[OPE] David Walker and the public finance challenge of the next US federal government

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Sun Feb 17 2008 - 13:53:11 EST

Fri Feb 15 WASHINGTON (AFP) - The head of the audit and investigative arm of the US Congress announced his resignation Friday, citing "real limitations" on what he could do. David Walker, 51, a respected voice on fiscal matters, said he was making an early departure from the US Government Accountability Office (GAO) to head a new public interest foundation. (...) He had warned that the US government was on a "burning platform" of unsustainable policies and practices with fiscal deficits, chronic healthcare underfunding, immigration and overseas military commitments threatening a crisis if action was not taken soon. http://news.yahoo.com/s/afp/usgovernmentcongressquit  http://www.gao.gov/cghome.htm

Walker was an outspoken critic of the costs of the wars in Iraq and Afghanistan, Social Security, Medicaid and Medicare spending - issues on which the Democratic-led Congress, and Republicans before it, have had trouble building consensus. 

"The fact is, is that we don't face an immediate crisis. And, so people say, 'What's the problem?' (...) Beginning next year, and for 20 years thereafter, 78 million Americans will become pensioners and medical dependents of the U.S. taxpayer. "The first baby boomer will reach 62 and be eligible for early retirement of Social Security January 1, 2008. They'll be eligible for Medicare just three years later. And when those boomers start retiring in mass, then that will be a tsunami of spending that could swamp our ship of state if we don't get serious," Walker explains. (...)

What would happen in 2040 if nothing changes? "If nothing changes, the federal government's not gonna be able to do much more than pay interest on the mounting debt and some entitlement benefits. It won't have money left for anything else - national defense, homeland security, education, you name it," Walker warns. Walker says you could eliminate all waste and fraud and the entire Pentagon budget and the long-range financial problem still wouldn't go away, in what's shaping up as an actuarial nightmare. Part of the problem, Walker acknowledges, is that there won't be enough wage earners to support the benefits of the baby boomers. "But the real problem, Steve, is health care costs. Our health care problem is much more significant than Social Security," he says. Asked what he means by that, Walker tells Kroft, "By that I mean that the Medicare problem is five times greater than the Social Security problem." (...)

So where's that money going to come from? "Well it's gonna come from additional taxes, or it's gonna come from restructuring these promises, or it's gonna come from cutting other spending," Walker says. (...) 
"Unfortunately they don't get it. I don't know anybody who has done their homework, has researched history, and who's good at math who would tell you that we can grow our way out of this problem" . (...)
Asked if he knows any politicians willing to raise taxes or cut back benefits, Walker says, "I don't know politicians that like to raise taxes. I don't know politicians that like to cut spending, but I think what we have to recognize is this is not just about numbers. We are mortgaging the future of our children and grandchildren at record rates, and that is not only an issue of fiscal irresponsibility, it's an issue of immorality." 

"The key is, we want to keep taxes as low as possible in order to maximize economic growth, maximize disposable income and maintain our competitive advantage as compared to Europe. But the real irony here, for conservatives, [is] they want to keep taxes low. For liberals, they want to be able to maintain as many social programs as possible. The path that we're on is a threat to both conservatives and liberals, and both sides need to understand that we're going to need to make changes on all those dimensions--the sooner, the better. Because there's no way we're going to grow our way out of this problem. The math doesn't come close to working. There's no way that we're going to be able to avoid major entitlement reforms--especially in the health-care area--and there's no way that we're going to be able to avoid spending constraints and tax reform." http://www.allbusiness.com/finance/4504369-1.html

"I think the biggest risk we face is that foreign investors will decide that they don't want to buy as much of our debt in the future, which will cause upward pressure on interest rates--which will have a ripple effect on the federal budget, on other interest rates and the economy as a whole. That is the most likely scenario. "

Q: Is there any kind of historical parallel from which you could draw to compare what's happened in the past with what's happening now? 

A: "I'll draw three. The first is the Roman Republic. The Roman Republic is the longest-standing republic in the history of mankind. It lasted for over 500 years. The Roman Republic fell for many reasons, three of which resonate today. No. 1: Decline in moral values and political civility at home. No. 2: Overconfident and overextended militarily around the world. No. 3: Fiscal irresponsibility by the central government. I'll give you two more examples from more modern history. New Zealand came to the brink of bankruptcy in the late 1980s and early 1990s. They made dramatic and fundamental reforms in what their government did and the way they did business. (...) Another example is Argentina. They came to the brink of bankruptcy, didn't make those tough decisions and went bankrupt. (...) The problem today is not today's deficits. Today's deficits are not a big problem--they're imprudently high, but they're not the problem, because they're not even as high as the deficits used to be as a percentage of the economy in the 1980s. The problem is not today; the problem is where we're headed--because we're headed for a tsunami of spending that could swamp the ship of state like nothing we've ever seen before." http://www.allbusiness.com/finance/4504369-1.html

Probably Walker's bosses didn't really like the "historical parellel" he drew.


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