Why conservatives and progressives are both right.
By Bill Shireman
Conservatives are right: As a nation, we are out of money and deep in debt. Progressives are also right: We can’t pay off our debt by extracting it from the poor, the middle class, or the environment.
But many right and left leaders are wrong about the solution.
To reduce the outflow of wealth, some on the right would radically cut government spending now. To increase the inflow of wealth, many would “drill, baby drill” the nation’s resources, as fast as we can. To reduce the concentration of wealth, some on the left would tax prosperity, or simply redistribute it, now. To increase the inflow of wealth, many would spend, baby spend—and pay off our debts by printing more money, as fast as we can.
The right and left often overlook a simple fact: There is a difference between spending money and earning money. Yes, it is time to reduce the concentration of money and power. Too much is wielded by overgrown government bureaucracies, corporate crony capitalists, and value-consuming financiers. Rather than feeding at the troughs where money happens to flow, they need to add value commensurate with their take.
But to just cut spending, tax prosperity, or deplete our economic or ecological resources would bankrupt us. These are false panaceas. One spends down our economic prosperity. The other spends down our energy and ecological prosperity.
The real solution to our problem is not to consume value—it is to create it, by tapping the power of people to innovate.
Economist Bruce Bartlett, a senior policy adviser to the Reagan and George H.W. Bush administrations, has grown weary of the false debate. In his book, “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take,” he describes the futility of massive cuts in federal spending, and proposes a better alternative.
The national debt, Bartlett says, is like a bank loan—it must be paid off in installments, out of current income. It is a part of our government debt, but only a small part. The vast majority comes in the form of political commitments we have made to important constituencies: future benefits to retired federal employees, veterans, and Social Security and Medicare beneficiaries. These most be paid only when they come due, so they don’t show up in the federal budget, and aren’t usually counted when we measure the government debt.
That is because the government does its accounting on a cash basis, not an accrual basis, the way corporations do. That way, they don’t have to book the full cost of their programs annually. Instead, the government publishes a separate, obscure financial statement, now called the “Financial Report of the United States Government.” The Obama administration published the fiscal 2011 version on December 23, two days before Christmas, while reporters were too busy preparing for the holidays to read a complex 254-page financial document. Neither the New York Times nor Fox News seemed to notice it.
But Bartlett did. Altogether he found the Treasury reported the government’s total indebtedness at $51.3 trillion. The national debt made up a fifth of this—$10.2 trillion. Veterans and federal employees were owed $5.8 trillion. Social Security’s unfunded liability —promised benefits over expected Social Security revenues—was $9.2 trillion over the next 75 years. And Medicare’s unfunded liability was $24.6 trillion.
It would be impossible to cut spending enough for a single generation of Americans to pay off this debt—it totals nearly the entire net worth of American households. Unless our productivity and output grows, the Treasury projects that within a generation the federal debt will rise to 100 percent of gross domestic product (GDP), as our future commitments come due, and suddenly become part of the nation’s acknowledged debt.
This kind of financing would devastate the nation. Balancing the federal budget would not be nearly enough, as economists document. The federal government would need to run a surplus continuously for 75 years to prevent the debt/GDP ratio from rising.
If we can’t cut spending enough to erase the deficit, what can we do?
Bill Shireman is president and CEO of Future 500.