Running On Empty

Running on Empty by Peter G. Peterson (Farrar, Straus, and Giroux, 2004)

Regular readers of this column may recall the frustration I expressed, in my review of Commanding Heights a few months ago, at the lack of attention being given to federal deficits by both Republican and Democratic parties. I am pleased to report that this month’s book (which, annoyingly, does not contain an index) energetically focuses on this topic, and has been rewarded with appearances on the New York Times best-seller list. It represents a no-holds-barred analysis of how today’s politicians are mortgaging the next generation’s future on unsustainable entitlement programs for an aging citizenry.

Briefly, this nation is heading towards bankruptcy, a situation that dwarfs the debacles at Enron and MCI/Worldcom. The Congressional Budget Office has forecasted a ten-year fiscal deficit of $1.4 trillion. Recent Medicare legislation will cost about $600 billion over that time-period. The Social Security fund will run out by 2020, and the current administration continues to hand out wads of moola it doesn’t have in a manner that makes the goings-on at Tyco look like a church picnic. Both Democrat entitlement programs and Republican tax-cut measures are exacerbating the problem. Peterson, who describes himself as a lifelong Republican (he was former secretary of commerce under Nixon, and chairman of the Federal Reserve Bank in New York) is scathing about both parties. He writes (in one of many arresting observations): “The high priests and assorted ayatollahs of the Republican have never met a tax they didn’t want to cut. The revered theologians and ragtag mullahs of the Democratic Party have never met an entitlement program they didn’t want to expand.”

Peterson puts this story crisply into historical context, showing how such mismanagement of the economy goes against the grain of the principles on which our nation was founded. He echoes “what economists from Adam Smith have insisted: no nation can sustain living-standard growth without investing, no nation can sustain high investment for long without saving, and no nation can save for long without fiscal responsibility.” Yet the economy is fueled by consumption, private debt rises astronomically, and our industries are becoming less competitive. What to do?


It isn’t as if the facts are unknown. Senator John McCain writes in a prominent blurb: “This book should be required reading for everyone involved in public policy and anyone who cares for America’s future”. But Peterson hints that congressmen are very aware of the coming disaster: they just don’t want to disappoint any of those who fund their re-election, and they don’t want the fixing of posterity’s problems to occur on their watch. Of course, Peterson offers his own action program, although I found this section less rigorous. He makes some excellent points about the reforming of malpractice legislation, and the wasteful Medicare program. He raises the shibboleths of means-testing for entitlements, and rationing of healthcare. He recommends that the government switch to accrual accounting, so that citizens can assess the true nature of nation’s financial status, and he suggests drastic changes to the definition of constituencies to annul the gerrymandering that aligns them with entrenched majorities for each party, and the cult of money driving them.

But at times he is also vague and unconvincing. It is not clear who the “we” are to whom he constantly refers. He talks about a “national consensus”, but his previous comments suggest we already have one – to close our eyes to the problem. He implies that immigration could prop up seniors’ welfare benefits, but does not explain how such an influx would help create successful new industries paying good wages. One of his key programs would be to index benefits to prices rather than wages (and thus decrease them), but I looked for more facts to buttress his argument, in the light of downward trends in wages in many industries (e.g. the airlines), and inflationary pressures coming from a weakening dollar, rising oil-prices, and healthcare and insurance costs. His ideas on the privatization of retirement funds appear shallow and contradictory. And his chapter giving advice to the next generation seemed patronizing to me. In summary, I believe he understates more serious underlying challenges to our welfare state represented by globalization, and doesn’t question the notion that government should have an answer to all our problems. Solutions may have to be more dramatic than he suggests: our democracy will be under severe strain.

A few months ago I read a quote on the hot issue of the government’s role in job creation. It ran: “The government cannot make sure everyone can have a job. The government’s role is to create an environment. Whether a person gets a job – that’s really a market decision.”. The source? A Mr. Min Tang of the Asian Development Bank’s office in Beijing. We ignore at our peril how the world has moved on from our comfortable “Great Society” notions. Mr. Peterson has thrown down the gauntlet. What do you say, President Bush and Senator Kerry?

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