Rivlin Says U.S. Debt Scolds Cannot Be Ignored Much Longer
CRFB board member and former CBO and OMB director, Alice Rivlin, argued in Bloomberg, today, that policymakers should put a deficit-reduction plan in place in 2010.
As Rivlin explained:
The recession slashed federal revenue, while efforts to preserve jobs and mitigate economic suffering ballooned spending. The combination pushed deficits to record levels... they won’t disappear, and their legacy is a public debt that drastically reduces our economic flexibility. Suddenly, the nation’s public debt, which was 37 percent of GDP in 2007, has risen to about 67 percent in 2010 and is projected to continue rising if we don’t change course. The built-in deficits caused by aging and medical spending for seniors are no longer looming far ahead of us. They will affect our crisis-damaged budget within the decade. If we don’t want a continuous drain on our standard of living and growing vulnerability to the demands of our creditors, especially the Chinese -- both of which will undermine our influence in the world -- we must stabilize the debt by moving the federal budget back toward balance.
Rivlin argued that "the biggest economic challenge for 2010 is enacting credible future deficit reduction without derailing the fragile recovery." This is something we've addressed through our Fiscal Roadmap Project -- including Good Deficit - Bad Deficit and Time to Develop a Fiscal Recovery Plan. In addition, in Red Ink Rising, the Peterson-Pew Commission on Budget Reform has proposed a debt stabilization path which would put a plan in place now, but not require policy changes until 2012. As Rivlin explains, this isn't as difficult as it might seem:
Tax increases or benefit reductions sufficient to stabilize the debt would [likely] be phased in slowly and wouldn’t affect the near-term economy. Increasing the retirement age for Social Security, means- testing benefits of Medicare or adding a national sales or carbon tax would take several years to implement. Enacting such measures in 2010, however, could show our creditors we mean business and help the recovery by avoiding future interest rates increases.
But, of couse, nearly all measures to stabilize the debt will require some form of pain. Like Rivlin, we hope our political system is up to the challenge. Our economic future depends on it.