As the debt-limit debate rages on, one wonders how the richest and most prosperous nation in the history of the world comes to a point where its leaders are unable to figure out how to pay its debts. I suppose there are other examples of this type of dysfunctional governance by powerful states — certainly Rome during its long decline and France in the 18th century, or possibly England in the 20th century — but our case is significantly different.
All those nations or empires had inherent flaws in their societies and in some cases in their form of governance. America’s flaws might be considerable but they are not fatal.
We dug this fiscal hole ourselves. When a populous government, one where people elect their leaders in a broad and highly democratic system, meets a massive demographic shift as we have today, where retired Americans will jump from 35 million to 70 million in the next five years and all of them are entitled to retirement benefits, especially healthcare, you inevitably get a massive expansion in debt.
This is because it is always easier as an elected person to give something to the people who vote today and pass the bill for that benefit on to the people coming along in the future.
Since the politics of populism in a time like this drives massive debt, the question becomes whether there is a way to beat this pattern of democratic governance. The answer, ironically, may be found in this debt-limit debate.
If you look at the history of our nation, politically untenable but necessary decisions are almost always made in crisis. To paraphrase Winston Churchill, America will do the right thing after it has tried all the wrong things. One might add as a follow-on to this axiom that government will only do the right thing when confronted by the crisis created by all the wrong things it tried.
Now is not a time of crisis. But there is surely a crisis coming because of all the wrong things: our growth in spending, massive expansion of deficits and an untenable increase in the debt.
When this administration took office, the deficit was running at about $450 billion per year. Since it has held office, the deficit has averaged $1.4 trillion. Some of this was due to the recession and the drop in revenue but some of it is due to the explosion in spending, especially the stimulus bill and growth in healthcare costs.
This might be a survivable situation if it were projected that, over time, this spending and these deficits would return to traditional levels. But because of the demographic shift and the president’s healthcare bill, this will not happen.
The federal government, which since the end of World War II has spent an average of 19.8 percent of gross domestic product, is this year going to spend 24 percent of gross domestic product. That number will rise to 26 or 27 percent over the next seven years.
This growth falls under the category of “doing the wrong thing.” It is unsustainable; it will create an economic crisis that will lead to a large drop in living standards; and it will impose a much harder life on most Americans who will have to live with it. Although the government at the time will act, it will be painful, expensive and chaotic.
Which leads one to ask, why wait for the crisis? By the time you reach such a crisis many of the good options will no longer be available, either due to a lack of resources or lack of time. Why not have the crisis now, when we are arguably still strong enough and have enough lead time to handle it in a more orderly way? At this time we might be able to put in place remedies that will abate a much more destructive and uncontrollable fiscal meltdown in the future.
I suppose the answer is that no politician wants a crisis — especially this president, who is one of the most risk-adverse in our history, as was shown by his decision to walk away from his own fiscal commission’s report on how to address this problem.
On the other hand, if we know the trauma is coming (and it is) and we know the elements of how to avoid it (and we do), is it not the obligation of the government to act?
If the only way our government can be forced to act is in crisis, then let’s not increase the debt ceiling. Let’s have the crisis and let’s move this nation toward actions that will result in real long-term improvements to our fiscal health and assure our country’s future.
Judd Gregg is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee and also as ranking member of the Senate Appropriations Foreign Operations Subcommittee.