As founding director of the Congressional Budget Office and director of the White House Office of Management and Budget during the first Clinton administration, Alice Rivlin is a renowned expert on U.S. economic policy. Now, as she and her cochair, former Republican chairman of the Senate Budget Committee Pete Domenici, launch the Debt Reduction Task Force, a nongovernment initiative backed by the Bipartisan Policy Center, she will step up to the plate yet again to develop a strategy to confront the national debt. She recently spoke with U.S. News about the problems associated with a large debt. Excerpts:
How did President Obama's spending in the past year affect our debt?
The debt has increased quite dramatically in the last couple of years as a result of the recession, not primarily because of the spending of the Obama administration—although that contributed. Primarily because of what happens in any deep recession: Tax revenues fall off and some spending goes up, like unemployment compensation. The measures that the Bush administration and the Obama administration took, along with the Congress, to mitigate the recession and to stabilize the financial sector also contributed to this increase in debt. Now, those are temporary increases in spending; those will come down if the economy recovers. But we start from a much higher debt as we look ahead.
What are the consequences of the debt?
First, it's going to be difficult to borrow all that money. We finance much of our debt overseas, about half of it—in recent years it's been bought by other countries, the Chinese, other emerging market countries, and other parts of the world. Building up debt to other countries makes us quite vulnerable. Also, the rising debt is very likely, if it can be financed at all, to be financed at much higher interest rates. That means that interest rates will go up in the United States, not just for the government but for everybody.
Will Obama's proposed spending freeze work?
The spending freeze that the president announced is a small step in the right direction, but it applies to a very small part of the budget. That is not going to solve the big looming deficits that come largely from the entitlement programs growing faster than taxes in the future.
What do you think of the Senate raising the federal debt limit?
Congress had to do that. No one wants the United States to default on its debt, so raising the debt ceiling was necessary. It's an illustration of the seriousness of the problem and the fact that we have to face up to it and not keep raising the ceiling forever.
Has partisanship affected the debt?
Yes. The problem at the moment is that Congress is very polarized, and when the two senators [Democrat] Kent Conrad and [Republican] Judd Gregg proposed a bipartisan commission on debt reduction, it was voted down. It was voted down because some Democrats were afraid that the commission would recommend cuts in Social Security or Medicare, and Republicans were afraid—rightly in both cases—that the commission would recommend tax increases. In fact, we can't get out of this problem without doing both spending cuts, especially slowing the growth of entitlement, and tax increases.
Is it possible to manage our debt and create jobs at the same time?
Yes. The debt problem is a long-run problem. No one would want to take immediate action either to cut spending or to raise taxes, but if we start now to figure out what we're going to do and enact measures that will take effect after the recovery is solid, then we will have a better chance of getting the debt under control.