The Most Fiscally Irresponsible Government in U.S. History

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There is an instinctive conclusion among the American public that President Obama's 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 that's a view common to Republicans (75 percent) and Democrats (73 percent). 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.

In a usnews.com post on July 26, Jodie Allen of the Pew Research Center reported that in recent weeks more academic and market economists have been urging the government to defer budget cuts and tax increases and instead provide additional stimulus to a still-fragile economy, some by continuing the Bush tax cuts. But among the public there has been a suggestive shift of opinion the other way, reflecting worries about debt. "Deficit and government spending" has jumped from 10th or 11th place as a priority for the federal government to one that is second only to job creation and economic growth. The drift of opinion is manifest in other recent polls. 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.

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 can't afford that right now. The government will be writing more IOUs on top of those we already can't afford. Why plan a second stimulus if the first stimulus couldn't prevent high unemployment?

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. It is also true that the growth of public debt has been driven by a dramatic diminution of tax receipts due to the recession, the extra spending to avoid sinking into a self-perpetuating depression, and all those billions we invested to save the financial sectors from their sins. 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 budgets—but only by reducing the other party's priorities. Republicans want to reduce social spending. Democrats want to reduce military spending. It is Washington as usual.

Amid the clamor and counterpromises, the historic record is worth keeping in mind. We paid for World War II through growth. The national debt, as a percentage of gross domestic product, fell sharply through the postwar presidencies of Truman, Eisenhower, Kennedy, and Johnson (despite the Vietnam War) and continued edging down through most of Nixon's, rising a little with Ford's. We marked time in the stagflation of the Carter years, and then the debt percentage increased dramatically during the Reagan-Bush presidencies. It shot up again to the present dangerous levels under George W. Bush and Obama. The only good years were Clinton's.

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 tomorrow's problems to win more of today's 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 plateau—from roughly 18 percent of the GDP to almost 25 percent by 2030. We don't know how we are going to pay for this. We don't know how the economy would fare with much higher taxes. We have seen the clouds gathering for years but haven't 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 else's untouched. We may have to allow the Bush tax cuts to expire, certainly for households earning more than $250,000 (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. Nor can we close the gap with spending cuts, as the Republicans would like. The liberals will have to concede that benefits and spending ought to be reduced. Conservatives will have to concede the need for higher taxes.

http://politics.usnews.com/opinion/mzuckerman/articles/2010/08/26/the-most-fiscally-irresponsible-government-in-us-history.html?PageNr=1