Warning of fiscal disasterOfficial takes to road to point out dangers of U.S. financial policyBy
Matt CrensonAssociated PressPublished October 30, 2006
AUSTIN, Texas -- David M. Walker sure talks like he's running for office."This is about the future of our country, our kids and grandkids," the comptroller general of the United States warns a packed hall at Austin's historic Driskill Hotel. "We the people have to rise up to make sure things get changed."But Walker doesn't want, or need, your vote this November. He already has a job as head of the Government Accountability Office, an investigative arm of Congress that audits and evaluates the performance of the federal government.Basically, that makes Walker the nation's accountant-in-chief. And the accountant-in-chief's professional opinion is that the American public needs to tell Washington it's time to steer the nation off the path to financial ruin.From the hustings and the airwaves this campaign season, America's political class can be heard debating Capitol Hill sex scandals, the wisdom of the war in Iraq and which party is tougher on terror. Democrats and Republicans talk of cutting taxes to make life easier for the American people.What they don't talk about is a dirty little secret everyone in Washington knows, or at least should. The vast majority of economists and budget analysts agree: The ship of state is on a disastrous course, and will founder on the reefs of economic disaster if nothing is done to correct it.There's a good reason politicians don't like to talk about the nation's long-term fiscal prospects. The subject is short on political theatrics and long on complicated economics, scary graphs and very big numbers. It reveals serious problems and offers no easy solutions. Anybody who wanted to deal with it seriously would have to talk about raising taxes and cutting benefits, nasty nostrums that might doom any candidate who prescribed them."There's no sexiness to it," laments Leita Hart-Fanta, an accountant who has just heard Walker's pitch. She suggests recruiting a trusted celebrity--maybe Oprah Winfrey--to sell fiscal responsibility to the American people.Walker doesn't want to make balancing the federal government's books sexy--he just wants to make it politically palatable. He has committed to touring the nation through the 2008 elections, talking to anybody who will listen. He wants them to know about the fiscal black hole Washington has dug itself, the "demographic tsunami" that will come when the Baby Boomer generation begins retiring and the recklessness of borrowing money from foreign lenders to pay for the operation of the U.S. government.He's dubbed his campaign the fiscal wake-up tour. The Illinois stop has not yet been scheduled.To show that the looming fiscal crisis is not a partisan issue, he brings along economists and budget analysts from across the political spectrum. In Austin, he's accompanied by Diane Lim Rogers, a liberal economist from the Brookings Institution, and Alison Acosta Fraser, director of the Roe Institute for Economic Policy Studies at the Heritage Foundation, a conservative think tank.Their basic message is this: If the United States government conducts business as usual over the next few decades, a national debt that is already $8.5 trillion could reach $46 trillion or more, adjusted for inflation.A hole that big could paralyze the U.S. economy; according to some projections, just the interest payments on a debt that big would be as much as all the taxes the government collects today. And every year that nothing is done about it, Walker says, the problem grows by $2 trillion to $3 trillion.People who remember Ross Perot's rants in the 1992 presidential election may think of the federal debt as a problem of the past. But it never really went away after Perot made it an issue, it only took a breather. The federal government actually produced a surplus for a while during the 1990s, thanks to a booming economy and fiscal restraint imposed by laws that were passed early in the decade. And though the federal debt has grown in dollar terms since 2001, it hasn't grown dramatically relative to the size of the economy.But that's about to change, thanks to the country's three big entitlement programs--Social Security, Medicaid and especially Medicare. Medicaid and Medicare have grown progressively more expensive as the cost of health care has dramatically outpaced inflation over the past 30 years, a trend that is expected to continue for at least another decade or two.And with the first Baby Boomers becoming eligible for Social Security in 2008 and for Medicare in 2011, the expenses of those two programs are about to increase dramatically due to demographic pressures. People are also living longer, which makes any program that provides benefits to retirees more expensive.Medicare already costs four times as much as it did in 1970, measured as a percentage of the nation's gross domestic product. It currently accounts for 13 percent of federal spending; by 2030, the Congressional Budget Office projects it will consume nearly a quarter of the budget.Social Security is a much less serious problem. The program currently pays for itself with a 12.4 percent payroll tax, and even produces a surplus that the government raids every year to pay other bills. But Social Security will begin to run deficits during the next century, and ultimately would need an infusion of $8 trillion if the government planned to keep its promises to every beneficiary.Why is America so fiscally unprepared for the next century? Like many of its citizens, the United States has spent the last few years racking up debt instead of saving for the future. Foreign lenders--primarily the central banks of China, Japan and other big U.S. trading partners--have been eager to lend the government money at low interest rates, making the current $8.5 trillion deficit about as painful as a big balance on a zero-percent credit card.Macroeconomic meltdown is probably preventable, says Anjan Thakor, a professor of finance at Washington University in St. Louis. But to keep it at bay, he said, the government is essentially going to have to renegotiate some of the promises it has made to its citizens, probably by some combination of tax increases and benefit cuts.But there's no way to avoid what Rogers considers the worst result of racking up a big deficit--the outrage of making our children and grandchildren repay the debts of their elders.
No comments:
Post a Comment