As America’s deficit crisis looms, fiscal Hawks and Doves need to make peace.
Take a minute and consider a few numbers that I’ve come across recently: The federal government is currently spending $3 for every $2 it collects in revenue. That’s a big deal when you consider how much money Washington lays out: We’re now ratcheting up a deficit that’s growing at the breakneck speed of about $100 billion a month.
Our national debt as a percentage of the economy is more than 61%, breaching the 60% line for only the second time in the nation’s history. (The last time was during World War II.) In 10 years, the Congressional Budget Office estimates, we will be spending more on interest payments to service that debt than we will for all nondefense discretionary spending, which includes education and infrastructure. And that’s assuming interest rates don’t go up from where they are now, at virtually zero.
It doesn’t take a Ph.D. in mathematics to realize that those numbers add up to a bleak future for America. And yet despite this mounting evidence of a looming budget crisis, we as a nation just can’t seem to focus on tackling the issue. Part of the blame falls on human nature — it’s easier to put off dealing with problems that seem just too complicated and unpleasant to fix now.
Politicians know that well. Besides, most of them are far too concerned about their own political fortunes in the next few months to worry about troubles that won’t squash us for several years to come. That’s why you don’t often hear Washington types proposing specific plans that would require public sacrifice to control those deficits.
One of the rare exceptions to that rule is Paul Ryan (R-Wis.), the ranking member of the House Budget Committee, who earlier this year rolled out his proposal for wrestling with our budget deficit. His plan includes things like creating a flat tax with two rates for individuals and reforming Social Security benefits for those age 54 and younger.
As you might imagine, it’s the type of plan that creates enemies because it would inflict pain on many constituencies. One of those enemies is New York Times columnist Paul Krugman, who attacked Ryan with a column headlined THE FLIMFLAM MAN. Krugman calls Ryan’s plan “a fraud that makes no useful contribution to the debate toward America’s future.” It seems a harsh rebuke for one of the few politicians actually willing to offer a proposal on such a huge problem.
It’s easier to understand — if not excuse — Krugman’s lack of civility when you consider that in the rarefied circles where budget deficits are actually debated, there are two camps: Those who believe that the only way to cut the deficit is by jacking up taxes, and those who think the only solution is to slash public spending. Krugman, obviously, comes from the former camp, which is looking to spend more federal money to bail out a sputtering economy.
Now, I’m not pretending to be any sort of an expert in these matters. And unlike Krugman, I did not win the Nobel Prize for economics. But common sense seems to dictate that both camps have a point, and that they may need to meet somewhere closer to the middle.
Consider one more set of numbers: From 1948 to 2008, the federal government spent about 19.6% of our gross domestic product, while taking in tax revenues of about 17.9%. But now we are spending a whopping 25% of GDP and taking in closer to 15% in revenue. That gap has to be narrowed drastically. And the clock is ticking. “We have more rope, but not unlimited rope,” says David Walker, who was comptroller general under both Bill Clinton and George W. Bush. Walker points out that when you include local and state financing, America’s debt problem is already worse than that of Spain, Britain, or Ireland. (For more on how Europe is faring, see Michael Elliott’s column.) But even that doesn’t tell the whole story. “There’s some creative accounting going on, so our situation is really much worse than people realize,” says Walker. How much worse? Add in the extra $4 trillion that we owe to Social Security, Medicare, and other programs, and, Walker warns, we’re within three years of becoming the next Greece. If that doesn’t scare the Krugmans and the Ryans of the world into working together on reducing our debt, I don’t know what will.
–Becky Quick is an anchor on CNBC’s Squawk Box. Read more of her columns here.