[saymaListserv] A Gloom and Doom Scenario : How Can Friends Best Respond?
jhminshall at comcast.net
Wed Nov 16 15:50:39 JEST 2005
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
(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
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
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
* 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
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
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
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
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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