The Ecstasy of Fiscal Policy
Let’s say you’re a political consultant. You’re sitting there in your West Hollywood bondage-themed strip club with party donors picking up the tab, and, of course, you’re thinking about what a great country this is. Swept up in the spirit of gratitude, you decide you’d like to give back. You’d like to solve the country’s looming fiscal catastrophe.
The heart of the problem, you figure, is that unlike yourself, Americans have grown complacent and careless. For 200 years, they lived precarious lives. There were boom and bust economic cycles, devastating epidemics and natural disasters that came without warning. These conditions instilled a sense of prudence. The thought of running up excessive debt filled them with moral horror.
But over the past years, life has become secure. This has eroded the fear of debt, private and public. In 1960, the nation’s personal debt amounted to 55 percent of national income. By 2007, it had risen to 133 percent of national income.
In 1960, a politician would have been voted out of office if he had allowed the federal debt to double in a decade. Now politicians are likely to get voted out of office if they try to prevent it.
These days, voters want low taxes — about 19 percent of G.D.P. And they want high spending — over 25 percent of G.D.P. by 2020. As a result, federal debt, which stood at 41 percent of G.D.P. two years ago, is forecast to balloon to 90 percent of G.D.P. in 2020, according to the Congressional Budget Office. By that time, interest payments on the debt alone would be $900 billion a year.
This whole mess, you repeat to yourself, is caused by democracy and moral decay. What’s needed is a moral revival. And who better to lead it than you? God put you on this earth to manipulate voters for the good of the country.
First, you need to change social norms. The financial crisis has helped to teach people the dangers of excessive debt, but there’s probably going to have to be a public crusade — like the ones against littering and smoking — to hammer the point home. Think Warren Buffett TV spots. Think Oprah. Think Tom Hanks. Somebody has to remind the country that excessive debt is selfish.
Second, the whole deficit hawk brand needs a makeover. Those people are a bunch of schoolmarms: “You’ve been bad. Eat your broccoli. Accept a lower standard of living.”
This is still a Billy Mays nation, thank God. The message has to be: “America can be richer and shinier!” Debt reduction has to be about renewal and prosperity, not pain and sacrifice.
That means deficit reduction has to be embedded in policies that produce growth. Michael Graetz of Columbia University has proposedreplacing the current awful tax code with a value-added tax of 14 percent, cuts in the corporate tax rate, and a fair income tax with two simple brackets kicking in over $100,000. Many people have ideas to streamline the welfare state. The message has to be: we can afford to have a thick safety net, if it is more efficient.
Then you have to mobilize the political class. Now some people think their elected officials are so rotten that only an unelected commission can save us. Snobs. The history of commissions is the history of failure. Stuart M. Butler of the Heritage Foundation and Henry J. Aaron of the Brookings Institution argue compellingly that it is simply impossible in a democracy to rewrite the social contract without popular consent. Commissions are fine, but they have to be embedded in a broader democratic process.
The way to do that is to break free from the polarized committee structure. Invite a dozen handpicked senators and House members and stick them in a room three times a week for six months.
After they’ve come up with a debt-reduction plan, have them send it up in secret to the presidential deficit commission, which President Obama was smart enough to create.
Obama hasn’t been recklessly brave on this issue, but he’s fought against powerful political pressure for a series of mechanisms, which, though riven with loopholes, at least have the potential to control spending — things like the Medicare payment commission and the pay-as-you-go rules. If he had some support, he’d do the right thing.
So once the secret Congressional plan is passed to the White House, the deficit commission can unveil the thing as if it were the product of nonpolitical expertise. That would give the legislators some political cover, and all the Johnnies at the editorial pages and the think tanks will go into ecstasy. You’ll persuade the Tea Party-types that it will make government less intrusive. You’ll persuade business that it will be simple. You’ll persuade liberals that the rich will bear the biggest burden. Everybody will pay something, but everybody will see some benefit.
If you can do that, you will save the country. If not, it’s the decline of Rome, and you might as well just stay in the nightclub.