Current federal budget trends are capable of destroying this country
By Mortimer B. Zuckerman
There is an instinctive conclusion among the American public that President Obamas stimulus package has failed to create a sustained recovery:
- Unemployment has increased not declined;
- Consumers have retrenched;
- Housing starts have crashed along with mortgage applications; and
- There is a fear that a double-dip recession may very well be in the pipeline.
The public perception reflected in Pew Research/National Journal polls is that the measures to combat the Great Recession have mostly helped large banks and financial institutions and thats a view common to Republicans (75) and Democrats (73 ).
Only one third of either political leaning thinks government policies have done a great deal or a fair amount for the poor.
There is another instinctive conclusion among the American people. It is that the national deficit and the debts we have accumulated are of critical political importance. On the national debt the money the government has spent without the tax revenues to pay for it has produced mind-numbing numbers so large as to be disconnected from reality.
Zeros from here to infinity. The sums are hard to describe; it is hard to describe an elephant but you know one when you see one. The public knows that shuffle the numbers as you may the level of debt is unsustainable.
Who could be surprised since millions of voters have discovered that for themselves? As one realizes the morning after the night before there is an unavoidable penalty for excess. It is unnerving to wake up and learn that you have a mortgage on your home that exceeds the value of the property. Or and too often both you have a credit card line that you cannot repay and the issuer has you on the rack for ever bigger compound interest on the debt. The lesson has been well and truly learned that debt catches up with you.
Millions understand that they are just going to have to find a way to live within their meansand then still eke out some savings to pay down debt. And there are well over 14 million Americans without a paying job so the level of discontent is very high. Just how are they going to regain control of their lives?
For instance a CBS poll conducted July 9-12 assessed the most important problem facing the country as the economy and jobs (38 percent) with concern about the budget deficit and national debt way down at 5 percent. Yet CNN (July 16-21) has 47 percent preoccupied first with the economy and 13 percent with the federal deficit.
In a recent Time magazine poll two thirds of the respondents say they oppose a second government stimulus program and more than half say the country would have been better off without the first one.
People see the stimulus fashioned and passed by Congress in such a hurry as a metaphor for wasted money. They are highly critical about the lack of discipline among our political leaders. The question that naturally arises is how to forestall a long-term economic decline.
The Fed has lowered rates dramatically to keep the economy ticking and maybe continue the painfully slow recovery but at the receiving end there is no feeling of relief at all. People know that the stimulus is about to stop stimulating. They know that money is petering out. They know that states are preparing to cut $200 billion to balance their budgets. They realize that the Great Recession has wiped out huge amounts of wealth and that unlike other recessions this will not be followed by the kind of economic boom when people who had sat on their money during the lean years unleash pent-up demand for all sorts of goods and services.
There is no sign of that happening this time around. Households and businesses have kept their hands in their pockets. And so while many think that the only way to revive the economy and to inject more money into it is through governmental spending the general feeling is that we cant afford that right now. The government will be writing more IOUs on top of those we already cant afford. Why plan a second stimulus if the first stimulus couldnt prevent high unemployment?
Of course the question remains whether public sentiment coincides with sound economics. The challenge we face as a country is how to get growing vigorously again while achieving fiscal sustainability. We are learning from the Europeans what happens when the risks that came with excessive debt become realities. There seems to be an emerging consensus that if there is to be any additional stimulus it must be explicitly linked to credible fiscal restraint down the road. This would include a commitment to binding legislation that would change the algebra so that both programs and budget procedures get us on a benign trajectory.
There are two warning signs of a budget crisis: rising debt and the loss of confidence that the government will deal with it. This administration is on the verge of fulfilling both conditions. In fairness there is no majority coalition in Congress for deficit reduction today.
Voters see the politicians most vociferous about reining in the federal budget as those who are out of power and want to use it against the majority party. Too many politicians claim they are all for balanced budgetsbut only by reducing the other partys priorities.
Republicans want to reduce social spending. Democrats want to reduce military spending. It is Washington as usual.
An old saying that can apply to the deficit is called the rule of holes and goes as follows: When youre in one stop digging. But Washington politics remains the barrier. Government programs seem to live on forever. The budget becomes a perpetual-motion machine for higher spending. New programs for new needs get piled on top of old programs for old needs.
Then there are the retirees. Their numbers and their health costs will keep on rising. There were 35 million Americans over 65 in 2000 and the number of retirees is expected to double by 2030. The impending retirement of millions of baby boomers with their claims on federal retirement programs comes at a time when both parties seem to be willing to worsen tomorrows problems to win more of todays votes. The result is that the federal budget is drifting into a future of huge deficits or unprecedented tax increases or both.
Federal spending is moving toward a higher plateaufrom roughly 18 percent of the GDP to almost 25 percent by 2030. We dont know how we are going to pay for this.
We dont know how the economy would fare with much higher taxes. We have seen the clouds gathering for years but havent invested in an umbrella by adjusting federal retirement programs or taking other steps to reduce entitlements.
One response would have been to begin gradually phasing in eligibility ages and tying benefits more to income. No doubt we have to think about raising the eligibility age for Social Security and Medicare perhaps by one month for each two-month increase in average life expectancy.
We will have to think of ways to reduce the cost-of-living increases on Social Security benefits for wealthy seniors by slowly increasing their Medicare premiums and leaving everybody elses untouched. We may have to allow the Bush tax cuts to expire certainly for households earning more than $250000 (and more for the super-rich) given the concentration of wealth in the top 1 percent of the population. It is entirely appropriate that they begin to make a greater contribution to our longer-term fiscal health.
The United States simply seems to lack a system that can fund the government that the people say they want. We are good at crises but we do not seem to be good at tackling chronic problems.
If we wait until a crisis happens it will be too late. It is simply not possible to close the gap entirely with the tax increases on the rich that Democratic liberals so desperately believe in. The liberals will have to concede that benefits and spending ought to be reduced. Conservatives will have to concede the need for higher taxes.
But lets not forget current budgetary trends are capable of destroying the country. As Bowles pointed out according to a Washington Post report we cant just grow our way out of this. We cant just tax our way out of this. We have to do what governors docut spending or increase revenues in some combination that will begin to pull us back from the cliff.
Obama must know that if he doesnt address this he will be the president who drove us toward a debt crisis.
And so too must Congress for both have now participated in the most fiscally irresponsible government in American history.
