US spending appears to be in decline, but meeting '87 goal is iffy

FEDERAL spending at last may be slowing. ``Gramm-Rudman is working,'' says Lawrence Kudlow, chief economist with the brokerage house of Bear, Stearns & Co. and a former chief economist at the Office of Management and Budget in Washington.

Early estimates on Capitol Hill of the impact of the flurry of spending bills passed by Congress in the last week or so suggest that expenditures in fiscal 1987 will grow by only about 2 percent.

``It is possible,'' says Richard F. Hokenson, a budget-watcher with Donaldson, Lufkin & Jenrette Securities Corporation. ``However, both Congress and the administration will have to show greater resolve. You have to be somewhat optimistic to believe there will be a remarkable lack of shenanigans once the election is over.''

Budget outlays for fiscal 1986, which ended Sept. 30, were up about 4 percent over fiscal 1985, Mr. Kudlow estimates.

Despite all the noise about budget stringency, federal spending grew 12 percent in fiscal 1985, or 9.9 percent if a one-time expenditure for government-backed housing loans is excluded. Outlays grew 3.8 percent in fiscal 1984 and 11 percent in fiscal 1983.

Though spending jumps around, the trend is down.

From an intellectual standpoint, James Buchanan, the George Mason University professor who was just awarded the 1986 Alfred Nobel Memorial Prize in Economics, may deserve some credit for this trend.

He won the prize for his theory that politicians make decisions the same way other people usually do -- by first considering their own interests, which may conflict with the public interest.

When it comes to voting for spending, congressmen too often pay more attention to the special interests that provide campaign funds or can swing the votes of that crucial interest group to the politician, Professor Buchanan's theory holds. The interest of the general public is usually too diluted, compared with those of special groups, to rouse sufficient legislative opposition to the expenditure.

To remedy this problem, Mr. Buchanan advocated spending rules, such as a constitutional balanced-budget amendment or some measure along the lines of Gramm-Rudman which would force Congress to make across-the-board cuts in spending if it failed to meet certain budget targets.

In his 1977 book, ``Democracy in Deficit,'' he spelled out another idea: If Congress did need across-the-board cuts, they should be disproportionately larger for elected officials and bureaucrats.

Thus, government officials would have a personal pocketbook incentive to straighten out the budget mess.

``Kind of a neat idea,'' says Kudlow.

Kudlow calculates that the federal deficit in the fiscal year just ended ran $222 million to $225 billion. The government's numbers are to be released Monday. The deficit estimate in the budget President Reagan submitted last winter was $202.8 billion. With the economy growing more slowly and spending running higher than forecast, especially in the defense area, the administration boosted its estimate to $230 billion this past summer. Now the picture is looking a little better again.

The outlook for the budget deficit also hangs on the pace of economic growth. A peppier economy provides more government revenues.

Kudlow sees a step-up in the annual growth rate from 2.4 percent in the third quarter to 3.5 percent or 4 percent in this last quarter.

Mr. Hokenson thinks economic growth could step up to 4 to 4.5 percent next year, eventually helping to boost revenues. Nonetheless, he reckons the government will have to practice even greater restraint to meet its $144 billion Gramm-Rudman deficit target for 1987. He talks of ``a major crunch'' coming up on the spending side.