Monday, November 22, 2004

Running on Empty

Running on Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It by Peter G. Peterson (Farrar, Straus and Giraux, 2004)

Turn out the lights, the party's over. Peter Peterson joins a growing chorus of economic naysayers, painting a picture of gloom and doom -- runaway deficits (budget and trade), a ticking demographic timebomb, and a huge and growing imbalance between what the federal government has promised to pay in future benefits and what it can reasonable expect to collect in future taxes. The country is bankrupt. The end is nigh. And our political Neros are too busy fiddling while Rome burns. Peterson is a lifelong Republican, a CEO, a former U.S. Secretary of Commerce, a member of a couple of presidential commissions, and a founding member of the Concord Coalition. His views should carry a lot of weight.
The book can be divided into three sections. The first deals with the magnitude of the problem. How bad can it be? Social Security and Medicare had a combined deficit of $25 billion in 2003. By 2020, the deficit is projected to be $783 billion. By 2040, $4.3 trillion. Yes, that's trillion with a T for two government programs. According to the Social Security Administration, financing projected increases in Social Security and Medicare through higher contributions would require payroll taxes to rise by 50% by 2020, by 200-35o% by 2040. Of course, payroll taxes fall most heavily on low and middle-class taxpayers. And this is a problem whose solution will be more severe the longer we take to get started on a solution. And what about the Social Security trust fund? Forget about it! As Peterson says, it's neither trustworthy or funded. Those funds, which were supposed to be used to get ahead of the demographics, have been mixed in with the general funding to make the budget deficits look smaller than they really are.
The second section of the book passes out the blame to both parties. Chapter 5 is entitled, "How the Democrats Got Us into this Mess (with Republican Help). Chapter 6 is "How the Republicans Got Us much Deeper (with Democratic Help).
The third section deals with solutions to the problem. They will all require a bit of pain and a bit of give and take of the part of the Democratic and Republican Parties.

The most interesting part of the book is Chapter 7, "Ten Partisan Myths." He goes into a little detail to explain why these statements aren't true, and makes very good points. Partisans of both sides will remain unconvinced in spite of any evidence. He also makes the argument that these are not the only myths being tossed around by both sides, just the most blatant ones:

5 Democratic myths about entitlements
  • Because federal benefits go to the poor, reform will amount to a shredding of our social safety net.
  • Even if they don't go mostly to the poor, federal benefits foster equality by going mostly to lower-income households.
  • Federal benefits go mostly to the elderly, whom everyone knows are much less well-off than younger Americans.
  • Social Security and Medicare are earned rights, as in a contract; beneficiaries are only getting back what they paid in.
  • The future growth in the cost of senior benefits, whatever that may be, can easily be borne by younger generations.
5 Republican myths about tax cuts
  • Because the American people are overtaxed, they want and deserve our tax cuts.
  • Okay, forget the long-term tax burden. Our tax cuts are still a sensible near-term means of stimulating a weak economy back to health.
  • Even when they don't deliver near-term stimulus, our tax cuts make the tax code more efficient - which means a higher standard of living all around.
  • The critics just don't get it. What our tax cuts are really about is improving "supply side" incentives to work, save and invest.
  • Let's be honest. This is all about politics. In the long run, our tax cuts will force Congress to cut back spending and, with that, cut back government.

I have a few problems with Running on Empty. The most obvious is Peterson's lumping of Social Security and Medicare together like they are just one big program. They are not. They each have different problems and different solutions. Social Security is not in great shape, but it is more fiscally solvent than Medicare, which is basically already on life support. (Bush's prescription drug benefit did not help the program much either.) But Peterson correctly notes that fixing Social Security will require some tinkering around the edges. Fixing Medicare will require a long hard look about our values. No one can argue that the rich are entitled to better homes and cars, but are they also entitled to better healthcare than everyone else? How much healthcare should taxpayers be expected to pick up the tab for? Gold-plated healthcare for all? Even if it only prolongs life without doing much to improve it?
Peterson deserves a great deal of credit for writing this book and wading neck-deep into this morass. I only hope some politicians are listening before it's too late. The election of George Bush does not make me very optimistic. His talk of permanent tax cuts and partial privatization sound like a recipe for disaster.

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