Dave Walker's Speech: Selected Federal and State Challenges
State Policy NetworkSeptember 12, 2008
By Hon. David M. Walker, President and CEO of the Peter G. Peterson Foundation
and Former U.S. Comptroller General
Thank you for the opportunity to be here and for the opportunity to share some thoughts with you this morning. I understand that 450 representatives from all 50 states are with us here today. I've had the good fortune to travel to each and every state, and at various times in my life, called the great states of Alabama, Florida, Georgia, Texas and Virginia my home. In New York, I also have an apartment in Manhattan. Importantly, during the past three years, I have traveled to about 41 states to speak with and engage the public on fiscal and other key challenges facing our nation.
I have great respect for the State Policy Network, and for the work you are doing to promote transparency and responsibility in connection with fiscal and other matters and to share information with the public and each other. Your vision of a free society under responsible and dedicated leadership at the state level is very much the same ideal that is shaping our Foundation's agenda at the federal level.
I also have great respect for Pete Peterson. Pete personally recruited me to head his new foundation, the Peter G. Peterson Foundation. We will address several key sustainability challenges facing America and do so in a manner that is focused on achieving real results. I'll speak a little more about the Peterson Foundation later on.
Before I begin my formal remarks, I believe that it's important for you to understand a little more about my personal and family history, most of which you will not find in my bio. The Walker family came to America in the 1600s, while my mother's ancestors have also been in America for several centuries.
I have many ancestors who fought and some who died in the American Revolution. I live on property in Alexandria, Virginia that was once owned by George Washington. And unlike some of today's politicians, including one former presidential candidate who has been in the news lately, when George Washington slept somewhere, he actually slept there!
I have always loved history, and I pride myself in trying to be a student of history. I discovered a long time ago that we must learn from the past in order to help create a better and brighter future.
I'm proud to be an American but I also believe it's important to share knowledge with and to learn from others. In that regard, I have been fortunate to travel to about 90 countries in addition to every state, as I mentioned. I've been a leader in the international accountability community in the past, and I am currently the first elected Chairman of the Independent Audit Advisory Committee of the United Nations.
Believe it or not, despite my family's long history in this country, to my knowledge I am only the second Walker in my line to graduate from a college or university. In America, anyone's dream of success and happiness can become a reality if you're willing to work hard, maintain a positive attitude and strive to be an ethical and moral person.
But enough about me, what about my topic for this evening? Tonight I'd like to speak to you about learning from our past and creating a better future, for our country, our states, our communities, and our families.
The United States is a great nation, possibly the greatest in the history of mankind. Importantly, our nation was founded on some of the greatest political documents written by some of the finest political minds in history. These documents unlocked the limitless potential of human liberty and creativity in a way the world had never seen before.
The Declaration of Independence gave birth to our great and grand experiment in human self-government. Its words were largely those of Thomas Jefferson, considered by many to be the father of American liberty. Some of the words in the Declaration had great meaning at the outset and have stood the test of time. Other words in the Declaration rang hollow in the early days of our republic and have since gained meaning through decades of turmoil and pain. Still other words have morphed to mean very different things throughout the years as we've grown and changed as a nation.
In this regard, one key sentence in this great document represents an example of all three types of words. Specifically, the one that states "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness." In this one sentence, a new world was born. And while that world was far from perfect, it was built upon a foundation that could be perfected over time.
While the Declaration of Independence laid the groundwork for the birth of a free and democratic nation, the Founding Fathers quickly took to creating a document that would define and protect the rights of Americans forever. From that endeavor the United States Constitution was given life. This document, arguably the greatest political document ever written, represents the foundation and framing for our republic. The Constitution's preamble outlines the role envisioned by the Founders for the federal government.
In fact, a careful re-reading of the preamble will demonstrate just how far we have strayed from the original intent of the Founders. And while the Constitution is a document that was created to grow and mature alongside its citizenry, I fear we have strayed too far from the original intent of the Founders.
For those of you who are too young to remember the "Bicentennial Rock" cartoons on Saturday mornings in the 1970s, let me remind you of the words of the preamble. "We the People of the United States, in Order to form a more perfect Union, establish justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America."
In my view, these words and the meanings they contain are priceless. Yet when I think about some of the key words in the preamble, the way some of them have been interpreted over time is not consistent with our shared history, or in my view, with the original intent of our Founders!
For example, it is pretty clear that the words "establish, insure, provide and secure" have very different meanings than a word like "promote". The Founders felt that certain things like our nation's defense, the rule of law, homeland security, and individual liberty were fundamental rights that the federal government was obligated to protect for every citizen.
At the same time, they envisioned how the federal government might also be able to encourage and facilitate positive societal development while discouraging actions and behavior that would work to weaken or corrode the general welfare. Irrespective of any innate or applied meaning in these words, in my view, the first three words in the Constitution, "We the People," are arguably the most important in this great document, and perhaps the most important in the course of human history, as well as for our nation's future. I'll come back to this point a bit later.
Beyond these great political documents, our nation was blessed with far more than its fair share of great leaders at its inception. People like Washington, Jefferson, Adams, Madison and Franklin just to name a few. Our Founding Fathers were true leaders with vision, courage, and fortitude. They risked their lives, their liberty and their fortunes in the fight for independence from the monarchy and the oppression of our divine right and individual liberty. As Ben Franklin, who so wisely understood the magnitude of their endeavor, once said, "We must hang together or most assuredly we will all hang separately."
Our leaders also understood that what happens at the federal level matters at the state level; that we're all in the same boat. Remember what James Madison wrote in the Federalist Papers: "The federal and State governments are in fact but different agents and trustees of the people."
Finally, at the outset of our republic, Americans shared a number of common values - liberty, justice, opportunity, faith, family, prudence, and thrift just to name a few. Americans shunned excessive debt, and a failure to pay your debts in the early days of our republic meant spending time in a "debtors' prison!" After all, there were no bankruptcy lawyers in 1789! In those times, people were held accountable for their actions, including when you harmed the public or yourself by living beyond your means.
Looking back, it's clear that we have come a long way since the founding of our republic. From a geographic perspective, our nation now spans from sea to shining sea on the North American continent and it even includes several states and territories. From a social perspective, we've shed much blood and tears making the words of our founding documents come to life. For example with the abolition of slavery and the extension of full voting rights to every citizen of age within our borders, we have slowly but surely come closer to fulfilling the promise laid out by our Founders.
In less than 200 years, we have gone from a fledgling nation to the world's sole superpower. We're the world's oldest democracy and a beacon of liberty for all those who wish to live in freedom and truly experience the pursuit of happiness. Some have, however, forgotten that such a pursuit is based on a concept of equal opportunity rather than an entitlement to an equal result.
These all represent real signs of progress and accomplishment that we should be both proud of and thankful for. Today, however, our nation faces a range of serious sustainability challenges that, so far, our elected leaders have not taken seriously enough. These include our current fiscal policy, savings rates, entitlement programs, health care, tax and education systems, as well as our current energy, environmental, foreign policy, immigration, infrastructure and Iraq strategies just to name a few. Moreover, I believe we've also strayed from what the Founders intended in a number of fundamental ways. For example:
§ We've gone from a limited role for the federal government to a large and expanding role. In 1789 the federal government represented two percent of our economy. Today it represents over twenty percent and growing. As Ronald Reagan once said, "The closest thing to eternal life on this earth is a federal program";
§ Over the past 200 years, we've gone from a focus on basic federal roles envisioned by the Founders like national security, foreign policy, the federal judiciary, the treasury, and the legislative and executive branches to a situation where less than 40 percent of today's federal spending relates to functions expressly envisioned as a role for the federal government. In fact, most of the federal budget is on auto-pilot and growing more out of control each and every day. What happened to the Founders' intent that all roles not expressly reserved for the federal government belong to the states, and ultimately the people?;
§ We've gone from having a government that was cautious about involving itself in foreign conflicts, to a point where the United States, for the first time in its history, actually engaged in a preemptive military intervention in a foreign land, where the Congress did not even declare war. I say this even though I am a proud father of a Marine Corps Officer who fought in Iraq;
§ We've gone from the Founders' concern as to whether political parties-or as they referred to them, "factions"-should exist, to a time when party politics often trumps the public interest;
§ We've gone from a time when holding elected office typically meant leaving your normal job and dedicating a portion of your life to serving the public good, to a point where too many elected officials today view their position as a job and career, and will fight tooth and nail to keep their power;
§ We've gone from separation of church and state to a place where thinly veiled and partisan political messages are, on occasion, preached from the pulpit, especially during the campaign season;
§ We've gone from a land of individual opportunity and responsibility that believed in hard work, to a country with entitlements for all and too many people who want a hand-out rather than a helping hand. Our leaders spend endlessly on program after program, but they don't seem to realize that the government has no money of its own. Every penny Washington spends comes from us, the taxpayers;
§ We've gone from a culture based on thrift and with "debtors prisons", to a nation where both the American government and many Americans have become addicted to debt and are now living beyond their means;
§ We've gone from a time of "scarlet letters" to a time where the inappropriate behavior of some celebrities is a regular subject of extensive media coverage;
§ And finally, we've gone from an optimistic and hopeful society, to one of great anxiety and increasing pessimism. In fact, for the first time in history, a majority of Americans believe that their children will not have a better standard of living than they did. That, my friends, is simply unacceptable. It also means we're are letting the promise of the American Dream slowly slip away.
Today, America faces a range of serious sustainability challenges that we can no longer ignore or put off until tomorrow. From fiscal policy, to entitlement programs, to our health care and tax systems, to our energy, environmental, immigration and international relations policies, our current path and status quo way of doing things are both irresponsible and unsustainable.
The Peterson Foundation, which I have the privilege of leading, will focus on addressing critical aspects of our fiscal, savings, entitlement, health care, education, and energy challenges. We recognize that we can't address all of our nation's key sustainability challenges effectively. That's why we are focusing our efforts and engaging in a range of activities that may not be traditional for Foundations, including the distribution of the critically acclaimed documentary, I.O.U.S.A. We are an "Action Tank," not a "Think Tank," and we want to make a real and lasting difference. To do so, it's going to take new ideas, strong coalitions, and multiple means of citizen education, engagement and activation.
You might ask, why does America face so many sustainability challenges today? In my view, the sad but simple truth is that America and too many Americans suffer from a combination of myopia, tunnel vision and self-centeredness. And in several cases, as my good friend Dr. Jack Rowe would say, Washington policymakers have been diagnosed with "mural dyslexia". Namely, the inability to read the handwriting on the wall! Furthermore, unlike at the inception of our nation, we now face a very serious leadership deficit as well. We've been saddled with "leaders" who lead by bowing to public opinion polls and by basing policy on focus groups instead of on sound principles. In my view, our leadership deficit is the most serious deficit of all.
Let me provide you with one timely example of mural dyslexia in connection with a topic that dominates many headlines today. Specifically, the current and widespread concerns regarding the nation's housing slump and sub-prime mortgage challenge, and the related impact on homeowners, investors, financial institutions, and possibly taxpayers.
There are very disturbing parallels between the underlying causes of the current sub-prime mortgage debacle and our nation's growing fiscal dysfunction, both of which should serve as a wake-up call to the Congress, the Bush Administration, and the Presidential candidates. The time for talking is over. The time to take action to avoid much greater economic disruption in the future for tens of millions of Americans is now. Clearly, Americans would be best served if policymakers addressed both the current consumer and looming federal mortgage threats at the same time. Policymakers in Washington claim to be able to chew gum and walk simultaneously. I say it's about time we see some proof of that.
In recent years, too many mortgage loans have been based on the assumed value of the home rather than the creditworthiness of the borrower. As a result, many of the loans that were made did not pass the "straight face test," based on an evaluation of the borrower's ability to repay and the related credit risks. There was also a basic disconnect between those who originated the mortgage loans and earned the related fees and those who ultimately bore the risk of default. To make matters worse, fuel was added to the fire by a lack of transparency associated with a number of the more creative and risky mortgage-backed security arrangements.
The result of this perfect storm has been serious adverse implications for certain financial services firms, especially Bear Stearns, as well as for many investors, including those who had a significant asset allocation to the financial services sector, and for millions of home owners, especially those who are facing foreclosure. Bear Sterns found out the hard way that regardless of the book value of the firm, maintaining lender confidence and adequate cash flow is critical. They also learned that when customers, lenders, or investors lose confidence in a firm where "trust" is a key element of its business, things can reach crisis proportions and start a dramatic downward spiral almost instantly. Just this week, an inaccurate news story and a swirl of rumors were enough to result in a dramatic decline in the share price of United Airlines.
Clearly in the case of our current sub-prime mortgage crisis, market forces and credit ratings agencies' actions were not enough and the current gaps in both private and public sector oversight became apparent. Washington has financially started to focus on what role the federal government should and should not play in connection with previously unregulated financial services institutions. This will require a careful balancing of free market principles versus public and taxpayer interests, while also considering the impact of any changes on our global competitiveness. Unfortunately, because of private greed, special interest lobbying and inadequate federal oversight and action, the taxpayers will foot the bill for the many billions of dollars it will cost to bail out Fannie Mae and Freddie Mac.
While many are understandably concerned about our current mortgage sub-prime crisis, a much larger problem is brewing in Washington, D.C. that the policymakers in Washington must address. Specifically, current federal fiscal policy is creating an unfair and unethical, arguably immoral relationship between today's citizens and tomorrow's taxpayers. Baby boomers and current retirees benefit from today's higher government spending and lower tax policies, while our children and grandchildren will be expected to pay the bill for today's excess consumption, either by paying significantly higher taxes and/or by having benefit cuts to social programs the likes of which we have never seen - nor should we have to see.
Unfortunately, the federal government - like too many Americans - has become addicted to debt. Slowly but surely, the American people and our government have turned living beyond their means into the new national pastime. With annual federal deficits in the hundreds of billions, government appears numb to running oversized and underfunded operating budgets each and every year, regardless of the state of the economy or the existence of wars. The resulting deficits and related debt burdens are set to escalate dramatically when "baby boomers" retire in big numbers in the coming years.
From a broad perspective, many members of Congress think that since the U.S. is currently the world's sole superpower, we will always be able to borrow from foreign countries whenever necessary and at attractive interest rates. It goes without saying that this is an inappropriate and dangerous assumption on which to base our nation's fiscal policy.
To put things in perspective: without meaningful reforms, income tax rates would have to more than double from today's levels in order for the federal government just to deliver on its promises and pay its bills in the future.
Washington's current unacceptable and irresponsible behavior is facilitated by a lack of adequate transparency associated with the federal government's unfunded promises for Social Security, Medicare and other programs. In fact, Social Security and Medicare alone were underfunded by over $40 trillion as of September 2007, or $146,000 per American, in today's dollars, and this number is growing by at least $2 trillion, or $6,600 per American, every year on auto-pilot.
Medicare's hospital insurance program is already in a negative cash flow position. In addition, the combined Social Security program is projected to begin experiencing a negative cash flow within 10 years. That means that within the decade, Social Security will pay out more in benefits than it brings in through revenue. Contrary to popular belief, even Washington can't keep a program alive that actually costs more than it brings in over the long term.
So what needs to be done to start cleaning up this fiscal fiasco? First, we need some candor and leadership from our next President and from a few capable and caring members of the Senate and House on both sides of the political aisle who are willing to put America's long-term interests over their party's and personal desires. Washington policymakers also need to learn the first rule of holes: when you're in a hole, stop digging!!
As of September 30, 2007 we are in a 53 trillion dollar hole! The time has come for the President and the Congress to work together to re-impose tough budget controls on both sides of the federal ledger, to constrain federal spending, to decide which Bush tax cuts will stay and which will go and to engage in comprehensive reform of our entitlement programs, health care and tax systems. Government at all levels must be held accountable and determine which programs and policies achieve positive outcomes and which ones don't.
Personally, I can't emphasize enough the importance of fiscal responsibility and inter-generational equity as a key issue in the upcoming presidential election campaign. We haven't heard much about these issues so far, and that must change. Furthermore, all concerned Americans should demand that serious Presidential candidates commit to several common sense objectives. Among them are:
Firstly, to acknowledge that we have a major fiscal challenge and commit to addressing it on a priority basis if they are elected President.
Secondly, to make it clear that in spite of their personal preferences and priorities, nothing should be off the table for discussion and consideration. As my mother so wisely used to tell me, you should avoid using the words never and always.
Thirdly, to commit to work on a bipartisan basis and to use the "bully pulpit" to address the American people about the need for change, the consequences of inaction, and how best to move America forward.
Finally, they should commit to creating a capable, credible, and bipartisan commission or task force to make recommendations to the next Congress and President for an up or down vote, as is currently practiced with the Base Re-alignment and Closure Commissions.
And what, exactly, should the scope of that federal Commission be? At a minimum, it should address four issues: namely, need for meaningful statutory budget and other fiscal controls; comprehensive Social Security reform; round one of comprehensive tax reform; and round one of comprehensive health care reform.
And don't get me wrong, I'm not a strict constitutional constructionist. Even though Social Security and Medicare may not have been envisioned as a role for the federal government by the Founders, they are here to stay. We must, however, reform them to make them more targeted, equitable and sustainable over time.
While my comments this morning have been focused on federal fiscal challenges, everyone in this room should be aware that many state and local governments also face serious fiscal challenges. These challenges are driven by a variety of factors including rising Medicaid costs, unfunded retiree health plans, underfunded pension plans, and critical infrastructure funding needs. California is among the most challenged states from a fiscal perspective in part because California follows some of the bad examples set by the federal government. Namely, California borrows money to balance its cash budget and just lets its unfunded promises increase with time. Borrowing from Peter to pay Paul might work for a while, but eventually Peter's going to want his money back, with interest!
And even states whose fiscal houses are in order need to question the policies of the federal government. That's because bad news flows downhill, and when the fiscal crunch comes in earnest, every state will feel the ripple effect of that crunch.
In closing this evening, as Woody Allen once said, "More than anytime in history, mankind has reached a crossroads. One path leads to despair and utter hopelessness, the other to total extinction. Let us pray that we have the wisdom to choose correctly!" Frankly, I'm a lot more optimistic than Woody. After all, America has faced great challenges in the past and we have always found a way not only to overcome and capitalize on them.
We can, we must, and I believe that we will ultimately rise to meet our nation's fiscal and other key sustainability challenges. We just need to do it sooner rather than later. At the same time, I believe that we have a relatively small and closing "window of opportunity" to address our various sustainability challenges before a real economic crisis occurs.
The truth is, we are no longer the sole masters of our destiny and we have yet to learn completely the lessons of history, including the fall of the Roman Republic, and the U.S. government's threat to use financial leverage against Britain in connection with the 1956 Suez Crisis. Our fiscal, environmental, and other key sustainability clocks are ticking, and time is working against us.
All of us at the Peter G. Peterson Foundation along with our alliance partners will do our best to ensure that policymakers act to address these large, known and growing challenges sooner rather than later. This will involve a range of public education, citizen engagement, and group activation initiatives in order to achieve real results. While we are committed to doing our part, it is important that all Americans do their patriotic duty to help ensure that "we the people" let Washington know that the time has come for results rather than rhetoric.
All of us need to ask our representatives and those who seek federal office the tough questions and demand specific answers. We need to ask them where they stand on the fiscal issues that I have discussed today, and what they plan to do to help ensure that we get our house in order before it's too late. Let's be honest here, our elected officials have been allowed to dance around these issues for far too long.
We must all remember that, in the end, it is "we the people" who are ultimately responsible and accountable for what does or does not happen in Washington. There is little question that if Washington policymakers fail to act, many Americans will eventually face far more serious economic hardship in the future when our foreign lenders lose patience with Washington's ways. We must not allow that to happen, for the sake of our country, our children, our grandchildren and the world they are destined to inherit.
I hope that those of you, who, like Pete and me, care deeply about our country and our family will join us in our effort to keep America great, to help ensure that our individual and collective future is better than our past, and to make sure that the United States is the first republic that will stand the test of time. Thank you for your time and attention. I would be happy to answer any questions you may have.
