America's Prophet of Fiscal Doom

It's probably not much of a stretch to say that David Walker was the most high-profile U.S. comptroller general in American history. Of course, the country also faces possibly the biggest financial problems in its history, and Walker felt it was his duty to be the PowerPoint-wielding bearer of bad news—and, he hopes, a catalyst for change. In January, Walker left the government to head the Peter G. Peterson Foundation, whose purpose is to raise awareness about long-term sustainability issues, from entitlements to the environment. Walker recently chatted with U.S. News about America's fiscal future. Here are a few excerpts:

So far during this election season, one side is talking about big tax cuts, the other about big spending...
Neither side is very good at math.

Do you think the issue of fiscal responsibility has been given its due?
Absolutely not. First, I never expected that fiscal responsibility and intergenerational equity would be major issues in the primary campaign, and they haven't been. But it is absolutely imperative that they be an issue in the general election campaign because we have a much bigger subprime problem going on in regard to what the federal government is doing that would have a much greater adverse economic impact that could affect tens of millions of Americans if we don't start to do something about it. The next president has to be willing to deal with this.

Why is doing something now so imperative?
We have about a five- to 10-year—at most—closing window of opportunity to start addressing our fiscal challenges or else our foreign lenders are going to send us a signal that we will feel.

What do you mean when you say "our fiscal challenges"—like the subprime mortgage crisis?
With subprime you had a disconnect between the people who were originating the loans and earning the fees and the people who were bearing the risk of default. The analogy with the federal government is that there is a disconnect between current taxpayers benefiting from high-spend, low-tax policies and future taxpayers who will have to pay the bill with compound interest.

Second, in the current subprime situation, there was a lack of adequate transparency as to the magnitude of these transactions and the nature of the risk.... You have the exact same thing with regard to the federal government's off-balance-sheet obligations. The problem is not current deficits and debt levels. The problem is where we're headed in the $44 trillion-plus in unfunded obligations for Social Security and Medicare that's growing $2 trillion plus a year.... Cash is key. We are already negative cash flow for Medicare. We're going to go negative cash flow for Social Security within the next 10 years...though Social Security is not the real problem. It's healthcare that's going to bankrupt the country.

And you think the current campaign is neglecting this?
So all these debates people are having right now, "Gee, I want to expand healthcare for all, and I am going to pay for it through not extending the Bush tax cuts or whatever," that does nothing for this hole.... Beware of politicians making unfunded promises. The last time that happened was Medicare prescription drugs. It came with an $8 trillion price tag.... It is the same thing as our deficits, which excludes the fact that we spend every dime of the Social Security surplus. So the real deficits on an operating basis are $170 billion to $200 billion higher.

Why are you now in the private sector?
The reason I left my position as comptroller general of the United States is because I believe we have a closing window of opportunity to make changes in order to avoid a major crisis, and I believe I needed to be even more specific about proposed solutions and be even more aggressive about building broad-based coalitions and to be very active in trying to stimulate grass-roots efforts to get Congress to make decisions before we have a crisis—because we will have a crisis if we continue to kick the can down the road.

When will hear about some solutions?
We will be talking about proposed solutions...and you will be seeing some ideas pretty quickly about what we should be doing about Social Security, the framework of what we should be doing about healthcare.... You will clearly see some things before the general election campaign.