Politicians, especially at the national level, have little credibility on matters of fiscal discipline. Bill Clinton is an exception.
As president, Clinton inherited fast-rising budget deficits that threatened to capsize an economy emerging from recession. He made deficit reduction a top priority, incurring the wrath of liberals who accused him of governing like an Eisenhower Republican. Such complaints evaporated as jobs and economic growth surged in the late 1990s, and Clinton handed his successor budget surpluses.
In an act of monumental political irresponsibility, George W. Bush promptly squandered the surplus on big tax cuts and a $1 trillion-plus Medicare prescription drug entitlement that Republicans simply added to the nation’s charge account.
So it was worth listening to Clinton speak about the fiscal challenge facing President Obama, as he did today at a big “fiscal summit” in Washington sponsored by the Peter G. Peterson Foundation.
“I think this is a national sovereignty issue,” said Clinton, noting that foreign creditors hold 48 percent of America’s debt. As that debt grows –- Clinton’s treasury secretary, Bob Rubin, cited projections that it could reach 130 percent of GDP by 2030 –- so will the influence over U.S. policy of foreign bondholders.
As America grows older, Clinton said, “delivery systems” like health care and education become rigid and society in general tends to put a premium on security. It’s no accident that the government’s biggest programs are defense, Medicare, Medicaid and Social Security. By letting this programs continue to eat up a greater share of national output, politicians put a severe squeeze on discretionary programs that invest in the well-being of children and families.
“The future always has a smaller constituency than the present,” the former president said. “We’ve got to be a tomorrow country. We can’t do it if we mortgage our future to people in other countries.”
Clinton also noted that Congress is not organized to deal with America’s fiscal crisis. Congressional committees expand programs and mint new ones; none is charged with putting America back on a sustainable fiscal course.
Since Congress also punted on forming a deficit reduction commission, President Obama has been forced to empanel his own. As it met yesterday at the White House for the first time, Obama vowed that “everything will be on the table.”
Thanks to the cost of bailing out the financial sector and mitigating a severe recession, Obama faces a bigger fiscal challenge than Clinton’s. Budget deficits are now running at about $1.3 trillion a year, a whopping nine percent of GDP. The president’s commission needs to come up with a plan for whittling deficits down to size. But it’s even more important, as Clinton argued, to attack the structural roots of exploding debts, lest America lose control of its own economic destiny.
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