No New Promises: by Keither Hennessey

This column is by Keither Hennessey...if you wish to read the entire thing, please click on the title.

This comment is addressed to those fiscally conservative Members of the House of Representatives thinking of voting for pending health care legislation.


America is on an unsustainable fiscal path. If we do nothing to address this, within 25 years the U.S. government will default on its debt, with devastating consequences for the U.S. economy and society.

We are on this path because past elected officials made unsustainable benefit promises and enshrined them in law. In some cases they paid for those promises in the short run. In all cases they created programs that would grow more generous over time.

Those past elected officials enjoyed the political benefits of creating a new promise, and they shifted the burden of paying for these promises onto their successors and onto future generations of citizens.

You are their successor, and we are those future generations. The bill is coming due. The gap between future spending and taxes is the most important economic problem America faces. If we don’t fix it, we’re screwed.

To fix this problem we need to slow the growth of Social Security, Medicare, and Medicaid spending. You may think we also need to raise taxes, either for reasons of policy or of political compromise.

The long-term fiscal gap is enormous. It’s not measured in billions or even tens of billions of dollars. It’s measured in percentage points of GDP. One percent of GDP this year is $146 billion, and our fiscal gap is many times that. We need to make huge fiscal policy changes to avoid economic disaster.

Big changes are easier to make if we phase them in gradually, so people have time to plan and adjust. The longer we wait to start, the bigger the necessary changes, and the more wrenching they are to American society.

Good policy is to start these changes immediately, so that they’re in place and it’s hard to repeal them. Set the changes up so they grow steadily over time. Turn the aircraft carrier by an enormous amount, begin immediately and do it gradually, but lock the full course and ultimate direction in now. American society can then incrementally adjust to the changing conditions, and elected officials will not be confronted with sudden, disruptive, painful policy spikes they will be tempted to postpone or repeal.
Slowing the growth of popular entitlement programs is politically painful. So is raising taxes. Elected officials get punished for both.

This problem may seem politically intractable because of serious policy disagreements about the relative mix of spending changes and tax increases. Each party sees electoral advantage in attacking the other’s possible proposed solutions, so it’s hard to cooperate across the aisle.

As the pain of a government default approaches, markets will punish the U.S. economy to the point where elected officials will be forced to negotiate a solution. The danger is that you and your colleagues wait until this time, when the changes needed will be bigger and even more painful. If you can fix this before the markets force you to, America will be better off...

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