"On one hand, I share a lot of their concerns. On the other, I think we have to realize that the answers to our problems are not in the extremes. They're not in the far left or far right. There's a sensible center. While you want to change direction, you don't want to polarize Washington into further extremes. I understand public discontent, but I want it to be informed and constructive - not destructive - and not cause an increase in ideological divide. ... There is no party of fiscal responsibility. Neither Republicans or Democrats have proven that to us when they were in power. Maybe the mantra is "when in doubt, throw them out," but there needs to be an informed view."
Whenever conservative lobbyists, tea-party fanatics and Republican politicians start to scream about government spending, which is almost every day now, the authority they cite most confidently is David M. Walker. The former comptroller general and GAO chief has bipartisan credentials and the backing of billionaire Pete Peterson, who has put his personal fortune behind Walker’s warnings about an America doomed by debt and deficits.
From Glenn Beck and his followers to John McCain, Walker is the favorite expert of the harshest critics of the Obama administration’s stimulus spending (and any other federal effort to increase employment). During his presidential campaign, McCain promised that if elected, he would hire Walker to help balance the federal budget.
As for Beck, he has conducted more than one fawning interview with Walker; in fact, the excitable Fox News personality hosted him two weeks ago to discuss his latest book, titled "Comeback America." Beck clearly feels that Walker’s worries about fiscal balance somehow support his own demagogic predictions.
But Walker’s fans on the right may not be so quick to mention his latest insight, for as he reveals in an important essay he co-authored with Lawrence Mishel of the Economic Policy Institute, he now believes that employment is the overriding issue that must be addressed before any attempt to reduce deficits.
Mishel and Walker explain that the only way to bring spending back in line with revenues is to stimulate growth and employment. The entire piece is well worth reading, especially because the authors come from different sides of the political divide, but these paragraphs summarize their argument well:Though a concern, most of the recent short-term rise in the deficit is understandable. Furthermore, public spending can help compensate for the fall in private spending, and help stem the pain of substantial job losses.
With more than a fifth of the work force expected to be unemployed or underemployed in 2010, there is an economic and a moral imperative to take action. Persistently high unemployment drives poverty up, makes it harder for families to find decent housing, increases family stress and, ultimately, harms children’s educational achievement. For young workers entering the workforce, the current jobs crisis reduces the amount they will earn over their lifetime.
In deep recessions, businesses tend to make fewer critical investments in research and development that can improve our economy’s productive capacity over the long term. Entrepreneurs usually find credit hard to obtain if they want to start a new business. These factors hurt U.S. global competitiveness and growth potential.
That’s why we agree that job creation must be a short-term priority. Job creation plans must be targeted so we can get the greatest return on investment. They must be timely, creating jobs this year and next. And they must be big enough to substantially fill the enormous jobs hole we’re in. They must also be temporary — affecting the deficit only in the next couple of years, without exacerbating our large and growing structural deficits in later years.
So government must create more jobs now, for economic as well as moral reasons. The current deficit matters much less than growing the economy out of recession. And the nation's future depends on spending more, not less.
All this is precisely the opposite of current Republican policy and conservative ideology, including the imbecile slogans of Beck and his tea-party drones. If the Democrats were any smarter, they would bring Walker up to Capitol Hill to tell them why federal jobs spending is imperative -- and then we would see what Beck, McCain and the rest of the wingers would say about the wisdom of their erstwhile idol.
President Barack Obama is in a difficult position when it comes to deficits. Today's high deficits will have to go even higher to help address unemployment. At the same time, many Americans are increasingly concerned about escalating deficits and debt. What's a president to do?
The answer, from a policy perspective, is not that hard: A focus on jobs now is consistent with addressing our deficit problems ahead.
The difficulty is that many politicians and news organizations often cast deficit debates as a dichotomy: You either care about them or you don’t.
But this is rarely accurate. The fact that the two of us, who have philosophical differences on the proper role of government, find much to agree on about deficits is a testament to the importance of dropping this useless dichotomy and finally talking about deficits in a reasonable way.
As in every economic downturn, federal revenues have fallen steeply because individuals and corporations earn less in a recession. High unemployment also results in higher expenditures for safety net programs, like Medicaid, unemployment benefits and food stamps.
Not surprisingly then, a huge recession can yield a huge deficit. Efforts to put people back to work and help restore the economy, like the recovery package passed last February, can also increase short-term deficits.
Though a concern, most of the recent short-term rise in the deficit is understandable. Furthermore, public spending can help compensate for the fall in private spending, and help stem the pain of substantial job losses.
With more than a fifth of the work force expected to be unemployed or underemployed in 2010, there is an economic and a moral imperative to take action. Persistently high unemployment drives poverty up, makes it harder for families to find decent housing, increases family stress and, ultimately, harms children’s educational achievement. For young workers entering the workforce, the current jobs crisis reduces the amount they will earn over their lifetime.
In deep recessions, businesses tend to make fewer critical investments in research and development that can improve our economy’s productive capacity over the long term. Entrepreneurs usually find credit hard to obtain if they want to start a new business. These factors hurt U.S. global competitiveness and growth potential.
That’s why we agree that job creation must be a short-term priority. Job creation plans must be targeted so we can get the greatest return on investment. They must be timely, creating jobs this year and next. And they must be big enough to substantially fill the enormous jobs hole we’re in. They must also be temporary — affecting the deficit only in the next couple of years, without exacerbating our large and growing structural deficits in later years.
Funding key investment and infrastructure projects to promote economic growth and offering a job creation tax credit are among the policy ideas that meet all these standards. In addition, temporarily renewing extended unemployment benefits can lead to more jobs throughout the economy.
But these problems, and the resulting short-term deficits they cause, should not be confused with the primary deficit challenge facing our nation: structural deficits. These deficits are projected to exist in coming years — even when the country is at peace, even when the economy is growing, even when unemployment falls.
Specifically, the deficit could approach an already unsustainable 6 percent of gross domestic product 10 years from now, and will continue to rise thereafter.
While we address our short-term unemployment challenges, we must also immediately establish a path to address our large, and growing, structural deficits.
The Congressional Budget Office projects that after the economy has returned to full employment, spending will still substantially outstrip revenues. Over time, Medicare and Medicaid will be the key drivers of these structural deficits. This is primarily because these programs’ costs tend to mirror overall cost increases for health care, which have risen much faster than overall economic growth for decades, but also because of demographic changes.
Our nation's fiscal picture will darken further with the passage of time, especially if interest rates increase.
These structural deficits are too substantial to close the gap without addressing both sides of the ledger: spending and revenues.
In doing so, it is important to distinguish critical and effective programs and tax policies from outdated and ineffective ones.
We must be careful to maintain the type of public investments that can help fuel broad-based economic growth while strengthening the safety net for our most vulnerable populations. And we should take into account growing retirement insecurity as employer pension systems erode and personal savings falter.
People should be able to count on government benefits they are promised. It is, therefore, critical that federal benefit and funding levels be reconciled.
None of this will be easy — not the policy or the politics. It will require hard choices, and an extraordinary process to engage the American people and to make recommendations to the Congress on budget controls, spending cuts and revenue increases.
Getting the deficit under control cannot be accomplished by simply ending “waste, fraud and abuse,” stopping all foreign aid or exiting Iraq and Afghanistan. Substantial progress could be made though by ending the tax cuts of 2001 and 2003, or paying for their extension through spending reductions. In the end, Congress must step up to the plate, not just with hearings, but with votes.
For all the disagreement in Washington, we both know that, like us, there are many who see the critical importance of addressing these challenges. We must accept higher deficits in the short-term in order to put people back to work.
At the same time, we must take immediate steps to agree on a path and a process for reducing the structural deficits that lie ahead.
In a town of division, this is one area where we need a real consensus now.
Lawrence Mishel is president of the Economic Policy Institute. David Walker is president and CEO of the Peter G. Peterson Foundation.
In the August 26, 2009 article "Most red ink ever: $9 trillion over next decade," Associated Press writer Jim Kuhnhenn reports the new forecasts of upcoming U.S. federal budgets project larger deficits than previously expected:WASHINGTON – In a chilling forecast, the White House is predicting a 10-year federal deficit of $9 trillion — more than the sum of all previous deficits since America's founding. And it says by the next decade's end the national debt will equal three-quarters of the entire U.S. economy.
But before President Barack Obama can do much about it, he'll have to weather recession aftershocks including unemployment that his advisers said Tuesday is still heading for 10 percent.
Overall, White House and congressional budget analysts said in a brace of new estimates that the economy will shrink by 2.5 to 2.8 percent this year even as it begins to climb out of the recession. Those estimates reflect this year's deeper-than-expected economic plunge.
The grim deficit news presents Obama with both immediate and longer-term challenges. The still fragile economy cannot afford deficit-fighting cures such as spending cuts or tax increases. But nervous holders of U.S. debt, particularly foreign bondholders, could demand interest rate increases that would quickly be felt in the pocketbooks of American consumers.
Amid the gloomy numbers on Tuesday, Obama signaled his satisfaction with improvements in the economy by announcing he would nominate Republican Ben Bernanke to a second term as chairman of the Federal Reserve. The announcement, welcomed on Wall Street, diverted attention from the budget news and helped neutralize any disturbance in the financial markets from the high deficit projections.
The White House Office of Management and Budget indicated that the president will have to struggle to meet his vow of cutting the deficit in half in 2013 — a promise that earlier budget projections suggested he could accomplish with ease.
"This recession was simply worse than the information that we and other forecasters had back in last fall and early this winter," said Obama economic adviser Christina Romer.
The deficit numbers also could complicate Obama's drive to persuade Congress to enact a major overhaul of the health care system — one that could cost $1 trillion or more over 10 years. Obama has said he doesn't want the measure to add to the deficit, but lawmakers have been unable to agree on revenues that would cover the cost.
What's more, the high unemployment is expected to last well into the congressional election campaign next year, turning the contests into a referendum on Obama's economic policies.
Republicans were ready to pounce.
"The alarm bells on our nation's fiscal condition have now become a siren," said Senate Minority Leader Mitch McConnell of Kentucky. "If anyone had any doubts that this burden on future generations is unsustainable, they're gone — spending, borrowing and debt are out of control."
Even supporters of Obama's economic policies said the long-term outlook places the federal government on an unsustainable path that will force the president and Congress to consider politically unpopular measures, including tax increases and cuts in government programs.
"The numbers today portend the biggest budget fight we've probably had in decades in the United States," said Stan Collender, a former congressional budget official.
The summer analyses by the White House budget office and by the Congressional Budget Office reached similarly bleak conclusions. The CBO's 10-year deficit figure was smaller — $7 trillion — but that is because it assumes that all tax cuts put into place in the administration of former President George W. Bush will expire on schedule by 2011. Obama's budget baseline, however, hews to his proposal to keep the tax cuts in place for families earning less than $250,000 a year.
Both budget offices see the national debt — the accumulation of annual budget deficits — as more than doubling over the next decade. The public national debt, made up of amounts the government owes to the public, including foreign governments, stood Tuesday at a staggering $7.4 trillion. White House budget officials predicted it would reach $17.5 trillion in 2019, or 76.5 percent of the gross domestic product. That would be the highest proportion in six decades.
Congressional Budget Office director Douglas Elmendorf said if Congress doesn't reduce deficits, interest rates are likely to rise, hurting the economy. But if Congress acts too soon, the economic recovery — once it arrives — could be thwarted.
"We face perils in acting and perils in not acting," Elmendorf told reporters.
David Walker, former head of the Government Accountability Office, said the numbers illustrated the need for a national commission that would review spending and taxing options and present lawmakers with a deficit reduction plan that Congress could approve or reject.
"We're going to have to do a hard course correction once we turn the corner on the economy," Walker, now president and CEO of the Peter G. Peterson Foundation, said.
Both Romer and Obama budget director Peter Orszag said this year's contraction would have been far worse without money from the $787 billion economic stimulus package that the president pushed through Congress as one of his first major acts.
At the same time, the continuing stresses on the economy have, in effect, increased the size of the stimulus package because the government will have to spend more in unemployment insurance and food stamps, Orszag said. He said the cost of the stimulus package — which spends most of its money in fiscal year 2010 — will grow by tens of billions of dollars above the original $787 billion.
The White House also credited the $3 billion cash-for-clunkers auto program for contributing to recent economic growth.
Orszag, anticipating backlash over the deficit numbers, conceded that the long-term deficits are "higher than desirable." The annual negative balances amount to about 4 percent of the gross domestic product, a number that many economists say is unsustainable.
But Orszag also argued that overhauling the health system would reduce health care costs and address the biggest contributor to higher deficits.
"I know there are going to be some who say that this report proves that we can't afford health reform," he said. "I think that has it backward."
At the same time, 10-year budget projections can be "wildly inaccurate," said Collender, now a partner at Qorvis Communications. Collender noted that there will be five congressional elections over the next 10 years and any number of foreign and domestic challenges that will make actual deficit figures very different from the estimates.
AUSTIN, Texas (AP) -- 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."
