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Opening remarks by Peter G. Peterson


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Opening remarks by Peter G. Peterson

  1. 1. Opening Remarks by Peter G. Peterson, Founder and Chairman — As Prepared For Delivery 2010 Fiscal Summit April 28, 2010 I’m Pete Peterson, and I’d like to welcome you to the 2010 Fiscal Summit. I look at the great minds around this room and am truly humbled – although I know there are many who doubt such a thing is possible. It is our hope that we can come together in this summit and make progress on reaching some consensus in three main areas: 1) The nature and magnitude of our fiscal challenge. 2) The nature and general direction of solutions. 3) Lastly, how do we educate and activate American citizens to do something about it? We’ve got all kinds of ideas and ideologies represented here today. We may not agree on a whole lot else. But most of us do agree on one thing: our present fiscal course is unsustainable. At a time of multiple bailouts, one uncomfortable thought lingers in the back of our minds: Who’s going to bail out America if our policies continue to stumble down this unsustainable path? Now some of you know that this is an issue that’s close to my heart. I’ve written four books on it. I’ve been boring people with it for decades. In fact, Ted Sorenson said of one of my books, “Once you put it down, you won’t be able to pick it up!” But I believe the issue we address today has become even more urgent with time. The real purpose of today’s Summit is to listen to you, but before that, I simply want to summarize some views of our foundation. First, it is important to clarify how we define the problem. We make a very important distinction between current budget deficits and our longer term structural deficits. Contrary to some 1
  2. 2. perceptions, the short-term deficits are not my primary concern. We understand the urgency of people’s economic hardships, the painful effects of high unemployment and an urgent need to create jobs. It’s the longer term structural and unsustainable deficits that are pushing those of us in our Foundation up the fiscal Richter scale. In the Nixon White House, we had the economist, Herb Stein, who was also a humorist – though I know some of you may find the term “Nixon humorist” an oxymoron. He used to say, “If something is unsustainable, it tends to stop.” He also said, “If your horse dies, I suggest you dismount.” We keep acting as if we can ride this horse indefinitely. We at the foundation think it’s time to dismount, and address this challenge, before a crisis occurs. Another concern we have are ballooning interest costs. In only twelve years, interest costs and entitlements alone would consume 100% of the projected revenue. These huge interest costs would buy us nothing and would crowd out critically needed investments in a much more competitive world. I’m speaking of more R&D, education, and desperately needed infrastructure. In effect, what we would be doing is spending our children’s future rather than investing in it. It is also important to recognize that by addressing these issues soon, we can make decisions on reforms fairly, thoughtfully and with compassion. In a crisis, the government could be forced to make changes urgently, endangering important social programs on which so many Americans depend. As the very lucky son of poor immigrant parents, I am deeply concerned about preserving the social safety net for those in need. And make no mistake about it. No so-called safety net can be considered safe in times of genuine fiscal austerity. Call it generational theft, or even fiscal child abuse. And, beyond the numbers, what would these burdens mean to our kids and grandkids? We need to ask ourselves: not just is that sustainable, but is it moral? What does it mean to burden our children to an unconscionable doubling of their taxes? We’re not just talking about money. Debts this large could bring about a radical change in this nation – a change in the very idea of America and what it’s all about. For the first time in our history, generations of Americans could be facing a future less bright than the past. For our kids, there would be fewer jobs, greater burdens, more insecurity, and diminished dreams. 2
  3. 3. And what of the American ideal? Since the first explorers set foot on this continent, Americans have believed that this country of ours is an exceptional place with exceptional possibilities in store. We have lived on the basis of ever expanding horizons. Without that, what would America be? Politics in this democracy of ours has always been a tough business. We bemoan the loss of civility in our day. But imagine how much more brutal our politics will become when they are a fight among factions simply to hold on to their piece of a shrinking economic pie. And what of America’s leadership in the world? For a century now, the world has looked to America to light the way and keep it safe. But how can we lead effectively when we are more and more in hoc up to our eyeballs and higher to nations that may have very different interests at heart? There’s an old saying that “running into debt isn’t so bad. It’s running into creditors that hurts.” For those of us who genuinely believe that the world still needs America’s leadership… for those of us who truly care about leaving a better country to our kids… we have no alternative but to get our economic house in order. If America can no longer be America – who can be? So how do we un-dig this hole we find ourselves in? First, we at the Foundation believe that everything should be on the table. Of course, expenditure cuts must play a major role but some have a tax aversion syndrome. They have never met an increase they didn’t hate – and do everything in their power to stop. To me, that is simply an untenable position, both fiscally and politically. Given the sheer magnitude of the imbalances that we face, addressing these without any revenue increases simply doesn’t add up. Doing so would devastate important social insurance, and other important governmental programs. Though there needs to be adjustments to it, the social contract is part of the fabric of our society, and any set of solutions should recognize that the core of these programs must remain intact, particularly for those who need them. Meanwhile, some seem to have an entitlement fixation – they’ve never met a universal entitlement program they didn’t fall in love with. But with a rapidly exploding population of elderly who are living much longer than ever before in human history, we have to ask: if all of us are on wagon, who is going to pull it? We keep being told that Social Security is “solvent” for another 30 years or so because of the $2.4 trillion of “assets” in the Trust Fund. You didn’t hear it, but I was putting quotation marks around the word “assets.” 3
  4. 4. That’s because these so-called assets have already been spent for other purposes and even in Washington, you can’t spend the same money twice. I believe that there are approaches to reforming Social Security that are compassionate, fair and reasonable. If we act before a crisis occurs, effective reforms can be implemented that are sensible and which will preserve this indispensable social safety net for those who depend on it. For example, we would suggest for consideration some combination of gradually increasing the retirement age, indexing it to longevity, and reducing benefits for the well off through what I call an affluence test or progressive wage indexing. Then one could also lift the payroll tax cap. If we could address Social Security reform, it would provide a much needed confidence builder with our valued foreign lenders and so they don’t lose faith that we can manage our own fiscal affairs. However, addressing Social Security only solves a small part or about 10%, of the overall fiscal problem. Healthcare costs in the U.S., on a per capita basis, are double those of the rest of the developed world with no appreciable differences in outcomes. It’s as though we are in a medical arms race. Healthcare costs are the big elephant that could bankrupt our economy. They deserve the highest priority on the fiscal agenda. In order to really have a major impact on the newest cliché, “bending the cost curve”, we believe we must address many basic health care cost drivers that have not been reformed at all. Take the fee for service payment system. If you hired a roomful of economists and told them to come up with a highly effective incentive to inflate costs, I doubt they could come up with something this perverse. There are other largely ignored health care cost drivers: end of life, where a disproportionate amount of spending occurs, and our counterproductive malpractice system, to name a couple… not to mention that we’re the only major developed nation on earth with no healthcare budget. The recent health care legislation put in place two mechanisms that have the potential to both foster much needed implementation for those which have been tested and provide much needed research and experimentation for those that haven’t -- the Independent Payment Advisory Board and the Innovation Center. But the real question is, will we have the political will to utilize them to tap this potential? Can the culture of health care in America be transformed to one focused on value? There are a few other reforms that should be on the table for consideration: • A progressive consumption tax that not only increases revenues but also increases savings. Increasing our savings is a national imperative. • An energy or carbon tax, to reduce our dependence on foreign oil and foreign lending, 4
  5. 5. and respond to the environmental challenge. • So-called tax preferences which aggregate to about $1 trillion a year. • I can also understand why the American people believe that there are significant savings to be found in a defense budget that is larger than Europe’s, China’s Russia’s, Japan’s and much of the rest of the world combined. • Finally, budget controls, like the Pay-Go rules and spending caps of the 1990s, work. Once this recession is behind us and more Americans are back to work, we need to immediately begin to implement these kinds of reforms. In sum, we believe in timely action. It is because we don’t want to see our futures diminished… …because we don’t want financial necessity to force radical disruptions in our way of life… …because we don’t want to see that safety net frayed… …that we believe we must act now – with moderate, fiscally conservative and socially compassionate reforms. But how do we get there from here? This is, after all, a nation whose enthusiasm for shared sacrifice is rather restrained. I’ve heard it said that we spend like Socialists but tax like Libertarians. Our special interest politics seem to operate on one imperative – give us more. It’s part of the culture of “I want it all and I want it now – and I don’t want to pay for it.” But we believe there are other interests and other constituencies that can transcend the narrow “more-now” syndrome. They are the growing ranks of those who do not identify with either party and for whom spending is now the number one issue when they go to the ballot box. Maybe the most important “general” interest group, however, is the young. After all, they have the greatest stake in the future. The status quo is a raw deal for them. Yet, right now, too many are like the student in the philosophy class. When asked “Which is worse: ignorance or apathy,” he mumbled, “I don’t know and I don’t care.” Our CEO, Dave Walker, will speak more about engaging other constituencies. 5
  6. 6. While some people may see me as a Dr. Doom of the Deficit – I’m actually still hopeful. America has faced worse challenges before. In the aftermath of World War II, our exhausted nation confronted a public debt of over 110% of GDP – twice what it is now – and a world economy in shambles. Nevertheless, that generation managed to reduce the public debt to less than 30% of GDP – while simultaneously launching, and paying for, the GI bill, the Marshall Plan, the UN, and building the interstate highway system and other major infrastructure. They did it with courage and commitment – and the positive vision of a prosperous nation at peace. And so can we. We also need a positive, optimistic vision of what an economically healthy, growing America would look like – and what it will mean to our children and grandkids. The adventure of America has only just begun. We can open a whole new chapter of innovation and growth. If we unencumber ourselves of our massive debts and promises, our future can be ever larger. And maybe most importantly, we will be able to look our kids straight in the eye, feel proud of the work we’ve done, and have confidence and hope in the world we are handing off to their care. We are the most resilient of countries. We are the most entrepreneurial of countries. We are the most innovative of countries, which is just what this competitive new world economy requires. If, – and that “if” is what much of our discussion today will entail – if we provide the resources to invest in this country’s indispensable assets and in our future, I say – “Yes, we can.” Let me change that. “Yes, we must.” Thank you all very much. 6