NSSAR Annual Leadership Meeting
March 6, 2009
Fighting for America's Future
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 address you this evening. I was fortunate to have the opportunity to address the NSSAR Annual Meeting in Dallas a couple of years ago. I would like to say that things have improved for our country since then; unfortunately such is not the case.
As you may know, I am President of the George Washington Chapter of the SAR in Alexandria, VA. Our Chapter is one of the largest and most active ones in the world. What you may not know is that my wife Mary and I live on land that was once owed by George Washington. Mary is active in the DAR and I am active in the SAR. Why? Because we both care deeply about our country, and we believe that it is important to honor those patriots who sacrificed much so that we can have a free and independent nation. In addition, we are both very concerned about the future of our country and believe that our republic will be "at risk" over time if Washington does not start making tough choices soon.
Let me start with a positive statement and a little history. The United States is a great nation, possibly the greatest in the history of mankind. We have gone from a fledgling nation to the world's only superpower and a beacon of liberty and freedom for people around the globe. Clearly, we have much to be proud of and much to be thankful for.
However, it is clear that our society has strayed from a number of key principles and values on which our republic was founded. For example, we have gone:
- From a belief that the federal government should have a limited role to where it is playing a large and expanding role in our society. Believe it or not, in 1789 the federal government represented only 2 percent of the economy. At the end of fiscal 2008, it represented over 20 percent of our economy, and that was before the various bailouts and recent stimulus legislation. And this percentage is set to grow dramatically when "baby boomers" retire in big numbers;
- From a focus on a limited number of express and enumerated roles for the federal government to a point where in fiscal 2008 less than 40 percent of the federal government related to the key roles envisioned by our Founders. These key roles include national defense, the federal judiciary, foreign policy, our treasury functions, the postal service, Congress and the Executive Office of the President. What happened to the Founders' intent that all roles not expressly reserved to the federal government belong to the states and ultimately to the people?
- From a time when George Washington and other Founders cautioned us not to involve ourselves in foreign conflicts to the first "preemptive war" in the history of the U.S., and, contrary to the Constitution's terms, that "war" was never declared by the Congress. In fact, the Congress has not declared "war" since World War II!
- From a culture that valued savings, thrift and had "debtors prisons" to one where both America and too many Americans are "addicted to debt", where household savings rates are near zero, and there is little shame associated with filing bankruptcy;
- From a political system where parties were viewed with skepticism and where politicians left their normal jobs for a period of time to do public service, to where party politics sometimes trumps the public interest and too many elected officials view their position as a job and want to make a career of it;
- From a country that believed in community and personal responsibility to one where too many people are self-absorbed and will file suit over just about anything if things don't go their way;
- From a society that believed in individual opportunity and public morality to one with a large number of broad-based "entitlement programs", including for middle and upper income individuals, and where the moral indiscretions and escapades of celebrities are frequently in the news; and,
- From a country where people were focused on the future to where too many Americans are living for today rather than taking steps to create a better tomorrow.
Even more seriously, we've gone from a nation of hope and optimism to where, for the first time in our nation's history, a majority of Americans believe that life for their children will not be better than their own. Why? In large part because America faces a range of large and growing deficits and key sustainability challenges that Washington's policymakers are not taking seriously enough. In addition, unlike at the outset of our Republic when we had more than our fair share of great leaders, America faces a serious leadership deficit.
It is time to recognize reality, America is at a critical crossroads and our collective future will largely be determined by what we do and what we fail to do within the next few years. We need to get back to basics, find our way back home, and begin to address the key sustainability challenges that serve to threaten our future before we pass a "tipping point". And all of us need to be part of the solution.
It's clear that Americans are tired of partisan rhetoric and ideological battles. They want to start seeing some real results - "We the People" deserve no less. Despite this fact, some anti-government, special interest and "status quo" forces like the current stalemate in Washington.
The election of President Obama was greeted with great hope. At the same time, people have very high and somewhat unrealistic expectations for him. In addition, it's pretty clear that the financial markets do not feel that the new Administration is off to a very good start.
This is true, in part, because Washington is both a "lag indicator" and is "crisis oriented." It often doesn't act until it has to and then all too frequently in a manner that lacks clarity and is inadequate. The truth is, Washington's failure to act when things are going well is not necessarily a problem. After all, Washington can sometimes "muck things up." Yes, the word that I used started with an "m" and not another letter. However, having Washington be in a "stalemate position" when things are not going well and are getting worse with the passage of time is totally unacceptable. That is where we are today and our collective clock is ticking!
Importantly, when Washington does act, it needs to do so in a timely, clear and effective manner. For example, in the later days of the Bush Administration, we spent $350 billion on the first phase of the Troubled Asset Relief Program (TARP). What did we get for our $350 billion? Not much! In large part because the Congress did not have clearly defined objectives and the Administration did not have clearly defined and consistently applied criteria regarding who would receive assistance or appropriate conditions on what firms could and could not do with the money.
Government can do all it wants to increase transparency and oversight after the money flows but these actions are not enough. After all, once the money has been spent it is G-O-N-E! The federal government must address the objectives, criteria and conditions principles that I have discussed in order to maximize the chance of success and minimize waste, frustration and embarrassment.
It's time for Washington to provide more leadership and less "laggardship". Hopefully, President Obama will provide do so in connection with our fiscal and other key sustainability challenges but only time will tell.
Time does not allow me to address all of our sustainability challenges so I will touch on our fiscal and savings challenges.
As the most recent Comptroller General of the United States and our nation's top auditor, I know firsthand that our country's financial condition and fiscal outlook are worse than advertised. According to the latest financial statement of the U.S. Government, when you consider the current "off balance sheet obligations" associated with Social Security and Medicare, the U.S. was in a $56 trillion plus financial hole as of September 30, 2008. That is equal to $483,000 per household or about 10 times median household income. And these numbers are before the declaration of an official recession, before the significant market declines that began in October 2008, before the bailout bills associated with the financial services and auto companies, and before consideration of the cost of the economic stimulus bill. Believe it or not, America now owes more than Americans are worth and the gap is growing!
Let's review the trend for the past several years. Federal deficits have gone from $162 trillion and $455 trillion in fiscal 2007 and 2008, respectively, to over $1.6 trillion in fiscal 2009. Total debt levels have gone from about 65 percent of GDP at the end of fiscal 2007 to over 75 percent today. President Obama's fiscal 2010 budget anticipates that our Debt/GDP ratio will reach 89 percent by the end of fiscal 2009 and 96 percent by the end of fiscal 2010. That's up from about 65 percent at the end of fiscal 2007 - or an almost 50 percent increase in 3 years!!
The currently pending Omnibus budget bill for 2009 includes an 8.3 percent discretionary spending increase, including a 10 percent increase for the legislative branch, and thousands of earmarks! This can hardly be described as "leading by example" or as being "fiscally responsible."
Candidly, things seem to be "out of control." We must realize that the factors that contributed to the mortgage-related sub-prime crisis also exist in connection with the federal government's own finances. There are, however, two big differences. First, the numbers are much bigger. And second, no one will bailout America!
Our nation is clearly on an imprudent and unsustainable fiscal path and our financial condition is deteriorating with the passage of time. We must take a number of steps soon to defuse our "fiscal time bomb" which is driven largely by out of control health care costs and known demographic trends. These steps include, re-imposing tough statutory budget controls, comprehensive Social Security reform, as well as round one of what needs to be a series comprehensive reforms to our tax and health care systems. Entitlement reform, especially Medicare reform, is essential since that is where tens of trillions of dollars of unfunded promises lie.
While we ultimately need to take steps to address all these areas, given the current recession and our housing, financial services, auto and other industry challenges, the Obama Administration will need to focus and foremost on getting past the current crises and turning the economy around. In this regard, we needed a stimulus, unfortunately, only about one-third of the $787 billion bill that passed can truly be called stimulus. In addition, while President Obama's first budget has more truth and transparency, it includes too much new debt financed spending and not enough transformational reform.
Yes, additional steps will be necessary to address the financial services, housing and auto industries. Hopefully any additional action will address the inadequacies associated with prior efforts, especially in connection with the TARP. This time we need to know what our objectives are. We need to establish criteria regarding who will get the money and what appropriate restrictions and conditions should apply up-front and before funds flow. We also need to make sure there is stronger transparency and accountability relating to any such federal assistance.
Clearly, in addition to focusing on today, President Obama needs to take steps to help create a better tomorrow. We can't spend and borrow our way to prosperity. In particular, he must take concrete steps to achieve the "grand bargain" on budget, entitlement, tax and other spending reforms that, in January, he acknowledged should be achieved on his watch - which may or may not extend beyond four years. Doing so will require a number of steps, including possible creation of a "Fiscal Future Commission". This would not be the typical Washington Commission. It would be designed to facilitate and accelerate action rather than to punt on the challenges it addresses. It would engage Americans, have everything on the table, including budget controls, Social Security, Medicare, Medicaid, other spending and tax reforms, and, it would make a package of recommendations that would be guaranteed a vote in Congress.
What about our nation's savings practices? The sad but simple truth is that most Americans are great at spending but poor at saving. Worse yet, too many Americans are following the bad example of their federal government. Namely, they are spending more money that they take home in pay while building up debt and mortgaging their future. This type of behavior cannot be sustained over the long-run.
In fact, America has about the lowest savings rate of any industrialized nation. Why should we care? Because with savings comes investment which results in additional research and development (or R+D). R+D results in new and innovative products and practices, quality enhancements and productivity improvements - and all of these serve to increase our nation's overall economic growth and competitive posture. They also serve to improve our average standard of living over time. I think most people would rather have our average standard of living continue to improve over time that has been our American tradition since the inception of our republic!
At the same time, one has to be careful with averages. For example, on average, both Pete Peterson and I are billionaires! I can assure you that my net worth is missing several zeros to the left of the decimal point!
The failure to save domestically also results in the U.S. having to rely on foreign investors to an increasing extent in order to finance our nation's excess consumption. This may be OK in the short-term; however, it is not in our nation's economic, foreign relations, national security or domestically tranquility interest over the long-run. All you need to do is look back to see how the United States used our financial leverage against the United Kingdom during the 1956 Suez Crisis to see why this is not a prudent course. We must reverse this dangerous trend. This will require a number of actions, including reducing government deficits and increasing personal savings rates possibly by adding mandatory individual savings and investment arrangements as part of comprehensive Social Security reform.
Most importantly, all of us need to do our part as individuals and citizens. We need to be financially responsible while also discharging our civic responsibilities as citizens of this great nation.
Collectively, we must stop living for today and learn the lessons of history. One lesson from history relates to the fall of the Roman Empire. Rome fell for many reasons, four of which seem to resonate today. These include: 1) A decline in moral values and political civility at home; 2) An over extended militarily around the world; 3) Fiscal irresponsibility by the central government, and; 4) An inability to control its borders. Do these sound familiar? We need to wake-up and make sure that we learn from these experiences.
Before you get too depressed let me be clear: Regarding my views on the state of affairs, we can and we will turn the economy around and get past our current crises. In addition, yes, we can re-impose tough statutory budget controls to constrain federal government spending and make sure that we begin to pursue a more prudent and sustainable fiscal path. Yes, we can reform Social Security to make it solvent, sustainable, secure and more savings oriented. Yes, we can reform our health care system to reduce the rate of increase in health care costs, and address basic and essential societal needs without bankrupting America. Yes, we can reform our tax system to make it simpler, fairer, more equitable and competitive, while raising adequate revenues to pay our bills and deliver on the promises that the federal government intends to keep. Yes, we can review, reprioritize and reengineer the base of the federal government to make it more results oriented and future focused.
However, in order to achieve the above objectives, Washington needs to start making tough choices and employing "tough love" principles. It will also require extraordinary measures like special purposed commissions and task forces with expeditious consideration, limitations on amendments, and guaranteed votes in Congress to achieve sustainable success.
That's where you come in. In my view, they only way we can assure that our collective future will be better than our past is if "We the People" become more involved in ensuring that our elected officials efficiently address the key challenges facing our country. We must demand change and hold our elected representatives accountable for what they do and what they fail to do to keep America strong and the American dream alive. I can assure you that I and others at The Peterson Foundation will do our part; all that I ask is that you do yours.
In conclusion, we at the Peter G. Peterson Foundation are in this fight to win. In my view, patriotic organizations like the SAR and the DAR should also be on the front line in this fight for America's future. After all, failure for our elected officials to act could result in us losing some of the things that our forefathers fought, and many died, for and that unfortunately, too many Americans take for granted today.
We can, we must, and I believe that we will ultimately rise to meet the challenge. And by doing so, we can keep America great and help to make sure that the United States will be the first republic to stand the test of time. Let's work together and fight for America's future! Thank you.
