Comeback America Read online

  About twenty-five people attended that first business and community leaders’ meeting. At our next meeting at the university, forty to fifty people showed up in a hall that could have held two hundred. We had hoped to attract young people to our cause, but we learned, brilliantly, that you can’t schedule your meeting on the far side of campus during morning class hours and expect students to attend.

  We got our act together pretty quickly. We started piggybacking our presentations on meetings of clubs such as the Kiwanis and Rotary that already attracted big crowds. Our target audiences were receptive. Business leaders knew finance and understood the numbers. The media began showing up, especially after the economy started going south. And we kept our focus on universities, believing that young people needed to know what their elders were up to. It didn’t take them long to realize, once they got the facts, that they were being “screwed,” as they typically put it.

  After Richmond, we visited the Humphrey Institute of Public Affairs at the University of Minnesota, where we attracted more than a hundred to a town hall session and met with a number of student leaders. We really started to hit our stride at our stop in Kansas City, where six hundred people showed up for the public meeting. We also landed a sit-down with the editorial board of The Kansas City Star, which cosponsored our visit.

  After we got our act down, Bob and I would swoop into a town with our other panelists like a fiscal SWAT team. I would fly in on the day of our presentation, hopefully booking “government first-class”—an aisle seat in the more spacious exit row of the economy section—and be gone either late that night or on the first flight the next morning. We would do our tag-team act for local audiences. We even started attracting the interest of celebrities, including Warren Beatty, Morgan Fairchild, and Tom Hanks. We would think up sound bites for the media—which became sharper as the economy sank and the deficit soared. “America now owes more than Americans are worth” was a good one. My call to “fight for America’s future” had a nice patriotic ring to it as well, and I meant it.

  Our movement was catching on. But timing is everything. It turned out that our nation was heading into the most destructive financial crisis in decades. From our perspective, the recession of 2008 was a double-edged sword. Yes, it gave us bigger audiences, people who wanted to hear about how the crisis would affect them. But their fears made them more focused on surviving today rather than on planning for tomorrow. I found myself devoting 90 percent of my time to contemporary issues, but I insisted on reserving at least 10 percent to focus on the future. I would tell audiences that the conditions that caused the subprime crisis also existed in the federal government’s finances, and conclude by saying, “The only differences are the scale, and no one will bail out America!”

  Our Fiscal Wake-Up Tour did not target the party in power, but always that eight-hundred-pound gorilla sitting just offstage: the growing gap between the cost of government and the promises that it made on one hand, and the money that was available to pay for those expenses on the other. I viewed it as my job to get those in charge to recognize their profligate ways, and I became more and more insistent as federal deficits, debt levels, foreign dependency, and the unfunded promises for Social Security and Medicare grew under the Bush 43 administration.

  There was a personal side to my campaign that I did not often share with my audiences. My family, the Walkers, came to America in the 1680s. Some of my direct ancestors fought and died in the American Revolution, and I am now an officer in the Sons of the American Revolution. Every American shares ownership in our country, but for me, this connection is a very old, rich family affair, enhanced by my own service in government. When I fight for America’s future, I’m thinking not only of myself and my wife, Mary, but of our children, Carol and Andy, and our three grandchildren, Christi, Grace, and Danny.

  I believe that my frequent congressional testimonies and speeches and our adventures on the Fiscal Wake-Up Tour helped the cause. Between September 2005 and the election of 2008, our traveling road show visited more than forty cities. I visited many more in my capacity as comptroller general and in my next job, CEO of the Peter G. Peterson Foundation. In four years, I traveled to forty-five states, with one more scheduled by the end of 2009. I plan to speak in the remaining four states in 2010. My latest speech before turning this book in for publication was at Boise State University, where over 1,200 people attended and the NBC local affiliate taped the event for later broadcast. My message was always the same—promoting fiscal responsibility and the need to confront the tough choices ahead.

  My official position in Washington gave me an opportunity to speak out and be heard. My problem was that it didn’t give me the power to propose specific policy reforms, to write books, to appear in the media as much as I felt was necessary, or to lead an aggressive grassroots campaign designed to hold elected officials accountable for what they did, or what they failed to do.

  Fortunately, I had met Pete Peterson prior to the start of the Fiscal Wake-Up Tour. After years of championing fiscal responsibility, Pete pledged to start his own foundation after Blackstone went public. He decided to dedicate his time, talent, and treasure to help save America’s future. The foundation’s sole purpose would be to spotlight America’s growing economic challenges and take steps designed to accelerate action on them. In March 2008, I left the GAO to head the Peterson Foundation, in large part in order to be able to partner with Pete.

  Since joining Pete’s foundation, I’ve been making my speeches, appearing on TV, writing op-ed articles, showing the foundation’s movie (titled I.O.U.S.A.), building a new organization, and now writing this book. Let me add here that this book is based primarily on my experience as comptroller general. The views I express in these pages represent my personal observations and analysis, and not necessarily the views of the Peter G. Peterson Foundation. All my speaking fees go to the foundation, as will the royalties from this book.

  I hope this book will achieve three goals. The first is to explain our fiscal predicament in a way that allows everyone, regardless of how comfortable they are with math or finance, to understand it. Second, I want to draw a road map out of this mess. And third, I want to offer readers the tools with which to evaluate programs going forward. When the president or members of Congress propose programs that are supposedly “fair” and “pay for themselves,” the Americans who read this book will be able to ask the right skeptical and probing questions.

  It is our duty to keep close watch on our government. We are shareholders in the American republic and we must be stewards of the future. We must hold the board (the Congress) and the management (the administration) accountable for their actions and for their failures to act. After all, each American generation has an obligation to leave the country better off and better positioned for those who come after us. From generation to generation, we must shore up our financial security, which is essential to the strength of our nation. That’s a vital responsibility, in my view, that we have largely forgotten. It’s time to bring it back.

  As we come out of the current recession, we will be tempted to resume life as it was at the beginning of 2007. To do so would be a big mistake. Instead, we should start to ask ourselves important questions about our future. When we pass on, what will we leave for our kids and grandkids? What would you want to give them, a bequest or a burden? Would you really want to give them a credit card with a huge balance that you and the federal government accumulated and they have to pay off?

  I know you will agree that we need to find another way. The ideas I’ll give you in this book are illustrations. You will have your own ideas, and we should consider lots of options together. Help me get this nation’s priorities straight so that we can bequeath a thriving nation to our descendants, as our parents did to us. I’m the accountant, but all of us can add and subtract. Now can we teach Washington how to do that?

  One

  FISCAL CRISIS 101

  When you give a speech, you’re usually trying t
o deliver a few applause lines and maybe a laugh or two. But when I went out on the road to talk about America’s financial crisis, I counted my talk successful if it induced something else: shocked silence.

  It wasn’t that hard to pull off. All I had to do was deliver a few jarring facts. “Our country is in a $56 trillion financial hole as of September 30, 2008,” I would tell my audiences. “Therefore, if you are part of a typical American family, your household has about $483,000 in debt you probably don’t know about.” Shocked silence.

  “Maybe you have a mortgage on your house,” I would continue. “Well, your share of the national IOU is like a huge second or possibly third mortgage, amounting to almost ten times your annual household income—and in this case you don’t even have a house to show for it.”

  I had them hooked.

  As I said, it isn’t that hard to shock people with the simple facts. Most Americans I encounter simply do not realize how rapidly our national financial obligations have grown—and how far short we are of having adequate resources to deliver on our promises. Our financial condition is as important to our national security as our military strength. Yet many of us don’t have a clue about how recklessly our leaders have managed America’s finances—and how vulnerable you, I, and our children are as a result.

  Some of the questions I get after my speeches show this basic confusion. People ask: Whom do we owe all this money to? And what does it matter that the federal government is in debt? All it has to do is print more money.

  Or they ask: If the government’s spending improves our lives and promotes economic growth, what does it matter if we have a deficit? The implication is that only a heartless number cruncher—like me, by inference—would work to balance the books by cutting back on government benefits such as Social Security and Medicare.

  These are all good questions, especially given how little attention our fiscal health gets in the national conversation. A fiscal crisis doesn’t shoot at us. It doesn’t stalk our children like a human predator. Nobody has sent each of us a bill for $483,000, and nobody will. No, the enemy I am writing about is quiet, patient, and insidious. It’s a danger to our lives right now, but it’s an even bigger threat to our future.

  We Americans are rightly proud of the idea of the American Dream, that if we work hard and persevere, we will succeed. Each generation takes pride in passing on a better life to the next. But we need to be aware of another possibility, a nightmare in which our nation’s growing financial burdens sap our society of the resources we need to maintain our economic, educational, and scientific leadership, to pay for the benefits our less-well-off citizens need, to invest in our children’s future, and to maintain our unparalleled influence in the world.

  How could some red numbers at the bottom of an income statement or balance sheet actually cause so much damage? Stay with me and I’ll show you. I’ll start by explaining the key facts of our great fiscal challenge. The goal here is to clear up some of the fog that comes from intentional obfuscation by politicians, as well as just the understandable complexity of a $14 trillion economy.

  In essence, the topic of this book is very simple. It’s all about how our government collects money, mainly through taxes, and spends it in government operations, programs, and benefits. These decisions on taxing and spending are called fiscal policy, and fiscal policy is all about managing our nation’s finances properly. What I’m telling you in this book is that our government has been making these decisions very badly and that we have to get our fiscal house in order. If we don’t, the consequences will be grave for us and for our country. But I’ll do more than tell you our policies are bad. I’ll give you commonsense ideas—solutions from the sensible center—to correct them.

  OUR FINANCIAL HOLE

  Right now, things don’t look so good. Over the past several decades or so, Washington’s fiscal policies have put us in that $56 trillion hole I evoke to get my audiences’ attention. A lot of bad policies and practices went into creating that hole, and it’s worth understanding the worst of them.

  First, there’s our growing budget deficit. The federal budget is Washington’s annual spending list, proposed by the president, then amended and adopted by Congress. In theory it’s no different from your household budget. You take account of your spendable income and make sure that your expenses don’t exceed it. You borrow for big-ticket items such as a house and car, but you make sure your loan payments fit comfortably within your budget. If your spending gets too high, you had better find a way to bring in more income or you’re in trouble.

  All of this seems pretty obvious. But not in Washington, where the policy-making establishment often pays little attention to the difference between spending and having the money you need to pay for that spending. Most recently, the coincidence of prosperity and fiscal discipline that produced a balanced federal budget under President Clinton exploded into red ink under his successor, President Bush 43, and continues to explode under President Obama. According to the Office of Management and Budget (OMB), the federal deficit grew from $161 billion in fiscal year 2007 (a fiscal year is measured from October 1 to September 30) to $455 billion in fiscal 2008. The OMB announced in October 2009 that the federal budget deficit in fiscal 2009 was $1.42 trillion, or about 9.9 percent of GDP.

  Think about that word, “trillion,” if you can. The $1.42 trillion deficit translates to about $2.6 million of debt accumulated each minute, $160 million an hour, and $3.8 billion a day. Think Warren Buffett is rich? His estimated net worth is only about 2.6 percent of that $1.42 trillion.

  So we should all write to our congressional representatives and demand that they cut spending enough to balance the budget, right? If only it were that simple. The budget covers two basic kinds of programs. The first are discretionary—that is, the government has full discretion as to whether to fund them and how much to give them. These include all the things that we regard as fundamental when we think about government’s role: national security, homeland defense, protecting the environment, building roads, administering justice, circulating money, and so on.

  Then there’s the other kind of spending in our budget, called mandatory. That’s right: The government has no direct control over this spending, because our elected representatives have passed laws guaranteeing benefits to people who qualify for them—such as Social Security, Medicare, and Medicaid. It’s either pay the benefits or change the law, and you won’t find many politicians with the courage to call for new laws to cut our Social Security, Medicare, or Medicaid costs down to size.

  I think you know what’s coming next. Here’s a quiz: Which budget items soak up most of our government spending: (a) the discretionary programs, or (b) the mandatory programs?

  The answer is, the mandatory benefit programs. They took up more than 60 percent of the $3 trillion federal budget for 2008. That means more than $1.8 trillion a year flowed from Washington on autopilot, essentially out of the government’s control.

  Now, how close do we come to collecting the money we need to pay for this combination of discretionary programs and mandatory spending? You know the answer to that one, too. I’ve already cited our $1.42 trillion budget shortfall, and this will result in more debt. But our government owes a lot of money in addition to the amounts resulting from this year’s budget. It has long-term commitments to federal civilian and military retirees and to various building leases and maintenance, among other things. It also owes money to various trust funds, including the ones supporting Social Security (more on that scam later in the book). And the federal government has trillions of commitments and guarantees in response to the recent financial crisis.

  Most significant, it owes money to all the domestic and foreign investors who purchased U.S. Treasury bonds in order to finance our past deficits. When you buy a Treasury bond, you are essentially lending that money to the federal government. The government must pay you back—with interest.

  These obligations add to the nation’s total federal debt, wh
ich includes debt held by the public (domestic and foreign investors) and debt held by the trust funds (primarily for Social Security and Medicare). That federal debt almost doubled during Bush 43’s presidency and has kept on growing. As of September 30, 2009, total federal debt stood at more than $11.9 trillion. Based on the projected deficits and Social Security operations in President Obama’s fiscal 2010 budget proposal and longer-range outlook, our total federal debt could double again during the next eight to ten years if we don’t change our fiscal course soon.

  Add debt held by the public to other liabilities—like pensions, retiree health care, and leases—and you get $12.2 trillion in total federal liabilities as of September 30, 2008. Then there are other commitments and contingencies that bring the total to $13.5 trillion. That’s a lot, right?

  Brace yourself. That’s not the half of it. Remember those mandatory payments to Americans qualifying for government benefits of one kind or another? Well, those payments will go higher and higher as the baby boomers retire, and guess what? They haven’t been funded to account for this demographic reality. We have promised trillions and trillions to recipients of Social Security, Medicare, and other programs, but we are collecting nowhere near enough in taxes and other revenues to pay what we will owe.

  The idea of measuring these so-called unfunded obligations is relatively new in government accounting—probably because the number is so scary that nobody wanted to know it. It’s the “don’t ask, don’t tell” fiscal policy. Well, here it is: Our government’s unfunded obligations as of September 30, 2008, totaled approximately $42.9 trillion. Take the $13.5 trillion figure from above and add the $42.9 trillion in unfunded obligations and you have that $56 trillion hole that’s been reducing my audiences to shocked silence—in fact, it was $56.4 trillion as of September 30, 2008.