My Interview with Former US Comptroller General David Walker (Part 2)
Things may seem bleak when you look at the numbers, but there are solutions that we can implement that could help our situation and ultimately prevent the worst outcomes when it comes to the national debt.
David Walker’s book was divided into three parts: a wake up call, a call to action, and a way forward. He has a number of solutions that he’s proposed that meet six principles. Any solution would have to be: pro-growth, socially equitable, culturally acceptable, have mathematical integrity, be politically feasible, and have meaningful bipartisan support.
We have to agree that the real metric to measure is debt-to-GDP and we need to get it to a sustainable level within a reasonable period of time. We also have to recognize that this can’t be done one reform at a time and needs to be addressed as a package.
Medicare seems like the hardest nut to crack because it is tied to demographics and health care costs grow faster than inflation, which prevents the US government from printing their way out of the problem.
Most Americans agree regarding gradually increasing the age of retirement over several years which was done in the 1980s Social Security reform package. Increasing the the taxable wage base cap and adjusting the benefits paid out (e.g., higher replacement rate for lower income and somewhat lower for higher income individuals) are reasonable solutions for Social Security. When it comes to healthcare there are a number of more complex issues to deal with.
The first is that the US government has overpromised on healthcare. Government needs to determine a reasonable, affordable and sustainable level of healthcare that should be available to everyone and government needs to have a budget. Government will do more for the poor, disabled and veterans. The US is the only country on the Earth that doesn’t have a budget for healthcare, which is one of the reasons that there are so many healthcare horror stories in the US.
If interest rates simply return to 2003 levels, the cost of servicing our current debt quintuples. Interest rates are not going to stay low, they are going to go up. The only question is how much and how fast. David Walker believes that we will not default on the debt because federal debt is guaranteed by the U.S. Constitution.
The responsibilities of the federal government envisioned by the founders took up 97% of the budget in 1912. This has fallen to 29% of the budget, and was declining as of 2019.
The higher the debt-to-GDP goes, the higher that taxes are likely to be, and the lower the level of economic growth we are likely to achieve. The longer we wait to solve the problem, the higher that taxes are likely to go as well.
The biggest deficit the United States has is a leadership deficit. We have too many people living for today and not enough people focused on how to create a better tomorrow.
The two party system is part of the problem. 43% of voters are unaffiliated, and are largely unrepresented. It ultimately falls onto the President to make this issue a top priority.
We need a mechanism that engages the American people in unprecedented ways and sets the table for tough fiscal choices in Congress (e.g., a Fiscal Sustainability Commission), and the sooner we do it the better off we’ll be.
President Biden needs to deal with this problem because we only have one President at a time and one bully pulpit where the message can really make an impact.
We need a number of political reforms because today we have a Republic that’s not representative of, or responsive to, the general public. David recommends redistricting reform, integrated open primaries, ranked choice balloting, campaign finance reform, and 12-year term limits.
Career politicians are not what the US needs. It’s not what the founding fathers intended and it’s one of the many things that we need to change to revitalize our republic.
On a personal level, we need to focus on our families and our clients. We can’t control what happens in Washington but we have to take steps to hold our elected officials accountable as much as we can.