What the debt panel missed
People who wonder what America's budget problem is ultimately about should look to Europe. In the streets of Dublin, Athens and London, angry citizens are protesting government plans to cut programs and raise taxes. The social contract is being broken. People are furious; they feel betrayed.
Modern democracies have created a new morality. Government benefits, once conferred, cannot be revoked. People expect them and consider them property rights. Just as government cannot randomly confiscate property, it cannot withdraw benefits without violating a moral code. The old-fashioned idea that government policies should serve the "national interest" has given way to inertia and squatters' rights.
One task of the National Commission on Fiscal Responsibility and Reform - co-chaired by Erskine Bowles and Alan Simpson - was to discredit this self-serving morality. Otherwise, changing the budget will be hard, maybe impossible. If everyone feels morally entitled to existing benefits and tax breaks, public opinion will remain hopelessly muddled: desirous in the abstract of curbing budget deficits but adamant about keeping all of Social Security, Medicare and everything else. Politicians will be scared to make tough decisions for fear of voter reprisals.
Unfortunately, Bowles and Simpson ducked this political challenge. They performed an accounting exercise to shrink the deficit without trying to define what government should do and why. Their package of spending cuts and tax increases claimed to reduce budget deficits by $3.9 trillion between 2012 and 2020. Many of their proposals make sense: for example, simplifying the income tax by decreasing tax breaks and lowering rates. With a broader tax base, lower rates could raise more money; work and investment incentives would remain, because taxpayers would still keep a large share of any extra earnings.
But what was missing was a moral rationale for change, except for some familiar platitudes: "American cannot be great if we go broke"; or, "We have a patriotic duty . . . to give our children and grandchildren a better life." The trouble with these pleasing lines is that they don't address the practical question of why existing recipients of government support - farmers, the elderly, local governments, for example - should lose it.
Answers exist. It's not in the national interest to subsidize farmers, because food would be produced at low cost without subsidies. It's not in the national interest to subsidize Americans, through Social Security and Medicare, for the last 20 or 25 years of their lives because healthier people live longer and the huge costs make the budget unmanageable. It's not in the national interest to subsidize mass transit, because most benefits are enjoyed locally: If the locals want mass transit, they should pay for it.
As we debate these questions, groups will inevitably promote their self-interest. But in doing so, they should have to meet exacting standards that their self-interest also serves the broader national interest. Having received or been promised benefits does not create a right to them. At most, it justifies a pragmatic claim for gradual termination. Bowles and Simpson provided few guideposts. They mainly wanted their numbers to add up.
The biggest blunder of their approach involved huge proposed cuts in defense, about a fifth of federal spending. National security is government's first job. Bowles and Simpson reduced it proportionately with all other discretionary spending as if there's no difference between a dollar for defense and a dollar for art subsidies. Nor was there much effort to identify programs that should be eliminated because they fail the national need test. Good programs would have been cut along with the bad. Finally, spending on the elderly, now about two-fifths of the budget, was treated too gently. Social Security's full eligibility age would have increased slowly to 69 years around 2075. These programs are essential, but eligibility ages should be raised faster and, for wealthier recipients, benefits cut more.
This was a formula for changing government without a philosophy of government. For years, it was assumed that a rapidly growing economy could pay for added programs. The result was the careless use of government for almost anything that made a good slogan or could support a lobby. The underlying economic assumptions were overly optimistic. Now, an aging society and uncontrolled health costs will automatically expand the size of government well beyond today's tax base. Demographics mean government will become supersized unless we trim its responsibilities.
We need a new public philosophy that acknowledges these realities. Perhaps Bowles-Simpson will start the needed conversation. Government will be big, offending conservatives. But it also should be limited, offending liberals. The social contract will be rewritten either by design or, as in Europe, under outside pressures. If we keep the expedient morality of perpetual programs - so that nothing fundamental can ever be abandoned - then Europe's social unrest could be a prelude to our own.