Dr. John Psarouthakis, Executive Editor, The Business Thinker, llc
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Intelligent, high-profile warnings about the recent financial crisis have been available for years. Way back in 1992 (two de- cades is a long time these days), a truly bipartisan group called the Concord Coalition was formed to spread the gospel of fi sanity at the federal level. The Concord Coalition has remained in business ever since, with membership over the years by serious people and serious entities—notably includ- ing former Senator Warren Rudman (a Republican), the late Senator Paul Tsongas (a Democrat), Pete Peterson (a success- ful entrepreneur and government adviser who has donated not only much of his life but a substantial amount of money to the cause), former Senator Bob Kerrey (a Democrat), the Brook- ings Institution, the Heritage Foundation, and David Walker (former comptroller general of the U.S.). The Concord Coalition in 2006 launched a national road show aptly dubbed the Fiscal Wake-Up Tour, appearing on college campuses and at electoral campaign events. But how many times have you seen the Concord Coalition represented on 24/7 broadcast news—even when the debt was being discussed? How many of your neighbors, as a result, even know that the Concord Coalition exists despite its 20 years of preaching education on our sovereign debt? When Rudman and Tsongas announced the coalition’s formation just 20 years ago, by the way, our debt was barely one-fourth its current size.
The full and official name of the “debt commission” Presi- dent Obama created in February 2010—now best known as “Simpson-Bowles” for the panel’s bipartisan chairmen— was the National Commission on Fiscal Responsibility and Reform. The formal title makes sense. We certainly need both responsibility and reform. The commission came up with some reasonable (and genuinely bipartisan) proposals aimed at halting debt growth by 2014, then reducing the debt to 60 percent of GDP by 2023 and 40 percent by 2035. Our gridlocked political establishment not only ignored Simpson- Bowles, but sat and watched while $2 trillion was added to the debt in the two years after the panel was formed. A sad comment on Washington’s inability to get anything done these days can be found by logging on to http://www.fiscalcommission.gov/ and clicking on “news.” The moldy final item emanating from the panel, on January 31, 2011, bundled the members’ individual comments on the report. Panel members themselves lacked enough consensus to make things happen. Not surprisingly, three-quarters of the commission members were sitting members of Congress.
Simpson-Bowles and the Concord Coalition have been beyond doubt the foremost players, among many, proselytiz- ing on the need for budgetary sanity. The Simpson-Bowles panel even attracted some interest, however slight and shal- low and ephemeral, from mass news media. Perhaps a “coali- tion to end all coalitions,” featuring superstar academics and CEOs and retired statesmen, needs to convene itself, lean on news media for coverage and support, and shame our elected officials into action.
Whatever real or imagined body sets to work on the task (including, as a possible miracle, a Congress that comes to its senses), I would urge it to think and exhort beyond the “mere” matter of avoiding federal bankruptcy. No one can quarrel with that goal, of course. I agree entirely, even though I’m here to urge new spending (such as infrastructure) that genu- inely promotes growth. But as well-taken as arguments about “balancing the federal checkbook” may be, I’d like to see this play out amid constant dialogue about fi integrity and spur- ring economic growth by “breaking away from the Stagnation Line.” It would help a great deal, I believe, if everyone from ordinary citizens to policymakers to members of Congress grasped the dynamic of economic stagnation, its impact on the mantra of “Jobs! Jobs! Jobs!,” and the fact that this is why fed- eral budgetary integrity does matter. Keeping that foremost in mind might even help get something accomplished.
Like other contemporary centrists, I know what it means to feel lonely on matters of politics and policy. My thoughts about moving a near-bankrupt nation toward economic growth fi that pattern. Neither “balanced budgets at any cost” right- wingers nor “defi don’t matter” left-wingers can, in my view, get us out of this mess and onto a forward path. We need to sidestep both ideologies and robustly declare that pri- vate-sector economic growth is both the generator of Ameri- can prosperity and the foundation of social equity. We need to follow that beacon as we forge a realistic budgetary policy. Any common-sense approach will include a certain amount of liturgy from both left and right, but at times must step on toes along either fringe. We need to put a stop/loss order on ballooning, unsustainable federal programs that will drive the United States ever deeper into insolvency. At the same time, we need to spend—and spend some more—in areas that will grow the economy rather than stunt it. We need to stop playing political games with promissory notes and unfunded liabilities.
We all, individuals and entities right up to and includ- ing the United States government, must operate within lim- its imposed by the realities of our resources and productiv- ity. Greater resources and greater productivity mean fewer limitations. Fewer resources and stagnant productivity, or worse, mean fewer options, or none. That’s what “you can take it to the bank” means. Our resources, assets, productiv- ity, skills, prospects for growth, and positioning to survive a bad market or a new competitor or cruel weather (actual or fi what determine our lendability and, if you will, our “investability.” If we put ourselves in a position to be blown away by the fi strong wind, then we are like the person who says: “I wouldn’t lend myself any money if I had it.” The federal government seems hell-bent on proving that it will always be able to borrow money without consequence to the economy or the citizenry. That obviously is not true. For starters, there is the matter of what will happen when the cost of money rises above today’s historic lows. Right now even the “cheap” interest on our sovereign debt equals annual growth in our GDP. That should scare anyone, except perhaps a terrorist who would like to blow us up without having to blow himself up.
You already know the truth of every word in the previous paragraph. Everyone does. That is why it can safely and fairly be called common sense. That same common sense must dic- tate our approach to reshaping government entities that have overrun present and future budgets. If we demonstrate serious discipline in that task, we will become a lendable entity and a rational borrower, a nation that is taking reasonable risks and upon which reasonable risks can be taken. That in turn will allow us to spend a few trillion dollars on vital infrastructure that has been ignored because of our fi mess. Having ap-
proached that in a disciplined way, with a real business plan for the future, we will become not merely lendable but invest- able. Then, and only then according to any bookkeeping I am familiar with, we will be positioned to enter the 21st Century. We will then be able to spend a lot of money in ways we must spend to grow the economy, which is our only path to surviv- al. As a mere footnote, let me deploy the forgotten buzzword of a few years ago. This course of action will be the mother of all economic stimulus packages.
Perhaps the great disconnect that has prevented action on so many fronts is as simple as a mindless shout of “Hands off!” that seems to greet any reform effort involving any gov- ernment entitlement program. Retirees and their surrogates, for example, routinely shout “Hands off my Social Security!” in response to reform proposals that will not affect their Social Security benefi in any way. This “Third Rail of American Politics” has a similar effect in Congress, where both political parties have at various times rejected change, or even discus- sion of change, as “dead on arrival”—except when the change will enhance benefi (and increase expenditures). Mean- while, Medicare and Medicaid have joined Social Security as the great triumvirate of entitlements. Together, these three— two of which did not exist when I began working in the space program—account for almost half of today’s federal budget. Older Americans live decades longer than when Social Se- curity was created. By comparison, the workforce that pays retiree benefi is shrinking drastically. The demographics are so bad that if Social Security were a private insurance pro- gram, government regulators would shut it down. One need not possess even sixth-grade arithmetical skills to understand changes must be made.
In politics, though, “Hands off!” passes as sound policy,especially when voiced by a reliable block of voters. Those same voters should give sober thought to how those same politicians pretend the Social Security Trust Fund contains money to pay future benefi In fact, U.S. Treasury notes ac- count for more than $2 trillion in the “trust fund.” How nice it would be for any individual or a company that could raid its own rainy-day fund for $2 trillion, replace the cash with a $2-trillion IOU (or IOM, as in “I Owe Myself”), call the IOU an asset, take it to the bank and borrow more money—which is one way to cover nearly half of one’s current expenditures.
Once again I am telling you things you already know. Once again common sense suffices to reveal both a call to action and a plan for action. Once again no action has been taken lately, and no one can be seen preparing for action on the near horizon. Once again I am not typing any late-break- ing news here. But, as the chapter header suggests, the only alternative to heeding common sense, whether talking of en- titlement programs or indeed our entire economy, is chaos and collapse. That seems worthy of note. For purposes of moving on and discussing the future, let’s assume leaders will be found and common sense will be heeded. Let’s say the entitlement problem gets fixed via whatever combination of deferred eligibility, means-testing, health-care reform, increased “contributions” (sounds so much better than “taxes”)—all the usual proposals that have been kicked down the road for years. Let’s assume that as a result one cannot foresee federal budgets being ever more consumed by these programs. Let’s leave all that to common sense, leadership, and renewed national will. Then let’s continue applying common sense to other vital programs with unaddressed pressing needs. Common sense, it seems, applies even to 21st Century programs