'It May Be a Predictable Crisis But It's Not a Necessary One'
Yesterday the Peterson Foundation hosted the Fiscal Summit: America's Crisis and a Way Forward, convening an all-star line-up of fiscal, economic, and health care experts to discuss our fiscal challenges and to help develop solutions. Of the 18 featured speakers and panelists at the event, each one agreed that we face serious fiscal problems and that every option to address medium- and long-term deficits must be on the table -- echoing the sentiments of yesterday's first hearing of the National Commission on Fiscal Responsibility and Reform.
Opening remarks by Peter Peterson set the stage for the summit by offering some tough choices on how to reduce future deficits, highligting the potential savings from a progressive consumption tax, an energy or carbon tax, the defense budget, the $1 trillion plus in tax expenditures, among other areas of the budget.
The first panel, including the President's fiscal commission co-chairmen Alan Simpson and Erskine Bowles, again stressed their promise to put all possible solutions on the table, and they seem optimistic on the commission's ability and desire in the months ahead of hearings and debates to find real, sensible solutions to our country's fiscal outlook.
The second panel, comprised of Alice Rivlin, Congressman Paul Ryan, Lawrence Mishel, Bob Greenstein, and Neera Tanden, focused on the nature of our fiscal problem and how to approach dealing with it. All panelists agreed that health care costs will be the principal drivers of future deficits, but disagreement emerged over how to address these costs. Congressman Paul Ryan reaffirmed his position that spending (notably, health care spending) is set to rise way above historical norms and should be the focus of solutions to reign in deficits. Other panelists largely agreed, but, as Bob Greenstein argued, controlling health care cost growth will take time as we experiment and learn how to reduce spending on health, so in the medium-term, at least, revenue adjustments will have to be part of the solution if we are to avoid massive reductions in government services and investments.
Following up on Paul Ryan's quote yesterday at the first fiscal commission hearing that this will be "the most predictable crisis we've ever had," Alice Rivlin added that "it may be a predictable crisis, but it's not a necessary crisis."
Bob Greenstein also offered some advice to the members of the fiscal commission. He warned against fiscal targets that are too severe, because then there would be greater risk that they "get blown away," citing the doc fix as an example. He stated that he would rather see smaller changes over a longer period so that they have a better chance of happening. While CRFB belives this would probably increase the chance of actual reforms taking hold, we can't forget the severity of our fiscal imbalances and the truly difficult tradeoffs we will be required to avert a fiscal crisis.
Former Treasury Secretary Robert Rubin and former President Bill Clinton also spoke about the need to address NOW our federal finances. Rubin warned that market "psychology can change quickly and dramatically" and can happen at unpredictable times. All the more reason for us to get our fiscal house in order. Clinton argued for the need to refocus on our future, warning that "older socieities are obsessed with security" -- namely, defense, social security, and Medicare in the U.S. -- to the detriment of forward-looking investments and opportunities.
The third panel, featuring Senator Judd Gregg, Congresswoman Allyson Schwartz, John Castellani, John Rother, Elliott Fisher, and John Podesta, focused on the role of health care costs in future fiscal projections, and ways to help control costs.
Former Federal Reserve Chairmen Paul Volcker (via a taped interview) and Alan Greenspan also contributed valuable insight from economic and market viewpoints. Volcker urged, as President Obama has recently done, that spending be scrutinized first to make sure that if any additional fiscal adjustments are needed, the impacts on the economy through any revenue changes will be minimized. He also argued that a carbon, energy, or VAT tax would be more efficient than income or corporate tax changes, and should be on the table.
Greenspan brought up recent sovereign debt crises in Europe, noting that Greece is showing the world that a major and advanced country can get itself into trouble. Put simply, Greenspan stated that "we don't have the resources. We have to make choices."
All in all, it was a great summit and included a wide array of opinions and options on how to improve our federal finances. Although there was disagreement at times about how to address future deficits, there was unanimous consent on why this is an issue. CRFB has been excited to see public debate moving in recent months from whether or not fiscal issues are very serious to how do we deal with them.