U.S., Europe At Odds Over Economic Recovery
GUY RAZ, host:
This is ALL THINGS CONSIDERED from NPR News. I'm Guy Raz.
A few numbers to mull over this Sunday, the final day of the G-20 meeting in Toronto. If you took America's current budget deficit, which is about $1.4 trillion, and you handed that money to a random country, say, Nicaragua, that $1.4 trillion would turn Nicaragua into the ninth richest country in the world.
And if you take the interest the U.S. pays on its national debt each year, just the interest, it's enough to fund all education, transportation, public health and agricultural costs for a year.
Now, debt and deficits are at the heart of what leaders from the world's 20 richest countries are talking about in Toronto. The U.S. is arguing that the global economic recovery, at least for the short term, depends on spending. But many European countries disagree, and they're slashing budgets.
In a few moments, we'll have a report from that meeting in Canada, but first to David Walker. He is the former comptroller general of the United States, who has been a fierce proponent of fiscal discipline.
David Walker, welcome.
Mr. DAVID WALKER (President/CEO, Peter G. Peterson Foundation; Former Comptroller General): Great to be with you.
RAZ: At the meeting in Toronto, Washington's position on how to sort of sustain the recovery seems at odds with the views of other G-20 countries. The Europeans, they want to slash spending. But Secretary Geithner is urging them not to do that, at least in the short term. Who's right?
Mr. WALKER: Well, the answer is, is that we have an uncertain economic recovery here in the United States and around the world. We also have very high levels of unemployment in the United States and other countries around the world. And so what we really ought to be doing is helping people to understand the difference between the short-term deficits, which are largely due to temporary factors on the revenue and spending side, and the structural deficits.
So we can justify some additional spending in the short term, but we ultimately have to end up doing something about our structural deficits, although the timing that you implement the actions for the structural deficits is after you've had some economic recovery and gotten unemployment down.
RAZ: Well, explain why we would have that problem once the economy recovered, if revenues would increase.
Mr. WALKER: The fact is that historically, over the last 40 years, revenues have been about 18.3 percent of the economy. Spending has been about 20.5 percent of the economy. But it's scheduled because a known demographic trends in rising health care cost to skyrocket into the future.
And so even if the economy fully recovers, to be able to deal with our unfunded obligations and other structural deficits, it would take double-digit real GDP growth for decades. That's never happened in our history, and it isn't going to happen. Tough choices are required. The only question is when are they going to be implemented.
And we're seeing now in Europe concerns about Greece, concerns about other countries. You know, the United States is not exempt from the laws of fundamental prudent finance. We are going to be where Greece is in less than 10 years with regard to their debt ratios. We're already worse than Spain. We're comparable to the U.K., Ireland and Portugal.
It's time for America to wake up, to do what it takes to get the economy turned around in the short term to get unemployment down, but to start implementing a plan to put the federal financial house in order.
RAZ: One of the core issues in the Tea Party movement is government spending: the enormous deficits and the consequences. But I think it's fair to say that most Americans are concerned about what they perceive to be out-of-control spending. At the same time, they want their entitlements. They want Social Security. They want Medicare. How do you square these competing ideas?
Mr. WALKER: People want as much as they can get and pay as little as they have to pay. That's human nature. But what has to happen is the public needs to understand the facts and the truth about our fiscal outlook.
They need to understand we can't grow our way out, we can't inflate our way out, we can't just cut our way out. We don't have a choice but to make these tough choices.
RAZ: David Walker, is the solution ultimately to say to the people who now benefit from Social Security and Medicare, or the people who are about to receive those benefits, to say, look, you don't have anything to worry about, you will get this. But it's people who should expect to retire in 20 years, those are the people that will not benefit from this and those are the people that have to be prepared for that moment.
Mr. WALKER: The issue with Social Security is very different than the issue with Medicare. In the case of Social Security, it does not face an immediate crisis, but it has about 7.7 trillion in unfunded obligations.
We should reform Social Security to make it solvent, sustainable and secure more savings. (Unintelligible), we should do it next year. And you are correct in saying that by in large part, people that are retired or very close to retirement really aren't going to be affected, and that the younger you are, the better off you are financially, the more you're going to be affected. So we need to go ahead and start making some changes now because it is, at the present time, dysfunctional, and we are headed for a fiscal cliff at breakneck speed.
RAZ: Part of the problem you talked about is that government officials have not properly communicated these problems to the public. So let me ask you to do that. Where do the cuts come from? Who will have to pay more in taxes? What does the government have to do within the next few years?
Mr. WALKER: In my view, no later than 2011, the federal government needs to re-impose tough statutory budget controls. And they also need to reform Social Security to make it solvent, sustainable, secure and more savings-oriented.
We also need to make tough choices on health care cost and tax reform that will raise more revenue as soon as possible, but no later than 2013.
RAZ: In other words - I mean, let's just speak frankly here. Taxes need to be increased, you're saying.
Mr. WALKER: Taxes will have to go up. Why? Because of a new four-letter word in Washington. It's called math. The math doesn't come close to working. We're going to have to renegotiate the social insurance contract, constrain and reprioritize defense and other spending because there's a lot of waste there...
RAZ: Reprioritize means cut defense spending.
Mr. WALKER: Absolutely. There's a lot of waste in defense, even in the base of the budget. There's a lot of waste in Homeland Security. There's a lot of waste in a lot of areas of government.
I mean, I was the auditor general of the United States for 10 years. I've been on the front lines. I know what works, what doesn't work and where the opportunities are.
But the fact of the matter is nothing can be off the table. Nothing is sacrosanct.
RAZ: So you're saying that President Obama and Democrats who are talking about raising taxes on those earning more than $200,000 a year are not being entirely upfront with the American public.
Mr. WALKER: They're not being realistic. The simple fact of the matter is you don't raise taxes and you don't cut spending when you're in an uncertain economy and have very high unemployment.
At the same point in time, we're on an imprudent and unsustainable path. You need to have a plan and you need to start taking actions that will be effective at the appropriate point in time, and yet at the end, we'll have a more sustainable path and people will have more security that they're going to get what they've been promised.
RAZ: Say, the government does not or cannot do all of those things, let's say can only raise taxes on people making more than $200,000, cannot make the kinds of cuts you're suggesting. What will happen in, let's say, 30 years from now?
Mr. WALKER: By 2035, with a 2 percent increase in interest rates, at historical levels of taxation, the only thing the federal government would be able to do absent reforms is to pay interest.
RAZ: In 2035.
Mr. WALKER: The only thing the federal government would be able to do is to pay interest.
RAZ: And pay for nothing else, no other public services.
Mr. WALKER: Nothing else.
RAZ: David Walker, as you know, Peter Orszag has stepped down as White House budget director. There has been some suggestions in the media that you should become the next White House budget director. Is that a job you would accept?
Mr. WALKER: I think I'm well-qualified for that job, especially having been comptroller general of the United States, but I have a job.
RAZ: That's David Walker, former comptroller general of the United States and president of the Peterson Foundation, talking about the G-20 meeting in Toronto and America's financial situation.
David Walker, thank you so much.
Mr. WALKER: Thank you.
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