From: glevy@PRATT.EDU
Date: Thu Nov 17 2005 - 09:44:36 EST
See below the article "A 'fiscal hurricane' on the horizon" for
_USA Today_ by Richard Wolf (not to be confused with radical
economist Richard Wolff).
Obviously, the increase in the growth of the budget deficit in the US
is of concern to many, as the article indicates. A few questions come
to mind:
-- what are Marxian understandings (note plural) of the relation
between budget deficits and economic crises?
-- do others on the list share the grim accessment that a "fiscal
hurricane" is on the way for the US economy?
-- are there any ways in which the wars against Iraq and "terrorism"
(the biggest single cause for the deficit) might help the US
economy rather than only retard it? Also, what impact is it having
on income distribution? (i.e. who are the "winners" and "losers"?)
-- if, as the article suggests, both Republicans and Democrats are
increasingly coming to believe that a "fiscal hurricane" is on its
way and _if_ investors share that perspective, couldn't that be
expected to lower the _expected_ rate of profit and hence lower
investment and accumulation? Which raises the question --
-- which Marxian understandings incorporate _expectations_ into
a theory for 'short-run' cyclical behavior? Do you believe
that expectations can play a role in the determination of the
profit rate? If so, what is it?
In solidarity, Jerry
================================================================
A 'fiscal hurricane' on the horizon
By Richard Wolf, USA TODAY
WASHINGTON — The comptroller general of the United States is
explaining over eggs how the nation's finances are going to
hell.
"We face a demographic tsunami" that "will never recede,"
David Walker tells a group of reporters. He runs through a
long list of fiscal challenges, led by the imminent retirement
of the baby boomers, whose promised Medicare and Social
Security benefits will swamp the federal budget in coming
decades.
The breakfast conversation remains somber for most of an hour.
Then one reporter smiles and asks, "Aren't you depressed in
the morning?"
Sadly, it's no laughing matter. To hear Walker, the nation's
top auditor, tell it, the United States can be likened to Rome
before the fall of the empire. Its financial condition is
"worse than advertised," he says. It has a "broken business
model." It faces deficits in its budget, its balance of
payments, its savings — and its leadership.
Walker's not the only one saying it. As Congress and the White
House struggle to trim up to $50 billion from the federal
budget over five years — just 3% of the $1.6 trillion in
deficits projected for that period — budget experts say the
nation soon could face its worst fiscal crisis since at least
1983, when Social Security bordered on bankruptcy.
Without major spending cuts, tax increases or both, the
national debt will grow more than $3 trillion through 2010, to
$11.2 trillion — nearly $38,000 for every man, woman and
child. The interest alone would cost $561 billion in 2010, the
same as the Pentagon.
From the political left and right, budget watchdogs are
warning of fiscal trouble:
• Douglas Holtz-Eakin, director of the non-partisan
Congressional Budget Office, dispassionately arms 535 members
of Congress with his agency's stark projections. Barring
action, he admits to being "terrified" about the budget
deficit in coming decades. That's when an aging population,
health care inflation and advanced medical technology will
create a perfect storm of spiraling costs.
• Maya MacGuineas, president of the bipartisan Committee for a
Responsible Federal Budget, sees a future of unfunded
promises, trade imbalances, too few workers and too many
retirees. She envisions a stock market dive, lost assets and a
lower standard of living.
• Kent Conrad, a Democratic senator from North Dakota, points
to the nation's $7.9 trillion debt, rising by about $600
billion a year. That, he notes, is before the baby boom
retires. "We're not preparing for what we all know is to
come," he says. "We're all sleepwalking through this period."
• Stuart Butler of the conservative Heritage Foundation
projects a period from now until 2050 in which tax revenue
stays stable as a share of the economy but Medicare, Medicaid
and Social Security spending soars. To avoid big tax
increases, he says the government has to "renegotiate" the
social contracts it made with its citizens.
• Alice Rivlin and Isabel Sawhill of the centrist Brookings
Institution put their pessimism into a book titled Restoring
Fiscal Sanity. Rivlin, who became the first director of the
Congressional Budget Office in 1974, says it will take an
"economic scare" such as the 1987 stock market crash to spur
action. Sawhill likens the growing gulf between what the
government spends and takes in to a "Category 6 fiscal
hurricane."
'The Fiscal Wake-Up Tour'
They are the preachers of doom and gloom. Liberals and
conservatives, Democrats and Republicans, they are trying to
be heard above the ka-ching of the cash register as it tallies
the cost of government benefits and tax cuts, Iraq and
Hurricane Katrina. To raise their profile in recent months,
several have traveled together to places such as Richmond,
Va., and Minneapolis for what they call a "Fiscal Wake-Up
Tour."
Leon Panetta, former White House budget director and chief of
staff to President Clinton, calls them "disciples of balanced
budgets. ... And at some point, they'll be proven right."
The White House and Congress are trying to address the
nation's short-term budget deficits, but their response pales
against the size of the long-term problem. President Bush
proposed nearly $90 billion in savings over five years in his
2006 budget. He also tried to trim future Social Security
benefits for wealthier recipients. The Senate this month
approved $35 billion in savings over five years. House
Republicans tried to save more than $50 billion last week, but
objections from moderates stalled action. Either way, the
savings could be wiped out by $70 billion in proposed tax
cuts.
The budget-cutting effort is being led by conservatives, who
recoiled when Congress quickly voted to spend $62 billion
after Hurricane Katrina struck New Orleans and the Gulf Coast.
"Katrina served as a wake-up call," Walker says.
In prior years, facing a less imminent demographic explosion,
Congress cut in politically agonizing increments of $500
billion over five years. Bush's father gave up his "no new
taxes" campaign pledge in 1990. After Ross Perot focused
attention on the deficit in his 1992 presidential campaign,
Clinton and the Democratic-run Congress raised taxes even more
in 1993. Clinton and the Republican-run Congress forced two
government shutdowns before agreeing on a deficit-reduction
package in 1997.
In each case, cutting the deficit backfired at the polls. The
elder Bush lost re-election, the Democrats lost Congress, and
Republicans' obstinacy helped Clinton win a second term. "The
choices you have to make are almost exactly the opposite of
what wins political elections," Panetta says.
The problem is also easy for Congress to postpone because the
day of reckoning is years away. This year's deficit was $319
billion, down $94 billion from the year before. That's 2.6% of
the nation's economy, an amount easily borrowed from foreign
investors.
From 'Grenada' to 'Vietnam'
But there is every reason to act — and soon. Budget watchdogs
cite these looming problems:
• Prescription-drug coverage under Medicare takes effect Jan.
1. Its projected cost, advertised at $400 billion over 10
years when it passed in 2003, has risen to at least $720
billion. "We couldn't afford" it, Walker says of the new law.
• The leading edge of the baby boom hits age 62 in 2008 and
can take early retirement. The number of people covered by
Social Security is expected to grow from 47 million today to
69 million in 2020. By 2030, the Congressional Budget Office
projects, Social Security spending as a share of the U.S.
economy will rise by 40%.
• The bulk of Bush's 10-year, $1.35 trillion tax-cut program
is set to expire at the end of 2010. But Congress is moving to
make the reductions permanent. That would keep tax revenue at
roughly 18% of the economy, where it's been for the past
half-century — too low to support even current spending
levels. "We can't afford to make all the tax cuts permanent,"
Walker says.
• Baby boomers begin to reach age 65 in 2011 and go on
Medicare. Of all the nation's fiscal problems, this is by far
the biggest. If it grows 1% faster than the economy — a
conservative estimate — Medicare would cost $2.6 trillion in
2050, after adjusting for inflation. That's the size of the
entire federal budget today.
"Social Security is Grenada," Holtz-Eakin says. "Medicare is
Vietnam."
Inaction could have these consequences, experts say: Higher
interest rates. Lower wages. Shrinking pensions. Slower
economic growth. A lesser standard of living. Higher taxes in
the future for today's younger generation. Less savings. More
consumption. Plunging stock and bond prices. Recession.
Some veterans of the deficit-cutting wars are pessimistic
about avoiding disaster. "In the end, CBO and others are no
more than speed bumps on the highway of fiscal
irresponsibility," says Robert Reischauer, former
Congressional Budget Office director and now president of the
non-partisan Urban Institute.
'Where's Ross Perot?'
The gloom-and-doom crowd hopes to avoid that fate.
Increasingly in recent months, they are traveling the country,
writing and speaking out about the need to cut spending, raise
taxes — or both.
The most outspoken is Walker, an impeccably dressed CPA whose
15-year term as head of the Government Accountability Office
runs through 2013. He was a conservative Democrat, then a
moderate Republican, and is now an independent. He's also a
student of history, a Son of the American Revolution who lives
on Virginia property once owned by George Washington.
Walker's agency churns out reports with titles such as "Human
Capital: Selected Agencies Have Opportunities to Enhance
Existing Succession Planning and Management Efforts." But he
knows he must try to humanize the numbers, and his rhetoric on
the nation's fiscal course has become more acerbic. "Anybody
who says you're going to grow your way out of this problem,"
Walker says, "would probably not pass math."
Holtz-Eakin, a soft-spoken economist who said Monday he will
leave CBO at the end of the year, takes a different approach.
Less prone to giving speeches, he sees his role as a
consultant and truth-sayer to Congress. "Numbers are the
currency of the realm in Washington," he says, and most agree
his agency has the best in town. But he concedes, "Sometimes
it falls to the consultant to tell the client the bad news."
Holtz-Eakin's father was in steel, a cyclical business rocked
by strikes and shutdowns. "I thought, 'This is nuts. No one
should live like this,' " he says. That explains why he wants
the government to prepare for new demands on its New Deal and
Great Society benefit programs. "The baby boom has been
getting older one year at a time with a striking regularity,"
he says.
MacGuineas is the outside agitator. An independent, she worked
for Sen. John McCain's presidential campaign in 2000. She
respects politicians who deliver bad news, as presidential
candidate Walter Mondale did in 1984 when he said tax
increases were inevitable — and then was defeated in 49
states.
"I want to see a presidential election where the candidates
are talking about what taxes they'll raise and what spending
they'll cut," she says. "It's not always a winning campaign
slogan."
Conrad ran for the Senate in 1986 promising to reduce the
budget deficit or quit after six years. By 1992, the deficit
had hit an all-time high, and he said he would not seek
re-election. Only the death of North Dakota's other senator
kept him in Congress.
The former state tax commissioner has been doing this longer
than other congressional budget officials — and he has the
most charts. He's so numbers-oriented that at baseball games,
he can instantly compute a hitter's average after each at-bat.
"Numbers speak to me in a way that they don't speak to
others," he says. "I guess it's the way my brain is wired."
Sawhill and Butler, from opposite ends of the political
spectrum, lead a group of about 15 budget experts at
Washington think tanks who gather periodically to discuss
their dour crusade. Aided by Walker and the non-partisan
Concord Coalition, a fiscal watchdog group, they have taken
their show on the road.
Butler, a native of Britain, witnessed there in the 1960s and
'70s the effects of slow growth and high unemployment, driven
partly by generous government benefits. "We have a
responsibility" to start the debate, he says, "because we
don't have to get re-elected." But Sawhill says it's "an
indictment of our political leadership that it is being left
to outside groups such as ours to put these issues on the
agenda."
After three decades in the business, Rivlin is frustrated by
lawmakers' inaction and blames balanced-budget advocates for
not better articulating the problem. "There may be better ways
to talk about it," she says. "I sometimes think, 'Where's Ross
Perot when we need him?' "
© Copyright 2005 USA TODAY, a division of Gannett Co. Inc.
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