[saymaListserv] A Gloom and Doom Scenario : How Can Friends Best Respond?

[Janet Minshall]

Dear Friends, The August '05 issue of Friends Journal published a 
letter from me sent in response to one from Errol Hess (Foxfire 
Meeting - SAYMA) in May '05. Errol's letter was about the issue of 
growth and how he felt that "the notion of growth" was the cause of 
serious problems in the environment, in the economy and in the 
quality of our lives. 

I responded that "it isn't the notion of growth that is a problem. 
Actually, our economy is based on a history of more than 700 years of 
growth that has served as  the basis of our modern civilization. 
Growth from clans to city states moved us to develop the rule of law, 
property ownership, improved transportation and improved 
communications.  The growth of city states to nation states and then 
to a world economy resulted from the ascendance of reason, science 
and technology and the innovations they have produced."

I then wrote about the looming problem of  population moving toward 
balance and then going into actual decline. A serious issue which is 
now evident in Western Europe and is forecast for the rest of the 
world in the Revised Report for 2004 of the UN Population Council. 
This balance of births to deaths , followed by a long and painful 
population decline, is expected to begin within the next 35 to 55 
years -- within the lifetimes of our children.  I continued, "While, 
ultimately, the potential changes brought on by population decline 
would be beneficial to the environment and to the animals and plants 
with whom we share this planet, those changes could also make the 
lives of human beings far less comfortable and more like the 
miserably hard lives of our ancestors who struggled upward from 
caves, mud huts and outhouses to the comfort we live in now."

Several Friends wrote to me after my letter appeared in Friends 
Journal.  The primary question they asked was "Why are you so 
pessimistic about the future?".   The article below is from USA 
Today, written by Richard Wolf who can see the warning signs in the 
deficits and the demographics we face.  This issue has been discussed 
for a while in economics journals, but this is the first article I've 
seen in wider distribution in the popular press.		Janet 
Minshall
(Sorry this is so long, but the subject is important enough that you 
might wish to read it any way.)

Posted 11/14/2005 11:11 PM



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A 'fiscal hurricane' on the horizon
By Richard Wolf, USA TODAY
WASHINGTON - The comptroller general of the United States is 
explaining over eggs how the nation's finances are going to hell.

"We face a demographic tsunami" that "will never recede," David 
Walker tells a group of reporters. He runs through a long list of 
fiscal challenges, led by the imminent retirement of the baby 
boomers, whose promised Medicare and Social Security benefits will 
swamp the federal budget in coming decades.

The breakfast conversation remains somber for most of an hour. Then 
one reporter smiles and asks, "Aren't you depressed in the morning?"

Sadly, it's no laughing matter. To hear Walker, the nation's top 
auditor, tell it, the United States can be likened to Rome before the 
fall of the empire. Its financial condition is "worse than 
advertised," he says. It has a "broken business model." It faces 
deficits in its budget, its balance of payments, its savings - and 
its leadership.

Walker's not the only one saying it. As Congress and the White House 
struggle to trim up to $50 billion from the federal budget over five 
years - just 3% of the $1.6 trillion in deficits projected for that 
period - budget experts say the nation soon could face its worst 
fiscal crisis since at least 1983, when Social Security bordered on 
bankruptcy.

Without major spending cuts, tax increases or both, the national debt 
will grow more than $3 trillion through 2010, to $11.2 trillion - 
nearly $38,000 for every man, woman and child. The interest alone 
would cost $561 billion in 2010, the same as the Pentagon.

 From the political left and right, budget watchdogs are warning of 
fiscal trouble:

* Douglas Holtz-Eakin, director of the non-partisan Congressional 
Budget Office, dispassionately arms 535 members of Congress with his 
agency's stark projections. Barring action, he admits to being 
"terrified" about the budget deficit in coming decades. That's when 
an aging population, health care inflation and advanced medical 
technology will create a perfect storm of spiraling costs.

* Maya MacGuineas, president of the bipartisan Committee for a 
Responsible Federal Budget, sees a future of unfunded promises, trade 
imbalances, too few workers and too many retirees. She envisions a 
stock market dive, lost assets and a lower standard of living.

* Kent Conrad, a Democratic senator from North Dakota, points to the 
nation's $7.9 trillion debt, rising by about $600 billion a year. 
That, he notes, is before the baby boom retires. "We're not preparing 
for what we all know is to come," he says. "We're all sleepwalking 
through this period."

* Stuart Butler of the conservative Heritage Foundation projects a 
period from now until 2050 in which tax revenue stays stable as a 
share of the economy but Medicare, Medicaid and Social Security 
spending soars. To avoid big tax increases, he says the government 
has to "renegotiate" the social contracts it made with its citizens.

* Alice Rivlin and Isabel Sawhill of the centrist Brookings 
Institution put their pessimism into a book titled Restoring Fiscal 
Sanity. Rivlin, who became the first director of the Congressional 
Budget Office in 1974, says it will take an "economic scare" such as 
the 1987 stock market crash to spur action. Sawhill likens the 
growing gulf between what the government spends and takes in to a 
"Category 6 fiscal hurricane."

'The Fiscal Wake-Up Tour'

They are the preachers of doom and gloom. Liberals and conservatives, 
Democrats and Republicans, they are trying to be heard above the 
ka-ching of the cash register as it tallies the cost of government 
benefits and tax cuts, Iraq and Hurricane Katrina. To raise their 
profile in recent months, several have traveled together to places 
such as Richmond, Va., and Minneapolis for what they call a "Fiscal 
Wake-Up Tour."

Leon Panetta, former White House budget director and chief of staff 
to President Clinton, calls them "disciples of balanced budgets. ... 
And at some point, they'll be proven right."

The White House and Congress are trying to address the nation's 
short-term budget deficits, but their response pales against the size 
of the long-term problem. President Bush proposed nearly $90 billion 
in savings over five years in his 2006 budget. He also tried to trim 
future Social Security benefits for wealthier recipients. The Senate 
this month approved $35 billion in savings over five years. House 
Republicans tried to save more than $50 billion last week, but 
objections from moderates stalled action. Either way, the savings 
could be wiped out by $70 billion in proposed tax cuts.

The budget-cutting effort is being led by conservatives, who recoiled 
when Congress quickly voted to spend $62 billion after Hurricane 
Katrina struck New Orleans and the Gulf Coast. "Katrina served as a 
wake-up call," Walker says.

In prior years, facing a less imminent demographic explosion, 
Congress cut in politically agonizing increments of $500 billion over 
five years. Bush's father gave up his "no new taxes" campaign pledge 
in 1990. After Ross Perot focused attention on the deficit in his 
1992 presidential campaign, Clinton and the Democratic-run Congress 
raised taxes even more in 1993. Clinton and the Republican-run 
Congress forced two government shutdowns before agreeing on a 
deficit-reduction package in 1997.

In each case, cutting the deficit backfired at the polls. The elder 
Bush lost re-election, the Democrats lost Congress, and Republicans' 
obstinacy helped Clinton win a second term. "The choices you have to 
make are almost exactly the opposite of what wins political 
elections," Panetta says.

The problem is also easy for Congress to postpone because the day of 
reckoning is years away. This year's deficit was $319 billion, down 
$94 billion from the year before. That's 2.6% of the nation's 
economy, an amount easily borrowed from foreign investors.

 From 'Grenada' to 'Vietnam'

But there is every reason to act - and soon. Budget watchdogs cite 
these looming problems:

* Prescription-drug coverage under Medicare takes effect Jan. 1. Its 
projected cost, advertised at $400 billion over 10 years when it 
passed in 2003, has risen to at least $720 billion. "We couldn't 
afford" it, Walker says of the new law.

* The leading edge of the baby boom hits age 62 in 2008 and can take 
early retirement. The number of people covered by Social Security is 
expected to grow from 47 million today to 69 million in 2020. By 
2030, the Congressional Budget Office projects, Social Security 
spending as a share of the U.S. economy will rise by 40%.

* The bulk of Bush's 10-year, $1.35 trillion tax-cut program is set 
to expire at the end of 2010. But Congress is moving to make the 
reductions permanent. That would keep tax revenue at roughly 18% of 
the economy, where it's been for the past half-century - too low to 
support even current spending levels. "We can't afford to make all 
the tax cuts permanent," Walker says.

* Baby boomers begin to reach age 65 in 2011 and go on Medicare. Of 
all the nation's fiscal problems, this is by far the biggest. If it 
grows 1% faster than the economy - a conservative estimate - Medicare 
would cost $2.6 trillion in 2050, after adjusting for inflation. 
That's the size of the entire federal budget today.

"Social Security is Grenada," Holtz-Eakin says. "Medicare is Vietnam."

Inaction could have these consequences, experts say: Higher interest 
rates. Lower wages. Shrinking pensions. Slower economic growth. A 
lesser standard of living. Higher taxes in the future for today's 
younger generation. Less savings. More consumption. Plunging stock 
and bond prices. Recession.

Some veterans of the deficit-cutting wars are pessimistic about 
avoiding disaster. "In the end, CBO and others are no more than speed 
bumps on the highway of fiscal irresponsibility," says Robert 
Reischauer, former Congressional Budget Office director and now 
president of the non-partisan Urban Institute.

'Where's Ross Perot?'

The gloom-and-doom crowd hopes to avoid that fate. Increasingly in 
recent months, they are traveling the country, writing and speaking 
out about the need to cut spending, raise taxes - or both.

The most outspoken is Walker, an impeccably dressed CPA whose 15-year 
term as head of the Government Accountability Office runs through 
2013. He was a conservative Democrat, then a moderate Republican, and 
is now an independent. He's also a student of history, a Son of the 
American Revolution who lives on Virginia property once owned by 
George Washington.

Walker's agency churns out reports with titles such as "Human 
Capital: Selected Agencies Have Opportunities to Enhance Existing 
Succession Planning and Management Efforts." But he knows he must try 
to humanize the numbers, and his rhetoric on the nation's fiscal 
course has become more acerbic. "Anybody who says you're going to 
grow your way out of this problem," Walker says, "would probably not 
pass math."

Holtz-Eakin, a soft-spoken economist who said Monday he will leave 
CBO at the end of the year, takes a different approach. Less prone to 
giving speeches, he sees his role as a consultant and truth-sayer to 
Congress. "Numbers are the currency of the realm in Washington," he 
says, and most agree his agency has the best in town. But he 
concedes, "Sometimes it falls to the consultant to tell the client 
the bad news."

Holtz-Eakin's father was in steel, a cyclical business rocked by 
strikes and shutdowns. "I thought, 'This is nuts. No one should live 
like this,' " he says. That explains why he wants the government to 
prepare for new demands on its New Deal and Great Society benefit 
programs. "The baby boom has been getting older one year at a time 
with a striking regularity," he says.

MacGuineas is the outside agitator. An independent, she worked for 
Sen. John McCain's presidential campaign in 2000. She respects 
politicians who deliver bad news, as presidential candidate Walter 
Mondale did in 1984 when he said tax increases were inevitable - and 
then was defeated in 49 states.

"I want to see a presidential election where the candidates are 
talking about what taxes they'll raise and what spending they'll 
cut," she says. "It's not always a winning campaign slogan."

Conrad ran for the Senate in 1986 promising to reduce the budget 
deficit or quit after six years. By 1992, the deficit had hit an 
all-time high, and he said he would not seek re-election. Only the 
death of North Dakota's other senator kept him in Congress.

The former state tax commissioner has been doing this longer than 
other congressional budget officials - and he has the most charts. 
He's so numbers-oriented that at baseball games, he can instantly 
compute a hitter's average after each at-bat. "Numbers speak to me in 
a way that they don't speak to others," he says. "I guess it's the 
way my brain is wired."

Sawhill and Butler, from opposite ends of the political spectrum, 
lead a group of about 15 budget experts at Washington think tanks who 
gather periodically to discuss their dour crusade. Aided by Walker 
and the non-partisan Concord Coalition, a fiscal watchdog group, they 
have taken their show on the road.

Butler, a native of Britain, witnessed there in the 1960s and '70s 
the effects of slow growth and high unemployment, driven partly by 
generous government benefits. "We have a responsibility" to start the 
debate, he says, "because we don't have to get re-elected." But 
Sawhill says it's "an indictment of our political leadership that it 
is being left to outside groups such as ours to put these issues on 
the agenda."

After three decades in the business, Rivlin is frustrated by 
lawmakers' inaction and blames balanced-budget advocates for not 
better articulating the problem. "There may be better ways to talk 
about it," she says. "I sometimes think, 'Where's Ross Perot when we 
need him?' "
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