Calling on Congress to stop the debt tsunami
The 34 names are familiar to anyone who has followed economic policy in Washington for the past generation, one-third of them former chairmen or members of key committees of Congress, seven of them former directors of the White House Office of Management and Budget, two of them former comptroller generals of the United States, seven of them former directors of the Congressional Budget Office, and one of them -- Paul Volcker -- a former chairman of the Federal Reserve System and now an adviser to President Obama.
Both political parties are well represented in their number. But they came together this week as signatories of a nonpartisan manifesto, essentially a stark warning to the president and Congress and a plea for action on behalf of the next generation.
The United States, they unanimously said, is facing "a debt-driven crisis -- something previously viewed as almost unfathomable in the world's largest economy." Under the impact of the worst economic calamity since the Great Depression, the federal government ran a deficit of $1.4 trillion this past year. The rescue effort was necessary, but in 2009 alone, the public debt grew 31 percent, from $5.8 trillion to $7.6 trillion, rising from 41 percent to 53 percent of gross domestic product (GDP).
Unless strong remedial steps are taken in the years just ahead, the debt is projected to rise to 85 percent of GDP by 2018 and 100 percent four years later. By that time, barely a dozen years from now, these sober-sided, deeply experienced folks say, the American economy is likely to be in ruins.
All of us have become accustomed to hearing lamentations -- or partisan accusations -- about the changes in the annual budget deficits, the gap between federal revenue and spending in a particular year. But this commission deliberately shifted its focus from the deficit to the underlying debt.
The reason was explained to me by one of the Democrats, Alice Rivlin, formerly a director of both the Congressional Budget Office and the Office of Management and Budget. "Previously, when we were worried about deficits, we could take comfort in the fact that the debt was not very high relative to the economy," she said. "But now that debt has shot up. The cushion has gone. If the same thing [a severe recession] happened again, we wouldn't be able to borrow to deal with it."
In addition to robbing us of the flexibility to deal with future crises, the rapidly rising debt level could push up interest rates, threatening economic recovery; slow the growth of wages; depress living standards; make the United States even more dependent on foreign lenders; and leave us vulnerable to a shock wave if those lenders lose confidence in our ability to repay the loans.
To avoid those consequences, these experts -- writing under the auspices of the Peter G. Peterson Foundation, the Pew Charitable Trusts and the Committee for a Responsible Federal Budget -- suggest a series of steps.
First, they want Obama in his State of the Union address to urge Congress to join in a pledge to stabilize the debt at no higher than 60 percent of GDP by 2018. (Remember, it is 53 percent now.) This would require actions by Congress and the administration to start reducing the projected annual deficits, which add to the debt, starting in 2012.
That would make debt-management an economic priority once the effects of the current severe recession have eased. To ensure that the pledge is kept, those who signed this report would ask Congress and the president to set up an enforcement mechanism that would automatically reduce spending or increase taxes when the debt target is missed in any year from 2012 to 2018.
This is stiff medicine, but this report's message is that temporizing on this issue poses such perils to the nation's future that the risk is unacceptable.
When Congress this week ducked its responsibility again by deciding to enact a temporary, two-month increase in the debt ceiling, the need for a shock treatment like this report could not be plainer.