- The Fiscal
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Thank you, Gene, for your kind introduction. And thank you to Leslie Greene Bowman and Don King of the Thomas Jefferson Foundation. To Dean Harry Harding and other members of the University of Virginia community. And good morning to you all.
I am deeply honored to join you in celebrating Thomas Jefferson’s 268th birthday.
Two of my nine grandchildren are here with me, and I’d like to ask them to stand – Xander, who is about to turn 11, and Beau, who is 9. They are fans of presidential history, and I think Thomas Jefferson would be impressed to hear them rattle off all 44 U.S. presidents.
Xander and Beau often ask me, “Papa, how old are you?”
Boys, I won’t give you an exact age, but I will say that while I never met Thomas Jefferson personally … we did email occasionally.
Since I learned that I would be receiving this year’s Thomas Jefferson Foundation Medal in Citizen Leadership, I have been trying to measure myself against Mr. Jefferson – but I keep coming up very, very short.
For instance, Jefferson was mechanically inclined and a design genius. His beautiful home is a testament to his talent.
On the other hand, I attended MIT and had the distinction of achieving the lowest score ever awarded by my professor of Descriptive Geometry in his 27 years of teaching. I was so incapable of visualizing objects from multiple angles that my professor asked, “What ever led you to go to an engineering school?”
And while Jefferson was an author whose words awoke people to the righteousness of the American cause, my own books have tended to put people to sleep. As Ted Sorensen once said of one of my books, “Once you put it down, you will not be able to pick it up.”
Like all Americans, I am enormously indebted to Thomas Jefferson. As an American Founder, he accelerated the advance of human liberty and set in motion the process by which each generation works to create a better future for the next. We generally refer to this as the American Dream, and I am among the luckiest of American Dreamers.
My parents were immigrants from Greece who arrived in this country with pennies in their pockets, a third-grade education, and not a word of English. My father worked and saved, worked and saved, until he had enough money to open the inevitable Greek diner. It wasn’t distinguished for its cuisine as much as for the fact that it was open 24 hours a day, 365 days a year. It didn’t close for 25 years. In fact, when my father finally decided it was time to slow down, he had to find a locksmith because he realized he didn’t even have a key for the door.
Though my father wouldn’t have been familiar with Thomas Jefferson’s writings, he did share a passion with Jefferson. They were both ardent believers in the power of education. My father often told me that the best thing he could do for me was to provide the best education money could buy. He fulfilled that promise, which gave me the opportunity to live the American Dream.
Near the conclusion of my business career, I received a financial windfall that prompted me to think about what I should do with it. I was reminded of a story involving the authors Joseph Heller and Kurt Vonnegut.
Heller and Vonnegut were at a party given by a wealthy hedge fund manager at his majestic beach house in the Hamptons. Vonnegut looked around and asked Heller, “Joe, doesn’t it bother you that this guy makes more in a day than you ever made from the worldwide sales of Catch-22?”
Joe thought for a moment and said, “No, not really. I have something that he doesn’t have.”
“What could you possibly have that he doesn’t have?” Vonnegut asked.
Heller responded, “I know the meaning of ‘enough.’”
In deciding what to do with the bulk of my resources, I turned to the issue that has haunted me for many years – the ballooning fiscal imbalances that threaten our long-term future. I started the Peterson Foundation to build awareness of the perilous state of our national finances, and to drive solutions to our fiscal challenge.
I chose this path because I believe the American Dream is at stake. If we continue along our current course, we run the risk of leaving our children and grandchildren – people in Xander and Beau’s generation – with debts that are simply unsustainable and taxes that are simply unthinkable. Debts and taxes that will one day make them wonder what in God’s name we were thinking.
Based on my reading of Jefferson, I think he would have supported this endeavor. Jefferson thought deeply about the responsibilities one generation bears to the next. He worried that his personal debts would be a burden to his beloved children and grandchildren. And he wrote passionately that one generation of Americans should not bind its successors to debts accumulated before their time.
In a letter to his great friend James Madison, Jefferson famously wrote, “The earth belongs always to the living generation…. Succeeding generations are not responsible for the preceding.”
Jefferson thought that because the United States was a new nation, with a future of its own making, its leaders were in a unique position to end the cycle of debt that had burdened countries in Europe. “We do not owe a shilling,” Jefferson said, “which may not be paid with ease … within the time of our own lives.”
Unfortunately, 200-plus years later, we have become the world’s largest debtor nation.
But I am hopeful we can change that. In Washington, more and more of our elected representatives are acknowledging the fiscal challenge and thinking about how to solve it.
So far, much of the discussion has been about the grim deficit numbers for the current year. But our transcendent problem is our unsustainable long-term path – the next 20 to 30 years and beyond.
Our publicly held debt is currently more than 9.5 trillion dollars, or about 65 percent of our gross domestic product. Most economists think it is unwise to have a debt-to-GDP ratio of more than 60 percent. Above 90 percent, the risks are critical.
But without any changes to our current trajectory, America’s public debt ratio is projected to rise to 87 percent in 2020, and 233 percent in 2040.
And these grim numbers do not include tens of trillions of dollars in off-the-books, unfunded promises for Social Security, Medicare, and other programs – promises the government has made, but not provided for. If any public company tried to use this off-the-book accounting method, the executives would be in serious trouble.
Furthermore, half of our debt is owned by creditors in other countries – and this foreign-held debt is growing geometrically and dangerously. Our interest payments help their economies, but buy us nothing and crowd out critically needed investments.
In 25 years, our interest costs as a percentage of the economy will be three times what the federal government spends today on education, research, and infrastructure combined.
If we are really serious about being the investment and innovation economy everyone talks about, we’d better start asking: With debts and interest costs like these, where will we get the resources?
This is not a sustainable or healthy course. Herb Stein, an economist and humorist from the Nixon Administration used to say, “If something is unsustainable, it will stop.” He also said, “If your horse dies, I suggest you dismount.”
Ladies and gentlemen, the horse is on its last legs.
Two major factors contributing to our fiscal mess are demographics and health care costs.
The demographic challenge is this: The number of geezers, like me, is rapidly increasing as a percentage of the population. As the 78 million Baby Boomers retire, the percentage of Americans over 65 will increase by 50 percent. Demographically speaking, by 2030, we will be a nation of Floridas.
The challenge is even more acute when it comes to health care. Medicare and Medicaid account for more than 20 percent of the federal budget. That number will increase to 30 percent in coming decades, as older people live longer and consume more health care.
The number of workers paying for these benefits is dwindling. Shortly after Social Security was created, there were 17 workers for each Social Security recipient. In 2030, there will be just over 2 workers for each retiree.
If we do nothing, the payroll taxes today’s young people will have to pay to cover the projected growth of Social Security and Medicare over the course of their lifetimes would have to double. That would be downright immoral.
When I cite statistics like these, I often get labeled as a Scrooge who wants to slash benefits for needy old folks and leave them out in the cold.
The truth is, I want to make sure that every senior who relies on Social Security and Medicare can depend on a secure system – which means that better-off people need to reduce their benefits and start contributing our full share to keep the safety net strong. If we wait for the inevitable economic crisis, the politics and the financial realities will be brutal and no part of the safety net will be secure.
Our whole economic and tax system is based on the notion of fairness. We confront a situation today where people with middle and lower incomes feel very frustrated, frightened, and angry. They’re deeply bothered by the historic inequalities in income between the poor and the rich, who are getting ever richer. So if we’re to have the broader public accept the shared sacrifice that our crisis requires, we will need to convince them that those of us who are better off financially are bearing our full share of the sacrifice, whether it be through benefit reductions or tax increases.
Some people in Washington are thinking about long-term solutions. Two great Americans, Erskine Bowles and Alan Simpson, a Democrat and a Republican, chaired the president’s fiscal responsibility commission. They put together serious options to reduce deficits by as much as 4 trillion dollars over the next ten years and put us on a sustainable long-term fiscal path.
The so-called Gang of Six in Congress – which includes your senator, Mark Warner – is driving a new effort to put some of those recommendations into law. Leaders like Senator Warner deserve enormous credit for having the courage and determination to confront this problem head-on.
Outside groups are also bringing forward ideas. At the Peterson Foundation, we want to hear more good ideas. We have provided funding to a half-dozen organizations across the ideological spectrum to put together credible plans for addressing America’s fiscal challenges. It is time to move beyond wishful thinking and develop solutions based on reality.
Two principles should guide us: everything should be on the table – including changes to both spending and revenues – and we need to act sooner rather than later. Denial and delay will only make our problem worse.
I am confident we can solve this challenge.
From Jefferson’s time to our own, Americans have risen to the occasion and met every challenge. But it will take leadership and commitment. Leadership from elected officials and others who have a platform to educate the public, and commitment from all of us. A commitment to understand the challenges and support those who are willing to make the tough decisions to solve them.
To the students in the audience, I urge you to get involved. Learn about the problem and join the search for solutions – because it is your future that is at stake.
You may have heard the story of the professor who asked his class to explain the difference between ignorance and apathy. One sleepy student replied, “I don’t know and I don’t care.”
Trust me, if you were to know more about the crisis ahead, you would care.
One day I would love to see an organization called the American Association of Young People leading a march on Washington. A hundred thousand students and parents saying, “We’re mad as hell and we’re not going to take it anymore.”
And to those parents and grandparents and other adults who are thinking about your own legacy, consider the words of the German philosopher and theologian Dietrich Bonhoeffer: “The ultimate test of a moral society is the kind of world that it leaves to its children.”
The moment is long overdue for us to become moral and worthy ancestors to Jefferson and his fellow Founders. Let us all commit to leave our children a country that is fiscally sound and economically strong. A nation poised to inspire the world for many generations to come.
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