By Linda Killian, the Thomas Jefferson Street blog
A dizzying array of political and financial luminaries of both parties appeared in Washington Wednesday to discuss the U.S. government’s dismal fiscal situation. There was unanimous agreement that if something isn’t done soon this country faces a serious debt crisis.
The Fiscal Summit, sponsored by the Peter G. Peterson Foundation, brought together former President Bill Clinton, OMB Director Peter Orszag, former Federal Reserve Chairman Alan Greenspan, former Treasury Secretary Robert Rubin and Co-Chairs Erskine Bowles and Alan Simpson of President Obama’s National Commission on Fiscal Responsibility and Reform, along with commission members Alice Rivlin, the former CBO and OMB director, and GOP Sen. Judd Gregg and Rep. Paul Ryan, as well as many others.
The focus of the summit and of the commission is to take a look at the ever increasing U.S. deficit and debt, and the impact they will have on the nation’s security, competitiveness, and standard of living and to make recommendations for how to fix what is quickly becoming a crisis of major proportion.
“We have to solve these big problems, and we have to solve them now,” said Bowles. “Otherwise we are going to be facing that big word: Bankruptcy.”
One bit of news that came out of the day was the declaration by Simpson that when it comes to recommendations for cuts or action by Congress, “Everything is on the table.” Simpson was including the recently passed Democratic health care reform plan, which came up frequently at the meeting and drew harsh criticism from the Republicans in attendance.
Rep. Paul Ryan derided the legislation as “a fiscal train wreck” waiting to happen and the biggest entitlement ever created. “There is just no way we are going to be able to pay for it,” said Ryan.
What has been drawn in stark relief during the health care debate is the different way the two parties see the role of government and this was also on display at the fiscal summit. At issue is what to do about the looming debt and a decade of fiscal profligacy. Do we raise taxes, reduce spending, cut entitlements or a little bit of all of these? Republicans seem to argue that we are doomed if we don’t cut spending now, while Democrats suggest it isn’t as bad as all that and we should look at increasing taxes.
Alice Rivlin, former head of the CBO and OMB and a member of the commission, known for her fairness and hard headed economic analysis, put it succinctly. “There’s fear mongering on one side and denial on the other.”
Rivlin said we need to put forward some practical solutions to controlling the rate of spending and she hopes after the November election the public and Congress will be ready to do that. She pointed out that spending went up slowly throughout the 1990s under a Republican Congress and a Democratic president. “Spending restraint is not impossible,” said Rivlin.
And although Republicans always argue that increasing taxes stifles private economic investment, taxes went up during the Clinton administration and the nation experienced one of the longest economic expansions in our history.
Clinton bequeathed George W. Bush a budget surplus which quickly turned into a record deficit thanks to Republican tax cuts and spending, especially on the costly Iraq war. He soberly told those at the Fiscal Summit that what we need to get across to the American people is that it’s a question of national security. Almost 50 percent of our debt is held by foreign sources. “It’s about controlling our economic destiny…We can’t do it if we keep mortgaging our future to other people.”
Robert Rubin, Clinton’s Secretary of the Treasury, said he is more worried about this problem than anything else related to the economy in his lifetime including the banking crisis.
The deficit could choke off the economic recovery we are beginning to experience said Clinton, Rubin and Alan Greenspan, former head of the Federal Reserve. When interest rates rise it will cost the U.S. government much more to service its debt, which could result in rampant inflation and an even worse economic crisis.
The general consensus at the Fiscal Summit was that we have one to two years to deal with this problem or else. “We’ve got to act quickly or we’re not going to be able to head it off,” predicted Greenspan.
The big question is whether the commission, and more importantly the Congress and president, will have the courage and political will to address the problem. The commission needs to be “free enough to disregard the politics and smart enough to take them into account” by proposing solutions that can and will be adopted, said Clinton.
One hopes our current political leaders will heed Clinton’s advice and that it won’t take a near collapse of Greek proportions for them to act.