Sacramento Bee

October 17, 2001, Wednesday METRO FINAL EDITION

SECTION: MAIN NEWS; Pg. A1

U.S. on spending binge - for now

by Dale Kasler Bee Staff Writer

Bill Clinton declared Big Government dead. George W. Bush and Congress may well revive it - up to a point, anyway.

The terrorist attacks, the U.S. military response and the deteriorating economy have generated tens of billions of dollars in new government appropriations - and the spending has just begun. Congress and the White House are grappling with proposals to spend billions on everything from farm aid to flood control to bridges and highways, all in the name of stimulating the economy and shoring up national defense.

New York asked for $34 billion in recovery assistance, on top of the $20 billion already approved. Although Bush and congressional Republicans are resisting some proposals, Bush himself has presided over an expansion of federal influence that would have been unthinkable before Sept. 11. Normally an advocate of shrinking the government, Bush has created a new federal agency, the Office of Homeland Security, and might create an insurance program to pay claims from future terrorist attacks.

He signed a $15 billion airline bailout package that, in a move reminiscent of Jimmy Carter's rescue of Chrysler Corp., will allow Washington to own stock in carriers that obtain federal loan guarantees.

"It's a phenomenal transformation," said Paul Light, director of the Center for Public Policy at the Brookings Institution.

Bush has embraced the idea that "government is the answer to what ails the economy," Light said. "I don't see the true size of government going anywhere but up."

Some economists, liberal and conservative, believe the stimulus package might not do much good because Americans are so fearful about terrorism they may not spend the money the government sends them. But Washington is determined to boost the economy.

Congressional leaders have all but abandoned the Social Security "lockbox" - the notion of not tapping the Social Security trust fund for day-to-day government expenses - and are giving up on running budget surpluses, said John Ellwood, a professor of public policy at the University of California, Berkeley.

"There's an agreement across the board that we're going to expand (the government)," Ellwood said. "They're not worrying about deficits. ... The general thrust is they want to intervene in the economy."

What's unclear is how much bigger government will get - and whether the growth represents a new era or a temporary blip.

Many experts believe that the overall growth in government will be restrained - with the exception of national security and defense - and may not last beyond this crisis.

"I'm calling it the 'era of medium-sized government,' " said political analyst Larry Sabato, professor of government at the University of Virginia. "We're never going to go back to the era of Big Government." Added Peter Clark, a former government staff economist who teaches at the Graduate School of Management at UC Davis: "It's not the same kind of tripling or quadrupling of the size of government like we saw in World War II. ... It's a short-term kind of thing."

Nonetheless, the rush to spend and cut taxes has produced comparisons to the policies of John F. Kennedy and has some economists warning of government overboard.

The stimulus package - including tax cuts OK'd earlier this year, the just-approved recovery spending and the stimulus package being debated - could top $200 billion, according to economist Sung Won Sohn of Wells Fargo & Co. Sohn said it could "become a fuel for inflation."

Light predicted the government will add 500,000 jobs in three years - not insignificant, but not huge, either, given that the government employs 12 million direct workers and contract employees. Surely the biggest increase will come in areas like national security, everything from soldiers to border patrol agents, he said.

But there are limits. Republicans balked at "federalizing" airport security, and the two political parties are squabbling over the size and scope of the economic stimulus package. Conservative analysts insist Bush won't permit government to grow out of control.

While recent decisions don't represent "the ideal free-market solution ... I don't think President Bush is going back on his commitment to reduce the size of government in our lives," said economist Dan Mitchell of the conservative think tank the Heritage Foundation.

Government has had a bad name in America for years. The peak of unpopularity may have come when President Clinton, humbled by the Republican takeover of Congress in 1994, declared, "The era of Big Government is over."

Polls taken after Sept. 11, however, have shown a new confidence in government, and federal expansion always accompanies a national crisis, Berkeley's Ellwood said. "When you feel threatened, and the government says we can do something about it, that seems to matter," he said.

So far Congress and Bush have approved $40 billion for disaster recovery and $15 billion to rescue the airlines.

The airline package comprises $5 billion in grants and $10 billion in loan guarantees. It authorizes the government to accept "warrants, stock options, common or preferred stock, or other appropriate equity instruments" from airlines that use the government's loan guarantees. Details are to be worked out between the airlines and the new Air Transportation Stabilization Board.

But conservatives are squeamish about the government owning stock in corporations, saying it tends to distort markets.

Nor are they thrilled about a plan proposed by the insurance industry - and under consideration at the White House - to form a kind of government-backed insurance company to handle terrorist attack claims.

Facing a $40 billion bill from the World Trade Center, insurers have begun excluding terrorism coverage in policies. Their proposal calls for the federal government to act as a guarantor for a privately funded insurance pool.

"It's not Big Government," insisted Bob Hartwig, an Insurance Information Institute economist. "The federal government is acting as a silent partner ... a backstop."

But the plan could cost taxpayers plenty, said the Heritage Foundation's Mitchell. "It would be an unfortunate mistake," he said.

The economic stimulus package is proving controversial, too.

Bush has proposed a $60 billion to $75 billion stimulus plan, but the final size and details are far from settled. Bush favors tax cuts for corporations but also might go along with rebates for low- and middle-income Americans who don't owe taxes and didn't get a rebate check earlier this year.

The president also has proposed an extra 13 weeks of unemployment benefits for those laid off since Sept. 11; Democrats want 52 weeks.

Then there's public works spending. Invoking national security, the House voted to add $73 billion in farm subsidies; the Senate has yet to vote. Separately, a bipartisan group of 11 senators on Tuesday proposed a sweeping plan aimed at creating 175,000 jobs in two years.

Several experts said many of the spending proposals will fall by the wayside. And even if they do pass, they probably will represent a one-time event.

"Next year's budget will swing back to normal," said Chris Edwards, director of fiscal policy at the conservative Cato Institute. "They've depleted most of the (budget) surplus - all of the surplus - and I think the fiscal conservatives will start asserting their authority again."

The Bee's Dale Kasler can be reached at (916)321-1066 or dkasler@sacbee.com.

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