SYNOPSIS: The time for fiscal responsibility is now.. and it's being ignored.
However this election turns out, future historians are likely to see this as the year that America failed a big political test.
After decades of bipartisan irresponsibility, by the 1990's the United States had, miraculously, started to look like a grown-up nation — a nation able to plan ahead, to take advantage of good times to prepare for the rainier days to come. But it was an illusion: We were, it turns out, just playing at being grown-up.
The basic rule of fiscal responsibility for a national government is pretty much the same as the rule for a family: Pay off your debts and build up financial reserves when things are good, so that you can draw on those reserves later. And these are the best of times for America's government, in at least three ways.
First, we are at peace, with no significant military rivals. You don't have to believe in a new cold war to think that things are unlikely to stay this easy, that one way or another defense spending will eventually have to rise from its current low.
Second, our demography is as good as it's going to be for the foreseeable future. The modern U.S. government is in large part in the business of insuring the income and medical expenses of older citizens. Starting just 10 years from now, the population eligible for Medicare and Social Security will start rising, and rising, and rising, with no end in sight. And so will the bills. If taxes on the diminishing fraction of our population that isn't retired are to stay tolerable, we'd better start saving now.
Finally, right now the U.S. economy — and indirectly the federal budget — benefits from the perception in the rest of the world that America is the place to invest your money. Huge inflows of foreign capital have been keeping U.S. interest rates down and stock prices up, both of which also keep the money flowing into federal coffers. Some economists think that these capital inflows, like the similar inflows into Asian nations before 1997, are only setting us up for a future crisis — and I won't say that I'm not worried. But even without a crisis we know that foreigners (and American investors too) will eventually discover more opportunities outside the United States, that the inflows will someday become outflows, and that we will be sorry if we haven't prepared for that day.
So the responsible, sensible thing for the U.S. government to do is to run very big surpluses right now. Indeed, budget analysts who take the long view argue that even without the tax cuts and spending initiatives proposed by the presidential candidates we would not be running as large a surplus over the next decade as we should — that if anything we should be raising taxes and cutting spending.
But how do you explain that long view to the public? The truth is that our leaders never really tried. Instead, even politicians who were trying to be responsible resorted to half- truths. All that business about putting Social Security and Medicare in "lockboxes" is an attempt to sell fiscal responsibility to the voters without really trying to explain why it is necessary. So maybe we should not be surprised that we have ended up with the worst of all worlds. On one side the public feels, correctly, that politicians like Al Gore, who use those half-truths to push for half- responsible policies, are talking down to them. On the other side the public feels, quite wrongly, that politicians like George W. Bush, who tell them that they can have their cake and eat it too, are men of the people.
Mr. Bush's willingness to trust in the public's innumeracy continues to boggle the mind. In the second debate he offered possibly the biggest misrepresentation yet, this time declaring about his tax plan that "most of tax reductions go to the people at the bottom end of the economic ladder." (That sound you hear is the giggling of millionaires and the guffawing of multimillionaires.)
But the gleefulness of the crowds who picked up that Orwellian chant of "no fuzzy numbers" (Orwellian because what it really meant was "no clear numbers — we don't want to know") suggests that this country just wasn't ready for the hard thinking that would have let us act responsibly. Maybe better politicians could have made a better case for the right policies. Or maybe the fault is not in our politicians but in ourselves.
Originally published in The New York Times, 10.18.00