GAO chief warns economic disaster looms

[Tux of Borg]

GAO chief warns economic disaster looms

USA Today

 

GAO Comptroller General David Walker

AP

By Matt Crenson, Associated Press

AUSTIN — David 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 — 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 about the fiscal black hole Washington has dug itself, the "demographic tsunami" that will come when the baby boom generation begins retiring and the recklessness of borrowing money from foreign lenders to pay for the operation of the U.S. government.

 

"He can speak forthrightly and independently because his job is not in jeopardy if he tells the truth," said Isabel Sawhill, a senior fellow in economic studies at the Brookings Institution.

 

Walker can talk in public about the nation's impending fiscal crisis because he has one of the most secure jobs in Washington. As comptroller general of the United States — basically, the government's chief accountant — he is serving a 15-year term that runs through 2013.

 

This year Walker has spoken to the Union League Club of Chicago and the Rotary Club of Atlanta, the Sons of the American Revolution and the World Future Society. But the backbone of his campaign has been the Fiscal Wake-up Tour, a traveling roadshow of economists and budget analysts who share Walker's concern for the nation's budgetary future.

 

"You can't solve a problem until the majority of the people believe you have a problem that needs to be solved," Walker says.

 

Polls suggest that Americans have only a vague sense of their government's long-term fiscal prospects. When pollsters ask Americans to name the most important problem facing America today — as a CBS News/New York Times poll of 1,131 Americans did in September — issues such as the war in Iraq, terrorism, jobs and the economy are most frequently mentioned. The deficit doesn't even crack the top 10.

 

Yet on the rare occasions that pollsters ask directly about the deficit, at least some people appear to recognize it as a problem. In a survey of 807 Americans last year by the Pew Center for the People and the Press, 42% of respondents said reducing the deficit should be a top priority; another 38% said it was important but a lower priority.

 

So the majority of the public appears to agree with Walker that the deficit is a serious problem, but only when they're made to think about it. Walker's challenge is to get people not just to think about it, but to pressure politicians to make the hard choices that are needed to keep the situation from spiraling out of control.

 

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.

 

"We all agree on what the choices are and what the numbers are," Fraser says.

 

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. That's almost as much as the total net worth of every person in America — Bill Gates, Warren Buffett and those Google guys included.

 

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 few years 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 comprises 13% of federal spending; by 2030, the Congressional Budget Office projects it will consume nearly a quarter of the budget.

 

Economists Jagadeesh Gokhale of the American Enterprise Institute and Kent Smetters of the University of Pennsylvania have an even scarier way of looking at Medicare. Their method calculates the program's long-term fiscal shortfall — the annual difference between its dedicated revenues and costs — over time.

 

By 2030 they calculate Medicare will be about $5 trillion in the hole, measured in 2004 dollars. By 2080, the fiscal imbalance will have risen to $25 trillion. And when you project the gap out to an infinite time horizon, it reaches $60 trillion.

 

Medicare so dominates the nation's fiscal future that some economists believe health care reform, rather than budget measures, is the best way to attack the problem.

 

"Obviously health care is a mess," says Dean Baker, a liberal economist at the Center for Economic and Policy Research, a Washington think tank. "No one's been willing to touch it, but that's what I see as front and center."

 

Social Security is a much less serious problem. The program currently pays for itself with a 12.4% 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.

 

Calculations by Boston University economist Lawrence Kotlikoff indicate that closing those gaps — $8 trillion for Social Security, many times that for Medicare — and paying off the existing deficit would require either an immediate doubling of personal and corporate income taxes, a two-thirds cut in Social Security and Medicare benefits, or some combination of the two.

 

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.

 

In her part of the fiscal wake-up tour presentation, Rogers tries to explain why that's a bad thing. For one thing, even when rates are low a bigger deficit means a greater portion of each tax dollar goes to interest payments rather than useful programs. And because foreigners now hold so much of the federal government's debt, those interest payments increasingly go overseas rather than to U.S. investors.

 

More serious is the possibility that foreign lenders might lose their enthusiasm for lending money to the United States. Because treasury bills are sold at auction, that would mean paying higher interest rates in the future. And it wouldn't just be the government's problem. All interest rates would rise, making mortgages, car payments and student loans costlier, too.

 

A modest rise in interest rates wouldn't necessarily be a bad thing, Rogers said. America's consumers have as much of a borrowing problem as their government does, so higher rates could moderate overconsumption and encourage consumer saving. But a big jump in interest rates could cause economic catastrophe. Some economists even predict the government would resort to printing money to pay off its debt, a risky strategy that could lead to runaway inflation.

 

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.

 

"It's an unfair burden for future generations," she says.

 

You'd think young people would be riled up over this issue, since they're the ones who will foot the bill when they're out in the working world. But students take more interest in issues like the Iraq war and gay marriage than the federal government's finances, says Emma Vernon, a member of the University of Texas Young Democrats.

 

"It's not something that can fire people up," she says.

 

The current political climate doesn't help. Washington tends to keep its fiscal house in better order when one party controls Congress and the other is in the White House, says Sawhill.

 

"It's kind of a paradoxical result. Your commonsense logic would tell you if one party is in control of everything they should be able to take action," Sawhill says.

 

But the last six years of Republican rule have produced tax cuts, record spending increases and a Medicare prescription drug plan that has been widely criticized as fiscally unsound. When President Clinton faced a Republican Congress during the 1990s, spending limits and other legislative tools helped produce a surplus.

 

So maybe a solution is at hand.

 

"We're likely to have at least partially divided government again," Sawhill said, referring to predictions that the Democrats will capture the House, and possibly the Senate, in next month's elections.

 

But Walker isn't optimistic that the government will be able to tackle its fiscal challenges so soon.

 

"Realistically what we hope to accomplish through the fiscal wake-up tour is ensure that any serious candidate for the presidency in 2008 will be forced to deal with the issue," he says. "The best we're going to get in the next couple of years is to slow the bleeding."

[Bungee Jumper]

Polls suggest that Americans have only a vague sense of their government's long-term fiscal prospects. When pollsters ask Americans to name the most important problem facing America today — as a CBS News/New York Times poll of 1,131 Americans did in September — issues such as the war in Iraq, terrorism, jobs and the economy are most frequently mentioned. The deficit doesn't even crack the top 10.

 

Yet on the rare occasions that pollsters ask directly about the deficit, at least some people appear to recognize it as a problem. In a survey of 807 Americans last year by the Pew Center for the People and the Press, 42% of respondents said reducing the deficit should be a top priority; another 38% said it was important but a lower priority.

819808[/snapback]

 

In other words, the vast majority of Americans think it's a big problem, if somebody bothers to tell them it even exists.

 

God, people are idiots.

[true_blue_bill]

Shouldn''t this be in the politics section? But, good article. The tax cuts have to go. We are sitting on a time bomb, really. When the baby boomers begin to retire it will be a mess. Did you know Bush wanted to borrow to trillion dollars to 'fix' social security? This guy is so disfunctional its unbelievable! No responsibilty for anything.

[taterhill]

cliff note version please..my hot pockets are almost ready

[Bungee Jumper]

cliff note version please..my hot pockets are almost ready

819812[/snapback]

 

The federal budget deficit is bad. So sayeth the idiots that created it.

[/dev/null]

In other words, the vast majority of Americans think it's a big problem, if somebody bothers to tell them it even exists. 

 

God, people are idiots.

819810[/snapback]

 

You mean like this

cliff note version please..my hot pockets are almost ready

819812[/snapback]

 

[Bungee Jumper]

You mean like this

819818[/snapback]

 

I'm pretty sure he was being sardonic.

 

Though his post could have used more cowbell nonetheless.

[/dev/null]

I'm pretty sure he was being sardonic. 

819819[/snapback]

 

i know, but i had to say something. he beat me to the punchline

[Dante]

Makes me wonder why we are fighting a war we cant afford to pay for.

[erynthered]

Who audits the GAO, and then, who Audits them, and then, who audits them....

 

 

 

 

 

Crunch this.

[\GoBillsInDallas/]

Guys, I hate to burst your bubble, but the government has been running a deficit EVERY year from the late 1960's up to today.

 

(P.S. - Clinton's budget "surplus" was nothing more that accounting tricks)

 

Every elected official - republican, democrat, liberal, conservative, man, woman - is responsible. Anyone out there who thinks otherwise is lying through their teeth.

 

Here's a web site describing the government cost in WNY:

 

http://www.thecost.org/

 

And if you believe that government in WNY is going to change in the next ten years, then there's a bridge in Brooklyn that I'd like to sell you.

[Tux of Borg]

Makes me wonder why we are fighting a war we cant afford to pay for.

819835[/snapback]

 

Didn't the government spend $69 million last year for women to get abortions?

[JimBob2232]

Makes me wonder why we are fighting a war we cant afford to pay for.

819835[/snapback]

 

 

If you take this premise as fact:

"Iraq was in the process of developing WMD which would be sold to islamic extreemists and used on american soil"

 

Then it stands to reason that:

The cost of the war is insignifigant compared to the economic cost of a terrorist attack in the US with WMD.

 

Now, obviously the premise can be debated now, and it looks like that may not have been the case, but clearly that was the consensus opinioin when we went into Iraq, and now we have a responsibility to clean up our mess.

[/dev/null]

Didn't the government spend $69 million last year for women to get abortions?

819905[/snapback]

 

not that i'm for gov't funding of abortions (or many other things for that matter), but that $69 million is a drop in the bucket compared to what the gov't would have spent on welfare, medicaid, wic, etc had those children been born

[true_blue_bill]

If you take this premise as fact:

"Iraq was in the process of developing WMD which would be sold to islamic extreemists and used on american soil"

 

Then it stands to reason that:

The cost of the war is insignifigant compared to the economic cost of a terrorist attack in the US with WMD.

 

Now, obviously the premise can be debated now, and it looks like that may not have been the case, but clearly that was the consensus opinioin when we went into Iraq, and now we have a responsibility to clean up our mess.

819915[/snapback]

That premise is complete BS, that's not why we went to war

[JimBob2232]

That premise is complete BS, that's not why we went to war

819935[/snapback]

 

Okay...what was the stated reason we went to war?

[ExiledInIllinois]

Okay...what was the stated reason we went to war?

819999[/snapback]

 

Boy did you miss a lot... You came to this site in '04... If you were here in '02-early '03...

 

Too bad we can't pull up the PPP archives from that time...

 

[ExiledInIllinois]

Oh...

 

I think it was that Iraq HAD WMDs and was gonna use it on US.

 

Which I said at the time that I had a hunch that they didn't and that they appeared to be "paper tigers"... That our intelligence was wrong. That we would invade and find absolutely nothing.

 

Nothing was found.

 

Big difference in what you said.

 

Classic government trying to cover its own tracks and eff up... Trying to plead self-defense now...

[Tux of Borg]

not that i'm for gov't funding of abortions (or many other things for that matter), but that $69 million is a drop in the bucket compared to what the gov't would have spent on welfare, medicaid, wic, etc had those children been born

819931[/snapback]

 

Thank god for the government. I don't know how people made it before social programs were invented.

[stuckincincy]

Shouldn''t this be in the politics section? But, good article. The tax cuts have to go. We are sitting on a time bomb, really. When the baby boomers begin to retire it will be a mess. Did you know Bush wanted to borrow to trillion dollars to 'fix' social security? This guy is so disfunctional its unbelievable! No responsibilty for anything.

819811[/snapback]

 

Income taxes are unrelated to social security taxation, except for their rise with taxable wages AFAIK. Note that, as is always the case, the economy goes up when people and business are taxed less. JFK knew that. So did Reagan. And now Bush.

 

Getting more money into the hands of the government is a great way to use it inefficiently. Look at college costs. The more Fed money that goes into grants and tuition assistance, the more money is up for grabs by colleges, so up goes the tuition.

A gas expands to fill the available volume...

 

Without the influx of tax revenue, the market sets the price. Unless you have an alternate explanation for these tuition costs that year after year far outpace the rate of inflation. Same with medicine. Before the government got into it big time, physicians competed with each other...they used to *actually* get in a car and drive to your home. Amazing, that...

 

Tell me the last time the Democrats offered a *single*- idea regarding improving the social security system. All I've heard from them is screaming criticisms and accusations, but no ideas whatsoever. What have you heard about their "plan"? I'd like to know...

 

The economists use 5% unemployment as the benchmark for full employment. It's been at 4.6% so far in 2006, with some 35 months of job growth If you have stocks or a retirement plan containing same, you have reason to be pleased.

 

You wouldn't know that if you watch CNN, which has run a 24/7 jihad against the economy for a long, long time.