Bowles-Simpson to America: Cut Spending Now
WASHINGTON – The American debt crisis is deep and real, requiring urgent measures. What is at stake here is not just our status as “Number One”. It is about the future viability of the US economy. It is about having any money left, after we paid staggering interest on a mountain of debt, for any productive investment. Simply put, we cannot pile up more debt and then hope to have anything left for spending on research, education, innovation and the growth of this society.
The Debt Commission co-chairs report
Erskine Bowles, (once president Bill Clinton’s chief of staff and a Democrat), and Alan Simpson, (formerly a Republican Senator from Wyoming), co-chairs of a presidential commission, officially known as “National Commission on Fiscal Responsibility and Reform”, charged with recommending practical solutions to cut our national debt, just repeated this truth, in case anybody missed it.
A few days ago, unveiling their basic deficit and debt reduction recommendations –recommendations that may or may not be endorsed by the other members of the Commission in the next few days– they both stated clearly to America that “The Debt” is a national emergency.
We are in an emergency
This emergency requires immediate action through “real” remedies, however politically unpopular they may be. In their judgment, reached after months of expert testimonies provided to their commission, we can no longer dance around the issue. This is not a passing crisis.
This is a systemic problem that grew over time, under different administrations. (The lone exception was a brief period under President Bill Clinton in which the federal budget was actually balanced and some debt was paid back). We got into this mess because of excessive spending, (mostly but not only due to the growth of entitlements), which kept growing over decades. The only serious way out of this is to start cut spending now.
Bowles and Simpson deserve both gratitude for their work and admiration for having political guts. They avoided the easy way out of a soggy report replete with platitudes and exhortations for future cuts; but vague on specifics and timetables. The two co-chairs came out in the open with a list of real proposals that demonstrates seriousness. Bottom, line: cut the debt by about 3.8 trillion, bringing annual deficits below 3%. How to achieve this? Via a mix consisting of 75 per cent in spending cuts and 25 per cent revenue increases. Part of the package is a sensible plan for tax reform that would essentially lower rates, while eliminating loophole and deductions.
No solutions without serious cuts
One may or may not like the mix they proposed which touches almost any area of Government, from the big entitlement programs to defense. But my hope is that, whatever your idea of a good mix may be, we all should agree that we need something like this: a serious plan that puts spending on a believable long term downward trend, through real program cuts across the board.
We may disagree on individual elements and perhaps on the timing of this and that. But we need a credible spending reduction plan that will signal to the Nation and to the world that America is dead serious about reversing this tide of debt. America, through the non partisan adoption of a real national spending reduction plan, would finally show its determination to restore the Nation’s fiscal strength and overall competitiveness.
No solution with half baked plans
But unfortunately, even though we just had elections largely focused on the Tea Party people key issue of the national debt, we are not all on board. And even many of those who claim to be on board, on close inspection, harbor delusional ideas as to real solutions to the problem.
Indeed there are still popular fantasies out there whereby we can cut the deficit by eliminating “waste, fraud and abuse” in the system; by eliminating earmarks; or by axing a couple of Federal Departments. The favorites usually include Energy and Education. The first because it is useless. And the second because Education is supposed to be a State and not a Federal responsibility.
Others would like to cut defense spending. Some because they believe that it is possible to spend less and more effectively. And some because they fundamentally disagree with current national security policies, including the ongoing (and costly) military operations in Iraq and Afghanistan.
And yet, all this is wishful thinking. Despite the appeal of some of these ideas, and whatever one may think about the wisdom of abolishing this or that agency, the truth is that none of this would amount to much in terms of real deficit and thus debt reduction. While cuts may help a lot, the real prize in this game is serious entitlement reform, simply because this is where most of the money goes. Any plan that does not include long term reductions in entitlement programs is not serious.
Stubborn refusal to look at reality
As we are so deep into this crisis, lack of clarity on the actual dimensions of this issue of national urgency is a real problem. And this confusion appears in the many negative reactions to the Bowles-Simpson Plan. “Too extreme”. “Dead on Arrival”. “Unacceptable”. You name it. And here you have on display the dilemma of American politics. Long on anti-spending rhetoric, when it appears politically expedient to be for fiscal rigor, short on the real guts to implement anything meaningful.
But this cavalier, indeed irresponsible, attitude is at least in part due to the wishful thinking whereby actually “doing something” on the budget is optional. For the politically astute, as the deficit is controversial, you bring it up when there are no other big issues on the table and when the political winds are favorable.
Which means never.
And this is the myopic attitude that got us here. We postponed action year after year, and we dug ourselves deeper and deeper into the hole. As Bowles and Simpson declared: we have no more margin. We have to take swift action now.
No enthusiastic endorsement for deep cuts
But their call to arms has not been met with much enthusiasm. In fact, looking at the reactions to their plan, we can even argue that Washington –trillions in yearly shortfalls and all–is still not ready for action. Indeed, going back a bit, the very fact that president Obama needed to appoint this “debt commission”, as it became known, with Bowles and Simpson as co-chairs, is evidence of political cowardice, not just on the part of the president, but spread across the entire political establishment.
This commission, as most other similar Washington exercises, was a way to remove an unpleasant subject from the immediate “to do” agenda, arguing that we shall have to wait until the commission report will be presented, thus kicking the can down the road a bit more. And then, of course, if we stay within tradition, the real mastery is in paying lip service to the report, once issued, while killing its substance.
The attitude that got us here
Regarding this particular debt issue, its root cause is that many professional politicians, the defenders of the pork barrel establishment, would really like to keep things as they are. Over many decades of expanded government, a new conventional wisdom developed whereby there is nothing to be gained in Washington politics by stopping the gravy train. Politicians get elected by giving things, not by taking them away.
Overspending became the rule
So, for decades spending beyond revenue was the name of the game and most policy makers tried to ignore its consequences. For this problem to be acknowledged we had to wait until the current extraordinary shortfalls caused by the financial and housing meltdown, whereby the deficit numbers –almost overnight–from already bad became truly staggering. It was only at the end of 2008 that we became accustomed to measuring annual deficits in trillions of dollars and no longer in hundreds of billions. But again, let us remember that 2008 did not create the crisis. It just made it a lot worse and thus more difficult to ignore. And yet, with all this, there is still no sense of a true emergency, truly shared by all stakeholders. How to explain this denial?
Easy to ignore the debt issue
In part it has to do with the nature of the problem. As someone put it, a mounting national debt is not “the wolf at the door, it is more like termites in the basement“. So, debt does not present itself as an immediate, obvious crisis requiring immediate, swift countermeasures. Creeping debt is a hidden enemy that slowly eats your house; and you may not see the damage until it is too late. (Look at Greece, Ireland or Portugal as examples of countries that merrily walked into or pretty close to the abyss).
The US is a good debtor….
The point here is that it is politically easier to ignore or wish away a danger that has no immediate manifestation. And so it was. For many years the US Government managed to make up the growing difference between revenue and excessive spending through borrowing. And everybody would happily lend to the US. America is after all the biggest economy in the world, the issuer of the main reserve currency used around the world from Zambia to Bulgaria. The possibility of a US Treasury Bond default appeared so fantastic that it was ruled out. And so the US kept borrowing, getting deeper and deeper into debt.
Still, the impact, while silent, is noticeable. First of all, more and more current revenue needs to be used to pay more interest on the growing debt. By necessity, this means that debt servicing requirements crowd out other areas of spending, thus progressively constraining the scope of any public policy. For example, flush with cash, China can launch brand new, ambitious infrastructure programs, such as a new network of super fast trains. America cannot even maintain its existing roads and bridges, let alone build more, because there is no money. Yes, lack of modernization is one of the consequences of a growing debt.
.…Well, “was” a good debtor
No point re-telling the whole tale of the spending explosion, (this started much earlier than the additional bout of extraordinary extra spending due to desperate actions aimed at countering the financial crisis). But, as the Bowles-Simpson Plan tells us, it is about time we came to the collective realization that we are indeed in a deep crisis that threatens the very foundations of America’s well being, the prosperity of its people and its standing in the world. If we continue on this path, there will be a time in which it will be hard to sell more US Bonds. And even if we find buyers, they will require to be paid a higher interest to compensate for a growing risk, just like in the case of Ireland or Portugal.
Easy to attack America these days
On America’s deteriorating world standing, it is not entirely accidental that the policies of a weaker US have been openly and liberally criticized by almost anybody in international fora, including at the recent Seoul G 20. Taking potshots at a weakened giant, until yesterday revered or feared as the world only “Hyper power”, seems like fun. And, as a weakened America is not scary, there is no retribution in being rude to Washington these days.
But if you think this new irreverent attitude is worrisome, imagine how ugly it is going to be when the national debt surpasses 100 per cent of GDP, (sooner than you think), forcing real cuts in R&D, in defense, in foreign aid and almost anything else, including –yes—Medicare and Social Security. Then it will be time to treat America as another has been. A country that had its moment and then blew it by over consuming, instead of investing in its future productive capacity.
Well, this being the case, what now? Bowles and Simpson put their ideas forward. Now they are trying to sell them to the rest of the members of their debt commission. And the outcome is not at all certain, as the commission’s rules require at least 14 out of 18 votes to pass anything. Can they get at least 14 votes for their deficit/debt cutting blueprint? They are not sure.
Treacherous road ahead
But even assuming they can, this is hardly the end of the process. The Congress would have to consider the recommended measures and pass them in their entirety or at least in a form pretty close to the original, so that they can become a bill. And, after that, President Barack Obama will have to sign the bill into law. This is a long and arduous process, replete with obstacles. So, there are good chances that in the end the Bowles-Simpson Plan may be ignored, watered down to the point of becoming something else, and –even worse– that it will appear politically expedient to do essentially nothing for the time being, inevitably making the whole budget/debt debate contentious material for the upcoming 2012 presidential election.
President Obama can choose to lead
But here is an opportunity for President Barack Obama. However difficult this is, assuming that he believes –as he should– that this is indeed a national emergency, he could get in front of this issue and lead the Nation. He can endorse the Bowles-Simpson Plan, not its exact letter perhaps but its substance, including the belief, clearly baked into the Plan, that there is no real solution without serious, permanent spending cuts. Alternatively, he can wait this out, waiting to see how the process unfolds, then taking the path of least resistance, endorse the most politically palatable and thus –by definition– least significant package, promising to revisit the issue later on.
Horrible political risks
Of course, getting in front, taking real action would be politically very dangerous. Endorsing serious spending cuts, including welfare cuts, may cause a rebellion within the left of the Democratic Party that naively believes that money will have to keep coming from Washington, no matter what. And many Republicans have an equivalent ideological antipathy for any tax increases that should be part of the total package.
Get in front, with no political cover
And yet real leadership would be in leading on the debt issue, without waiting for political cover coming from an (unlikely) broad endorsement of the serious but controversial Bowles-Simpson Plan. No doubt, bold action on the debt may cost Obama his re-election. But he said, did he not, that he would rather be a good one term president, rather than a wishy-washy two term president who managed to squeak in twice just by being politically astute, without doing anything truly meaningful. Well, Obama could make this the defining issue of his presidency and throw everything he’s got into this battle for the restoration of America’s fiscal and economic viability.
The consequences of timidity
Of course, taking the path of least resistance is also possible; but not without consequences. Does Obama want to be the leader of a semi-impoverished America in which Government can do almost nothing, as it will have virtually no discretionary money left? Or does he want to be remembered as the one who saw the danger, decided to tell the truth to the Nation and take action?
Erskine Bowles and Alan Simpson have come forward with a gutsy plan. Of course, as senior former policy makers with no ambitions for future public office, they can take political chances with a controversial proposal without a serious career downside. For the president of the United States the stakes are incomparably higher. Well, all the more reasons to show his true colors. As we used to say: “No Guts, No Glory”. Or is this quintessential American motto no longer in fashion?