Outlook: The national debt and Washington's deficit of wil
Monday, April 26, 2010; 11:00 AM
Washington Post staff writer Joel Achenbach and Achenblogger was online Monday, April 26 at 11 a.m. ET to discuss his Outlook article titled, The national debt and Washington's deficit of will.
Joel Achenbach: Friends! Countrypersons! Welcome to the chat about the debt, the deficit, the fiscal outlook, the VAT, the entitlements, and so on -- numbers should be flying. Where are my charts.
Dallas, Tex.: So what happens if nothing is done? We lose the value of our dollar? After the baby-boomers are gone can things even out? Why should I even have a 401k if no one is going to change and it will end up worthless?
Joel Achenbach: Despair! No, not yet. I think something WILL be done because in general these forecasts and trajectories that are so scary are sufficiently worrisome that our enlightened leaders will take action. It's not easy but I'd expect that by this time next year Congress will be wrasslin' with some kind of proposal that would work both ends of the issue -- revenue and spending. There will be pressure, too, to sharpen some of the tools that health care reform put in place in terms of lowering health care costs, because that's what's driving the dire long-term outlook. I'd keep contributing to your 401k -- I sure do.
Jacksonville, Ore.: Joel, Great article. Clearly stating the problem without pointing fingers. We're all responsible for this mess. When we could no longer pay for the life-style we wanted it was easy to borrow our children's money. But someone needs to lay out what will happen if we don't fix this. What does Armageddon look like if we don't fix it? The American people need to know how bad it will be. Higher interest rates or default are too vague. What will it do to us?
Joel Achenbach: The U.S. isn't going to default -- no how, no way. The world NEEDS the U.S. dollar to be the de facto reserve currency, is what much smarter people tell me. Mike Burry made that key point: The world makes all these products that we buy. They don't want the U.S.. to go bust. BUT...the IMF and everyone else, inside and outside Washington, know that if something doesn't change we'll wind up paying a higher and higher percentage of our national wealth just servicing the debt. By the end of this decade, for example, it's forecast by CBO to rise to about 4 percent of GDP a year -- just interest on the debt -- about 916 billion in 2020. Could be higher, could be lower, but it's a big number.
Boonsboro, Md.: Nice article Sunday, surprising well-balanced. As someone well into middle age, I can recall a time when our political leaders were willing to ask Americans to sacrifice for future generations. The Amercian people always responded well. Why is the current crop so afraid to tell the truth to us common folk?
Joel Achenbach: "Sacrifice"? Not a word we use here.
Chicago, Ill.: Perhaps it was cut for space but I believe the key to the debt situation was left out of the article, the 2000 election and the decision not to pay down the debt. Even if the economy improves, the commission's recommendations are adopted and, like in the 1990s, we reduce or eliminate annual deficits, what's going to stop another president getting elected on a promise to basically stop paying off the debt? Bush's view was "the surplus is not the government's money. The surplus is the people's money." And the debt -- who did that belong to? That wasn't answered. While this may seem a rehash of events, what's to keep it from happening again?
Joel Achenbach: I did, in fact, cut out a lot of the background on how the debt got piled up. Keep in mind that in 2000, both Bush and Gore favored a prescription drug benefit, and when Congress took that on, the GOP pushed it through with a smattering of Dem votes (most Dems wanted a more generous benefit). Plus Bush had major tax cuts. And then came wars, recession, etc...The "surplus" was mostly projected, keep in mind.
La Plata, Md.: So, as an individual what can I do to bring the deficit down?
Joel Achenbach: Pay extra in taxes! No, not really -- but I think, as I mentioned in the blog this morning -- the Achenblog -- that we get the government we deserve. So if your congressperson votes to raise taxes or cut spending in order to put the country on a saner fiscal path, you should not throw the bum out of office.
Hackensack, N.J.: Combine the 22nd paragraph of your article:
"The latest news from the Treasury is hopeful: Tax revenues are slightly higher than anticipated so far this year. The TARP program to bail out financial firms has proved far less costly than expected. Investors from around the world still eagerly bid on Treasury notes at auction. During this global recession, the U.S. Treasury has been a safe port in the storm."
With the fact that economists are nearly unanimous in opposing deficit reduction during a recession, and I think what we're talking about here is a political red herring in the short term.
The deficit problem isn't as bad as its made out to be, and now is a terrible time to address it.
But if you are politically incentivized to block all the legislation you can, bringing up the deficit right now seems like a very good idea.
Even if you disagree with my point, I wish you had addressed it.
Joel Achenbach: My article is about the long-term fiscal outlook. There's a "structural deficit" that will be in place even after we emerge from the recession. Deficit spending in a recession, as you note, makes sense according to most economists. But i think it was clear that my article wasn't about this year's budget.
washingtonpost.com: Achenblog: You get the government you deserve (Post, April 26)
Anonymous: Publically traded companies often take on debt as a tool to prevent a hostile takeover. This is a defensive move and can have unintended consequences. Given the rapid growth of the Chinese economy was this a strategic move on the part of the U.S. govt? Our two economies seem to be inextricably linked and having 2 trillion in leverage is not a terrible place to be. It is such a large amount that we can now set terms as we choose?
Joel Achenbach: That's a very interesting thought, hadn't heard it, maybe someone else can tell us if it makes sense?
Fairfax, Va.: Joel,
I agree with your article. We're in the midst of a no-win economic situation.
But, where do we cut spending?
Much of our government's spending pays for jobs in the "private" sector. Ask Boeing, Lockheed, or any 8a company if they want their programs cut or discontinued to save money.
Another hunk of cash is spent on schools, law enforcement, health care, and other people-centric needs.
What is to be done?
Joel Achenbach: Before I forget, here's the CBO report that analyzed Obama's budget and gave the forecast of large deficits down the road:
On spending: The big issue is entitlements, because of the demographics of the boomers retiring and the simultaneous rise in health care costs over time. All the discretionary spending cuts in the world won't solve the problem. In fact, discretionary spending as a percentage of GDP is going to go down, inexorably. Pick anything from education to national parks -- we'll be spending less, as a percentage of national wealth. We'll spend more on retirees and health care, however.
washingtonpost.com: An Analysis of the President's Budgetary Proposals for Fiscal Year 2011 (pdf)
Alexandria, Va.: Blaming this problem on debt is like blaming the American Civil War on the cotton trade. You are technically correct, but very wrong at the same time.
This is not about debt, it's about spending. The U.S. budget has doubled in 10 years from the end of the Clinton term till now. Blame both Bush and Obama. And blame the fact that giving goodies to people buys votes, no matter whether you have the money to pay for those goodies or not.
So how do we get government tamed down to a reasonable size? Because Americans simply won't tolerate this size and intrusiveness of government. A debt commission plan that leaves government close to this size is DOA. If that happens, what is the solution?
Joel Achenbach: Thanks for the comment and the interesting analogy, but let me ask you: What would YOU like to see cut. The military? Social Security benefits? If you say "foreign aid" we're going to have to ask you to leave the room (because that's a tiny fraction of what we spend money on).
Washington, D.C.: As one of the small community of, as your colleague Steven Pearlstein called us, "budget scolds," thank you for the article. I think it captured the essence of the issue in a way that our technical reports sometimes miss.
I do have one complaint. The article included the following numbers: $8,370,635,856,604.98; $20 trillion; $3.4 trillion; $1.3 trillion; $150 billion; $1 trillion.
The last two numbers were given comparatively ("...$150 billion in Treasuries, but that's seriously "underweight" given that the company controls $1 trillion in assets.") but the others were essentially meaningless to the average reader -- and not particularly useful to us experts either. You could have replaced them with "a big number of dollars," "a scary big number," and "lots-a-cash" without any real loss of meaning.
A plea to all economics (and science) writers: please try to make incomprehensibly huge numbers comprehensible. The accompanying figure shows the values as shares of GDP, which human minds can actually begin to understand: e.g., 90 percent vs. 40 percent.
washingtonpost.com: The national debt and Washington's deficit of will (Post, April 25)
Joel Achenbach: I just like typing "trillion."
Also I liked this number: $8,370,635,856,604.98. Come on you have to admit that it has a nice shock value.
Lost among the weeds: I think you were a mite too evenhanded. Our debt problem isn't everybody's fault. One political party repealed PAYGO, cut taxes, and raised spending. One didn't. Those are facts, and not opinions.
Blame is good; it shows who you should listen to when trying to fix the problem.
Joel Achenbach: Thanks for the comment.
Princeton, N.J.: Another point. You and others seem to regard these "forecasts" as gospel. First of all, they are not forecasts; they are projections. They say if A, B, C,... happen, then X will happen with some probability. For example, if all the Nats starters win 200 games, then they will probably make the playoffs. This is a good projection, but a terrible forecast. The assumptions your "forecasts" use are just wild guesses.
One might ask how accurate have these "forecasts" been in the past. The answer is easy -- CRUMMY. Here are some you may remember. In 1999, the CBO projected surpluses for the next 10 years. In 1998 they projected that one of the Medicare Trust Funds would go to zero in 2003.
Actually I think we would do better with a good witch doctor, a goat, and a sharp knife.
Joel Achenbach: They're guesses, based on current policies, with certain assumptions about economic growth and interest rates and whatnot. But the alternative is to just cover your eyes and hope the future goes away.
Athens, Ga.: We are a rich nation. When we have to, we will be able to cut back. By cutting back I mean reduce defense spending by half, slash SS and government employee pensions by 10 or 15 percent, eliminate bloated medical spending, and raise taxes to where they were when Reagan was president. Obviously it will take a crisis to do all this, but the bailout last year showed we can do all sorts of drastic things when we have to.
Joel Achenbach: If there's a sudden fiscal crisis -- bubble bursts -- investors flee in horror -- doomsday arrives with trumpets and fireballs, etc. -- yes, the U.S. will make a quick adjustment just like Paulson/Geithner/Bernanke in Sept. '08 when everything on Wall Street collapsed. But I don't think anyone is eager to have that much drama.
About the Chinese debt: If the U.S. had piled on a lot of debt all at once, Anonymous's theory might have more plausibility. As this is not the case, I'm not sure it works.
Joel Achenbach: Thanks. Anyone else?
Alexandria, Va.: With 150 million folks in the civilian workforce, the total debt is around $55,000 each. Ten bucks a day for the next twenty years ought to cover it. Let's get a bunch of piggy banks and get to work!
Joel Achenbach: But I have other plans for that $55,000. (That's like a FULL YEAR of tuition at a small liberal arts college!)
Dallas, Tex.: It's a nice party line statement to say that the president has proposed freezing most domestic discretionary spending and that the new entitlement program won't add to the deficit. Do you really believe either of those things to be true?
Joel Achenbach: Well, the president DID propose that, and, as I noted, CBO in the analysis said the reform bill will NOT add to the deficit. I also put that in perspective -- that the cuts/taxes could have been used for deficit reduction. Not clear what your beef is.
Helena, Mont.: I'm so tired of the punditry deciding the deficit is a problem in 2010. Where were you guys in 2001, when the surplus was being blown up to give people like you a tax cut? Where were you in 2002 and 2003, when we had two wars that were being waged very sloppily fiscally and off the books? Where were you when Dick Cheney sapiently said that Reagan showed that deficits don't matter?
Joel Achenbach: Well, the debt is a problem in 2010 and that's why we're reporting it. Is your point that we should somehow repress our desire to report the news because in the past, in your opinion, we've sometimes fallen down on the job? You're saying we should give up. Thank you for that perspective.
Freising, Germany: I've read the opinion that National Debt versus GDP is the appropriate measure of the severity of national debt, and if you take a look at various nations (List of countries by public debt (Wikipedia)), the U.S. is at about 40 percent public debt as percentage of annual GDP, and Canada, Germany and France are all over 60 percent.
Did any people that you talked to mention this comparison?
Joel Achenbach: The CBO report I linked to earlier has the debt to GDP ratio (if you hunt for it) and you are incorrect, my friend -- we're more like 60 percent, not 40 percent, and what worries the experts is that the number is likely to climb over the next decade. There's no magic number that the debt ought to be -- but you don't want the slope of the graph going the wrong direction.
Olney, Md.: Neither party follows PAYGO and anyone trying to suggest one does is a party hack or Hill staffer. Can you tell me how serious this discussion of a VAT, aka national sales tax, is? I've read a number of articles that have basically said we need to drastically cut spending or drastically increase taxes or more then likely -- find a middle ground of both.
Joel Achenbach: I can't see the VAT taking hold -- it's a regressive tax. A Democratic president is going to push that? It does generate a lot of revenue. Maybe they could have a temporary partial VAT by a different name just to take the edge off the horror? I mean, it sounds bad. The VAT!!! Who wants to be the candidate campaigning as a supporter of the VAT?
But the alternative is to just cover your eyes and hope the future goes away. : Nonsense. The alternative is to look back and see what worked in the past. If much higher marginal rates worked in 1946 - 1973, let's give 'um a try.
Or look at other countries most of which have much higher taxes and many of which have higher growth rates.
My favorite proverb (Japanese):
"An inch ahead lies darkness."
Joel Achenbach: What about that elasticity of response stuff, friend? Jack up marginal rates too drastically and you won't get much or any new revenue because you've just incentivized all manner of tax dodging.
washingtonpost.com: The national debt and Washington's deficit of will (Post, April 25)
Miami, Fla.: Some people propose to increase the age of retirement, but it is really hard to find a job if you are older than 60, because employees want younger people. How do you think we can keep old people in their jobs?
Joel Achenbach: I think about this every freakin' day.
Columbus, Ohio: I think we should have the military attack the national debt. It seems to have all the resources and I've heard we can't, under any circumstances, cut its budget.
If the Pentagon can turn Iraq into a stable, functioning democracy with a free-market economy in just a few years time, then surely it can launch some missiles or something at the national debt.
Joel Achenbach: Another interesting thought.
Princeton, NJ: "The big issue is entitlements, because of the demographics of the boomers retiring..."
This is a myth. If health-care costs stay the same, the small increase in people over 65 will have a negligible affect on the deficit. (CBO) It is our vastly inefficient health-care system that is responsible for the huge increase in the deficit. The CEBR has projected that if we adopted the health-care system of any other industrialized country, our deficit would soon pass into a surplus which would increase for the next 75 years.
Joel Achenbach: Princeton, this is what I wrote:
"The big issue is entitlements, because of the demographics of the boomers retiring and the simultaneous rise in health care costs over time."
Montgomery, Ala.: Given that the budget projections for the out years are so grim that one can cut every department in the U.S. government to zero (except Medicare and Social Security) and still fall trillions short of a balanced budget, when do you believe that members of the "Tea Party movement" or the two major parties, will start talking about cutting the two largest entitlement programs? How far must we cut them to bring the deficit back in line?
Joel Achenbach: I don't know what you cut and by how much. But just for starters, I'm 49, and in less than 13 years will be eligible for collecting Social Security even though I intend to be rich by then and also still working and not in need of a government SS check. So one "cut" could be just delaying retirement. Obviously I may change my mind on this when the "rich" thing doesn't work out.
Fairfax, Va.: Since the retiring boomers and their health-care cost are being blamed for the ballooning national debt, do you think more citizens in the upcoming years will be willing to vote in favor of assisted suicide practices?
Joel Achenbach: I think that's the plot of a Chris Buckley novel...
Jack up marginal rates too drastically and you won't get much or any new revenue because you've just incentivized all manner of tax dodging. : Did this happen under Eisenhower when the marginal rate was 93 percent? Does it happen in Sweden whose overall tax rate is double ours?
Come on, that stuff sounds good, but there is no data to support it.
Joel Achenbach: Actually there's a lot of data on this and both liberal and conservative economists are pretty well schooled in the data. There's a reason that no one suggests jacking up marginal rates to anything like the numbers you're talking about. It won't work.
New York: Mr. Achenbach, I have to admit, as much as I care about our intractable governmental deficits, I care even more about the collapse of our private pension system. Right now, my parents are traveling the world and living in high style, with fabulous medical care and absolute financial security, on one public school teacher's pension.
By contrast, my siblings and I work more than twice as many hours, and our spouses work, too. We have no pensions. We have individual or small business medical, which covers nothing and costs a fortune. I myself sacrificed current income some years back for a "safe" job with great benefits at a Fortune 10 company, only to watch the benefits wither away and then lose the job when the company went under and was bought out. (Since the pension plan had morphed from a defined benefit annuity into an S-curve lump sum benefit, I vested in a tiny little sum good for maybe 2 years of retirement expenses.)
Between medical premiums and expenses, and periods of unemployment, my savings toward retirement over the last 10 years have been Net Zero.
And to make matters worse, my parents and their friends are constantly harping on how they are "The Greatest Generation" and only reaping their just rewards, while younger folks are slackers who don't deserve a penny.
Can't you write a column on that?
Joel Achenbach: Wow, I think you just wrote half the column! That's a fascinating (and upsetting) story -- and a perspective that I'll keep in mind the next time I venture near this issue. Thanks for writing.
Helena, Mont.: Nice snarky answer -- but my comment really is that you guys fell down on the job in the early 2000s and so have little credibility now to encourage us to take action. This all smacks of partisan politics -- let the Republicans raise the deficit and make no demur, but then raise the roof when Democrats get in. (Also, Democrats wanted to be able to negotiate lower drug costs in their version of Medicare prescription coverage, which would have kept the costs down.)
Joel Achenbach: Nonsense. The Democratic proposal for Medicare part D was projected to cost more (you are correct on the pharma, though). As for falling down on the job -- I haven't looked to see what we wrote about the Bush tax cuts but I bet you dollars to donuts we had a load of stuff about deficit spending because I remember reading it and moreover I remember writing a long story about it in roughly '06 when the GOP was in power.
Bethesda, Md.: I think a big problem is that the last time we tried being responsible, we had the Greenspan commission on SS, and it resulted in generating big surpluses from SS taxes, which were supposed to finance coming deficits in SS payouts, but instead what happened was Bush used that money to give capital gains tax cuts to the rich. So now the working middle class and poor are financing tax cuts on dividends and capital gains (unearned income). I am now deeply pessimistic that our politicians (and the press) can deal with any long-term problem at all. (Remember how much people mocked Al Gore's lockbox?)
Joel Achenbach: A couple of questions have touched on this -- yes, Greenspan (and Reagan et al) raised the FICA tax that we all pay -- and I remember this vividly because I was new in the workforce and paying loads in FICA, which kept rising, and I realized that I was paying more for every marginal dollar than Donald Trump -- and the result has been, for year, that Social Security has been running a surplus, and dumping that money into the Treasury in exchange for bonds. The money is then spent by the U.S. government. Thus there are two debt numbers: The debt held by the public is 8 trillion and change (BIG change), and the debt held by the public and by other government agencies is about 12 or 13 trillion. I went with the smaller number -- debt held by investors -- in my story because it seemed to make more sense when you view the Treasury through the eyes of someone like Bill Gross or Mike Burry.
Heh: According to the reader from Helena, Montana, the media are responsible for the deficit.
I say we combine that observation with Columbus, Ohio's suggestion and have the Pentagon declare war on the media in order to stop all this spending.
Joel Achenbach: Bingo.
Washington, D.C.: Since you brought up Health Care reform and its CBO score in your article, I just wanted to point out that for HCR to meet the CBO deficit reduction prediction, our politicians would have to exhibit the political will you correctly say is lacking and enact $500 billion in Medicare cuts. They haven't done it in the past (waiving Medicare cuts for all but one year in the past 10), the current lot wouldn't do it (see the "Doc Fix" and how they moved that quarter trillion dollar piece to separate legislation) -- why should I expect our future leaders, who can claim clean hands in drafting HCR, to be any different?
Joel Achenbach: I think that's a good point and the next big question is whether congress will find more ways to cut health care costs rather than retreat on that.
Washington, D.C.: A sober discussion of one of the greatest challenges facing our electorate.
I don't see any alternative to ending the Bush tax cuts, in spite of the fact we are only just emerging from a recession. I wish President Obama had the mettle to insist on that and be honest about it. (The Democrats will take hits but they're going to be taking hits anyway, why not take hits for the right reason?)
Joel Achenbach: Thanks for the comment...We're going to wrap this up...Hang on one sec...
Anonymous: If you look at government spending (not including Social Security and Medicare which are taxed separately) a huge amount is tied up in defense, either current defense budget, parts of other departments (Energy - nuclear), and a significant share of the annual interest payment is from previous defense spending not paid for. What's the chance defense actually gets looked at? If not what are the chances of people being willing to pay for defense?
Joel Achenbach: They have to look at defense and everything else.
I'm going to post a couple more comments really quickly just to let you see what folks are saying...
Coastal Oregon: Entitlements and compensation at the federal level are out of control. I read that 17 percent of federal employees make in excess of $100K/year. I know of military retirees who also collect a 2nd pension from the Feds (civil service or VA) and Social Security which combines for an income in excess of what they ever made while working full time. Also keep in mind that these are all inflation protected.
Joel Achenbach: Thanks for the comment..
VAT, Ick! : Then again, the Democrats like the Progressive Income Tax. The PIT!
Just wanted to point that out.
Joel Achenbach: Consider it pointed.
Montpelier, Vt.: I think the runup of the national debt is more of a societal problem than a financial one. Quite simply, the American people are unwilling to accept reality because we've been spoiled from the time we were kids. Kids are told, "You can be anything. You can have anything. You can do anything." When we raise children who have never been told "No", they are going to elect politicians that tell them "Yes" and not elect politicians that tell them "No."
Unfortunately, Americans do not seem capable of accepting the truth. And when external events bring a day of economic reckoning, government's response will be to blame the other political party and try to borrow our way out of the problem.
I've never been more pessimistic about our economic future than I am right now. How can we change our culture to elect leaders who can help us face the truth and convince us that sacrifice is necessary?
Joel Achenbach: I have spoiled my children, too. (What's that line from the Godfather?)
Bedford, Mass.: You asked: "What would YOU like to see cut?"
I'd like to see stuff that's not really needed cut. Take defense. There are weapons systems that the Pentagon doesn't want, that are just there because they provide employment and business in congressional districts.
The point is, the government needs to be spending money just on things that really do good and are needed, not just on things that are funded this year because they were funded last year. If the only reason for keeping a program is to preserve a government contractor job or profit, it should be eliminated. This is obviously hard and requires courage, but it's what we need to do.
Joel Achenbach: Interesting you say this: Obama is trying to cut a major NASA program (Constellation) and it's like World War 4 out there in the contracting community.
New York, N.Y.: Great job Joel! Here's a question from a long time [reader] first time [questioner] (as they say on sports talk radio. I agree that politicians bear a lot of blame for the debt binge -- in economically good times, they tend to get undisciplined and borrow and then get into debt trouble in bad times and must eventually either raise taxes or permit some inflation (which taxes savings). But shouldn't we also look at creditors who are economically --programmed to feed the government (or any other borrower) as much debt as possible? Even our currency, the Federal Reserve Note, is a debt instrument. It is created when the Treasury borrows and is used to repay government debt. If, as Clinton proposed to pay down the national debt back in 2000, wouldn't that extinguish large amounts of currency? In other words, it's no coincidence that the expansion of debt in the 2000 coincided with the expansion of the monetary base of this country.
Joel Achenbach: Thanks for the comment...But the bell is tolling and I must flee...THANKS everyone for joining in. Cheers, Joel
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