 
     [under Nixon], when the Soviet Empire and Soviet Union were 
     alive and well.

  It is difficult to have been in Washington in those times and not to 
have been aware of such thinking in the environs of the White House. 
For the first 4 years of the Reagan administration, I was vice chairman 
of the Senate Select Committee on Intelligence, and one heard such 
thoughts. By this time, I was convinced that the Soviet Union would 
soon break up along ethnic lines and largely in consequence of ethnic 
conflict, and so was perhaps more attentive than some. Certainly, 
Raymond L. Garthoff, in his study, ``The Great
 Transition, American-Soviet Relations and the End of the Cold War'' 
[Brookings, 1994] holds to the view that something of this sort took 
place.

  He writes:

       A final element in President Reagan's personal view was 
     that not only was the Soviet system ideologically bankrupt 
     and therefore vulnerable, but that it was also stretched to 
     the utmost by Soviet military efforts and therefore unable to 
     compete in an intensified arms race. As he put it in a talk 
     with some editors, ``They cannot vastly increase their 
     military productivity because they've already got their 
     people on a starvation diet . . . if we show them [we have] 
     the will and determination to go forward with a military 
     buildup . . . they then have to weigh, do they want to meet 
     us realistically on a program of disarmament or do they want 
     to face a legitimate arms race in which we're racing. But up 
     until now, we've been making unilateral concessions, allowing 
     ours to deteriorate, and they've been building the greatest 
     military machine the world has ever seen. But now they're 
     going to be faced with [the fact] that we could go forward 
     with an arms race and they can't keep up.'' The Soviet system 
     was indeed under growing strain, as would become increasingly 
     evident throughout the 1980s. But most of the premises 
     underlying Reagan's viewpoint were highly questionable: that 
     the United States had not also been active in the arms 
     competition and had been making unilateral concessions, that 
     the Soviet Union was unable to match adequately a further 
     American buildup, and that the Soviet Union would respond to 
     such a buildup by accepting disarmament proposals that the 
     United States would regard as ``realistic'' (that is, would 
     favor the United States more than the SALT II Treaty that had 
     been produced under the strategic arms limitations talks 
     [SALT] conducted by the three preceding administrations but 
     not ratified). But whatever their merit, they represented the 
     thinking of the new president and his administration.

  Just how much this thinking deepened the deficits of the 1980's is 
difficult to assess. It is now more a matter for historians. But it can 
hardly have helped. And so we come to a compound irony. The great 
struggles over the nature of the American economic system that dated 
from the Progressive Era to the New Deal ended in a quiet acceptance of 
the private enterprise economy so long as government could pursue 
policies that produced relatively full employment. Hardly a 
revolutionary notion, but surely an honorable undertaking. Even so, for 
the first time, it disposed American government toward deficit 
financing. Nothing huge; nothing unmanageable; but real.
  In 1965, in the first article in the first issue of The Public 
Interest entitled, ``The Professionalization of Reform,'' I set forth 
the now somewhat embarrassing proposition that Keynesian economics in 
combination with the statistical feats such as those of the National 
Bureau of Economic Research, founded by
 Wesley C. Mitchell at Columbia University, invested us with unimagined 
powers for social good. I was not entirely wrong.

       Governments promise full employment--and then produce it. 
     (in 1964 unemployment, adjusted to conform more or less to 
     United States' definitions, was 2.9 percent in Italy, 2.5 
     percent in France and Britain, and 0.4 percent in Germany. 
     Consider the contrast with post-World War I.) Governments 
     undertake to expand their economy at a steady rate--and do 
     so. (In 1961 the members of the Organization for Economic 
     Cooperation and Development, which grew out of the Marshall 
     Plan, undertook to increase their output by 50 percent during 
     the decade of the 1960's. The United States at all events is 
     right on schedule.)
       The ability to predict events, as against controlling them, 
     has developed even more impressively--the Council of Economic 
     Advisers' forecast of GNP for 1964 was off by only $400 
     million in a total of $623 billion; the unemployment forecast 
     was on the nose.

  And yet I did not entirely see--did not at all see--the serpent 
lurking in that lovely garden.

       The singular nature of the new situation in which the 
     Federal government finds itself is that the immediate supply 
     of resources available for social purposes might actually 
     outrun the immediate demand of established programs. Federal 
     expenditures under existing programs rise at a fairly 
     predictable rate. But, under conditions of economic growth, 
     revenues rise faster. This has given birth to the phenomenon 
     of the ``fiscal drag''--the idea that unless the Federal 
     Government disposes of this annual increment, either by 
     cutting taxes or adding programs, the money taken out of 
     circulation by taxes will slow down economic growth, and 
     could, of course, at a certain point stop it altogether.

  Which is to say, deficit spending as public policy. How that would 
have troubled FDR. On election night of 1936, he was at Hyde Park 
surrounded by friends and overwhelmed by the electoral returns. The New 
Deal was triumphant. And so, as Alan Brinkley notes in his forthcoming 
study, ``The End of Reform: New Deal Liberalism in Recession and War,'' 
a few days later, boarding a train to return to Washington, he told 
well-wishers, ``Now I'm going back * * * to do what they call balance 
the budget and fulfill the first promise of the campaign,'' which in 
1932 had been to balance the budget.
  In much this manner, the great struggle with the Marxist-Leninist 
vision of the future, and its concrete embodiment in the Soviet Union, 
ended with the most assertively conservative administration of the 
post-New Deal, assertively opposed to deficit spending of any kind, 
more or less clandestinely pursuing just the opposite course.
  And yet, may we not agree that both these tendencies are now abated, 
if not altogether spent? A post-Keynesian economics is no longer as 
confident of fiscal policy as was an earlier generation. A post-cold-
war foreign policy has no need to concern itself with bankrupting the 
Soviet Union: the region is quite bankrupt enough, and indeed, receives 
American aid. Can we not then look upon our present debt much as the 
Truman and Eisenhower administrations looked upon the debt incurred 
during World War II. Pay it off and get on with the affairs of the 
Nation. World War II, and the cold war were fought, in a legitimate 
sense, to defend the Constitution of the United States against all 
enemies, foreign and domestic. It would be awful if in this moment of 
victory we should choose to mutilate the basic law of the land for 
which so much was sacrificed.
  Mr. HATCH. I have much more to say. But I am prepared, if the 
majority leader is willing, to bring the Senate today to a close.
  So I will suggest the absence of a quorum and see if we can get that 
done.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. HATCH. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.


  

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