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The Long Term Debt Threat: Virginia Woolf Syndrome? April 14, 2010

Posted by Rebecca Williams in Analysis.
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by Rebecca Williams and Matt Leatherman

English novelist and essayist Virginia Woolf famously ended her life in 1941 by filling the pockets of her overcoat with stones and walking into the River Ouse, drowning herself.

Congress members and administration officials, it seems, have adopted a similarly destructive resolve, walking with purpose and determination into a river of debt.

The numbers are clear and experts agree: the US federal budget is on an unsustainable long-term path.

The federal government continues to run large annual deficits, borrowing at an annual rate of more than $1 trillion.  Debt reached the largest percentage of GDP – around 10% – since WWII in FY 2009.  The economic downturn and the federal government’s stimulus packages offered in response have made these fiscal challenges even greater, and the aging American population and its draw on Social Security, Medicare and Medicaid funds further complicate budgetary projections in the out years.  Absent significant policy changes, the GAO projects that US debt will grow to 100 percent of GDP by 2018.

Federal Chairman Ben Bernanke, speaking before the Dallas Regional Chamber last week, warned, “To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above. These choices are difficult, and it always seems easier to put them off — until the day they cannot be put off any more.”

Chairman Bernanke’s assessment is correct.  Not only are the choices difficult, they become progressively more complicated the longer they are deferred.  The further we walk into this river, the harder it becomes to empty the stones from our pockets and turn back.

In an effort to walk back ashore, President Obama announced a three-year freeze on discretionary spending in this year’s State of the Union address.  Yet national security-related costs, including the defense, international affairs, and homeland security budgets, are exempt from this policy even though they comprise half of discretionary spending.  Each of these budgets is requested to grow in FY 2011.

Looking more strategically, President Obama also announced the creation of a debt commission (the National Commission on Fiscal Responsibility and Reform) designed to come up with proposals to balance the nation’s primary budget (excluding interest on the national debt) by 2015.

These steps are good but very modest.  Limiting the spending freeze only to discretionary spending other than national security ultimately exempts about 80% of the federal budget.  Likewise, a presidentially-chartered debt reduction task force can influence the issue only indirectly though Congress, which has shown an explicit resistance to spending discipline.  We are still walking into the river, just at an ever-so-slightly slowed pace.  In the meantime, budget experts – our bystanders on the river bank – are shouting in unison that we are nearing the point of no return.

Absent very large tax increases, the defense and international affairs budgets will eventually be on the cutting board.  Mounting defense budgets, fueled by expanding military missions, call out for greater discipline.  So too do US foreign assistance programs, which often struggle with prioritizing aid and tying it to larger foreign policies.   Prioritizing and constraining missions both at the Pentagon and Foggy Bottom surely will require difficult tradeoffs, but they are necessary.  It’s time to give serious consideration  to the appropriate roles and missions of our military, the structure of the diplomatic corps, and the impact on capacity and capability associated with these.

Seriously disciplining discretionary spending and, particularly, the defense and international affairs budgets will not reduce the debt on their own.  Entitlement programs chart that path.  Applying well-reasoned budget discipline to our overseas endeavors will help streamline these institutions and reduce waste.  At any rate, its time to head back ashore.



1. Terry Mason - April 14, 2010

It’s like the frog placed in cool water on the burner — a slow death that would have been averted if he jumped into the hot water and immediately recognized the danger and jumped out.

One possible assist — not full solution, but an assist — to the reduction in spending is not reducing entitlements, but making wiser choices in spending to reduce resultant costs. Just as in medical care, we’ve learned that spending money in preventive care vastly reduces the cost to reacting to dire illness after it occurs.

I submit that investing in violence prevention would also result in savings vs. the costs to reactively respond after the violence occurs — which is our pattern in this country. The World Health Organization estimates we spend $300 Billion on the costs of interpersonal violence in this country, excluding the cost of war. Programs supported by mandates such as the Violence Against Women Act save billions of dollars.

If we were to invest money in supporting and expanding existing programs proactively preventing violence, and treating violence at the root cause with strategic action, not only would we save tens and even hundreds of billions of dollars, but we would save lives. The Youth PROMISE Act will do this. The Department of Peace bill will do this.

Violence reduction is not only our only sustainable choice, it should be a strong part of any economic recovery and debt reduction strategy.

2. Stephen Abott - April 14, 2010

I just read the debt blog post and well, I think a major point is that defense and state budgets are a significant part of the discretionary budget but the vast majority of the budget problem is Medicare, Medicaid, and Social Security. While cuts to State and DOD may be necessary in the future, if we fix entitlement spending, we could continue to spend as much or more on DOD and State. In fact, if we just fix Medicare by bringing medical cost growth down to inflation or somewhat above inflation levels, we could increase DOD spending or…afford a mission (a la 2001 a space Odyssey) to Jupiter or something.

So, I just though this should include a clearer emphasis on the fact that entitlement spending is the biggest problem; in fact, as far as I know we are actually at a modern historical low for discretionary budget as a percent of GDP.

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