CRFB Hosts "Human Side of the Fiscal Crisis" Event
On March 10, the Committee for a Responsible Federal Budget hosted a terrific event entitled America at a Crossroad: The Human Side of the Fiscal Crisis. The event was made possible by the MacArthur Foundation. The purpose was to bring together the major stakeholders and experts on the issues of fiscal reforms, to discuss the benefits of early action to avert a fiscal crisis (whether sudden or gradual) and the calamitous effects a crisis would have on everyday Americans.
The event began with introductory remarks by Bill Frenzel, one of CRFB’s co-chairs, and the event’s moderator, Ruth Marcus of the Washington Post. Next, CRFB’s own Anne Vorce, who was the project's director, presented her paper that served as the framework for the day’s discussions. She argues that there are two reasonably likely but different scenarios:
. In Scenario One, we risk "Fiscal Gridlock", in which our policymakers do not change our current fiscal path. (Our debt is now projected to rise forever, which experts consider unsustainable). As most experts note, staying on our current fiscal course would eventually take a devastating toll on everyone in society: people's standards of living would be reduced gradually over time or suddenly through a fiscal crisis or crisis with fiscal dimension.
. In Scenario Two, our leaders enact a fiscal recovery package, which would put us back on a sustainable budget track. While there are many ways to build a fiscal recovery package, the scenario envisions an optimal multiyear program (to spread the burden of adjustment over time, especially as our economy continues to struggle) with everything on the table (to spread the burden of adjustment but also to convince markets of our seriousness and to enshrine the concept of fairness for the American people). There are many significant hurdles to overcome before arriving at that second outcome. But as Anne said, “As tough as it will be to fix our problems, failing to fix them would be even worse.”
With that, the first of four panels began. The first panel addressed the topic of “The High Cost of Doing Nothing for Everyday Life and the U.S. Economic Future.” On the panel were former SEIU President and current Georgetown Public Policy Institute Fellow Andy Stern, Lenny Mendonca of McKinsey Global Institute, and Derek Thompson of The Atlantic. While the panelists clearly recognized the enormous difficulties of achieving political agreement on the way forward, each speaker's bottom line was that we will see considerable payoff for our future living standards from tackling our fiscal challenges.
The second panel was about “The High Cost of Doing Nothing for the Generations and the Vulnerable.” The panel--including John Rother of AARP, Ryan Shoenike of Young Americans for Debt Awareness, and Deborah Weinstein of the Coalition for Human Needs--discussed issues of intergenerational fairness and protecting the most vulnerable among us from harmful cuts.
A subtheme for the first two panels was the need to look more closely at the composition of our fiscal policies, so that we can figure out how to achieve higher returns (to growth, our fiscal accounts and society) from investments in education, infrastructure, and R&D. The importance of tackling our tax expenditures problem as part of much-needed fiscal modernization was also mentioned. (Tax expenditures are special targeted - and inefficient - tax breaks which account for forgone revenue roughly equal to the total amount of individual income taxes paid. This is alot of money to give up - especially since it really distorts our tax code. As a consequence, tax rates are higher than they could otherwise be for the average taxpayer. See our thoughts on that subject here.)
The third panel looked at what the United States can learn from other countries who have gone or are going through fiscal adjustment. The panel (“International Examples: What To Do and What Not To Do”) featured Martin Baily of the Brookings Institution, Carlo Cottarelli of the IMF, and Peter Matheson of the UK Embassy. Cottarelli made the essential point that there will be short-term pain and economic contraction as part of fiscal consolidation, but those are "trivial" in comparison to the effects of a fiscal crisis. And even in the absence of a crisis, large amounts of debt will cause domestic interest rates to rise, crowding out private investment and stifling economic growth. The other panelists used their knowledge of European fiscal reforms to offer suggestions for the American case--such as phasing in consolidation and establishing budgetary frameworks, as in the British case (similar to the recommendations of the Getting Back in the Black report).
The final panel -- titled “How We Move Forward and Lessons From the Past”--included Norman Ornstein of AEI, Bill Hoagland of CIGNA, Joseph Minarik of the Committee for Economic Development, and Scott Bittle of Public Agenda--focused on the political challenges we now face as we try to move forward fiscally. The importance of adopting fiscal rules to reinforce or anchor fiscal decisions was also discussed.
In sum, the event brought together an all-star cast of experts and key players, who offered valuable perspectives on our fiscal challenges. (The rich trove of event material can be read here.) The difficulty we all face now is achieving agreement on how to move forward. The event reminded us that there is very powerful motivation to move forward sooner rather than later: most people would be less well off if our leaders failed to put this nation back onto a sustainable fiscal path, and took action only when forced to do so in a crisis. When we fiscal wonks talk about problems related to our unsustainable debt-to-GDP ratio, we are in fact talking about real people and their lives.
Note: This blog has been updated from its original posting.