Oct. 28, 2006
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
— 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 V. 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 percent of respondents said reducing the
deficit should be a top priority; another 38 percent 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 percent 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 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.
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."