I.O.U.S.A. (32 page)

Q: Let ’ s imagine for a moment, though, it is 1999 and 2000. If
someone were to tell you what our federal debt would be, and
what our defi cit would be today, would you be surprised? Can
you characterize the road that we have been on fi nancially for
the past six or seven years?

Alice Rivlin:
In the late 1990s, the economy was growing very strongly. The stock market was rising fast — as it turned out, too fast. And all kinds of signs in the economy were positive.

Unemployment was very low. And even with low unemployment we did not have much infl ation. So the whole economy looked very, very good. And the federal budget looked terrifi c. It had a large surplus in those years in the late 1990s. It had such a large surplus that people were even beginning to worry about the surplus. My then colleague Alan Greenspan worried that the surplus was so large that we would pay off the whole national debt. I never thought that was a very serious worry, but he was genuinely worried about it.

Q: Why would that be a problem?

Alice Rivlin:
Well, he thought it would be a problem because then if the government kept running a surplus, it would have to buy private securities. And that would mean that the government would end up owning bonds of states or corporations or even c07.indd 104

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conceivably stock. I did not think we would ever get to that point, so I was not worried about it. But that was what was concerning him, or that is what he said at the time.

Q: But wasn ’ t there a fl ip side to that argument that we should be
bolstering our entitlement programs?

Alice Rivlin:
Well, when we were running a surplus in the federal budget, [that] was exactly the moment when we should have taken strong measures to shore up the Social Security system.

And, indeed, President Clinton suggested that. He had a slogan for it: “ Save Social Security First. ” He wanted to invest in the Social Security system to make sure that it was solvent for the future, before we cut taxes or did anything else with this surplus.

And in retrospect, that was a very good idea. But we did not do it. People were not suffi ciently concerned about the future to take the prudent measures that we should have taken to invest in the future so that we would have plenty of money to pay for the benefi ts that we know are going to be needed as the baby boom generation retires.

Q: It seems there is a different song that people are singing today,
seven or eight years later. How would you characterize the road
that we are on? Are we heading toward some severe fi nancial
diffi culties?

Alice Rivlin:
Right now, if you look at the federal budget, it is running a defi cit and it will probably run a defi cit for the next several years. Those defi cits in the near term — the next three, four, fi ve years — are not huge. They are not off the charts. We have been there before. But what is really worrisome is the longer - run future. If you look at just three programs, Medicare, Medicaid, and Social Security, the spending for those programs under current rules will rise very rapidly over the next few years — indeed, for the foreseeable future. And that is for two reasons. It is mostly because the medical programs are growing, because we are all using more medical care, more medical care per person, per patient, per anything. That has been growing over several decades, and will continue to grow.

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The other aspect is the baby boom generation retirement, and the fact that we are all living longer. That is the thing that most people emphasize, but it is not actually the most important thing. It is part of the problem of federal spending going up in the future, but the medical care programs are going up even faster, and they are the biggest part of the problem. What that means is that since spending on those programs will go up automatically unless we change the rules, we will have to do something. The spending on those three programs by sometime in the 2030s is likely to be about one - fi fth of everything we produce. Now, one - fi fth of everything we produce is about what we now spend to fi nance the whole federal government. So unless we are willing to raise taxes and keep on raising them, or close down the rest of the federal government, we have got a very big problem staring us in the face in the next couple of decades.

Q: Is there a solution, and what does that solution look like? A lot
of people think it is almost hopeless. How do we dig our way
out of this?

Alice Rivlin:
I do not think anyone should see the fi scal future as hopeless. In the fi rst place, we are not the only country with this problem. Everybody is facing rising medical care spending. That is true all over the world. And all successful countries are facing an aging population, people living longer. So these things are part of life in all kinds of countries. And we have a good, functioning democracy. We can get together and solve these problems. We are not a poor country — it would be much harder if we were. We are a rich country. And increases in longevity and rising medical care spending are symptoms of being a rich country. However, we have got to do something about it. We have got to decide, are we getting our money ’ s worth for all of this spending? And who is going to pay for it? And we have to fi gure out how to balance the federal budget in the long run, or come very close to balancing it, because if we do not, we will just keep on borrowing, and passing the bill on to future generations who did not create this problem.

Moreover, we cannot borrow that much. We can borrow $200

billion a year as we are now doing. The rest of the world seems c07.indd 106

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quite willing to lend us that much money. But when we get to the really big defi cits of the future, nobody is going to be willing to lend us that much money. So we are going to have to fi gure out what to do.

Q: What is a defi cit and do they matter?

Alice Rivlin:
I think defi cits matter. A defi cit occurs when the federal government is spending more than it is taking in revenue. And that means it has to borrow money. Now, right now we are borrowing some $200 billion a year. That means we are not paying for the government services we are asking our government to provide. We are borrowing the money and passing that bill on to our grandchildren. Now, I do not think that is a moral thing to do. I think the real reason to not run a defi cit is that it is not fair to our grandchildren or our children, future taxpayers, whoever they are, to pass them the bill for the things we want to do now.

Economically, it is also risky. If you borrow a lot of money, then you have to pay interest on it. The interest becomes a bigger and bigger percentage of what the government spends, and that is really wasted money. You do not get anything for it. And then there is the problem that people might not want to go on lending to the United States government forever. Now, much of our borrowing is from other countries, particularly from central banks in Asia, who are willing to lend us large amounts of money — but they might not be willing to do that for a long time. If they begin lending us less, then we would be in some economic trouble.

Interest rates would go up. We would have to pay more to borrow from somebody else, and if it really got out of hand, we might have a spike in interest rates and a recession.

Q: How would you characterize the U.S. economy in comparison
to other economies around the world? Where do we fi t
into that?

Alice Rivlin:
Well, the U.S. economy is just a word for everything that everybody does, that is production or sale or getting paid for what you do. It adds up to everybody ’ s spending, whether you are an individual or a corporation, or a nonprofi t institution.

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The U.S. economy is the largest and most productive in the world.

It has really been quite amazing. We have a higher standard of living than most other countries. And we have continued over a long period to be very productive.

Q: Are you hopeful that the economy is going to stay strong, and
it is going to provide benefi ts to people who live here? Or are
you concerned about the challenges that lie ahead? How do
you characterize them?

Alice Rivlin:
I am an optimist about the American economy.

We have done very well for a long time. We have some threats at the moment. One of them, I think, is that we have made more promises to older people than we can afford to pay for, unless we change the rules. I think we will change the rules, or we will raise taxes, or we will do some of each. I am also worried about the distribution of income, about the fact that some people make a lot of money, and some people are struggling just to make ends meet. And those differences have widened over the past few years.

I think that is not good for us. We should make it easier for people at the bottom of the income distribution to make a good living and to have jobs where they earn a living wage. But in general, this is a very strong economy.

Q: Why should someone who lives in this country, and has no
interaction with the government or in, say, Wall Street, know
about economics and the federal government and how they
work? Why should they care about it?

Alice Rivlin:
Everyone should care about what their government is doing because it affects their lives very directly. If taxes go up or if spending is cut for something that you really care about, like roads and bridges, or education or health care, then you are going to feel it right away. It is not remote. People may think somehow decisions are made by other people far away, but in a democracy that is not really true. It is your representatives in Congress or in the Senate that are infl uencing what happens to the U.S. economy and what happens to the federal budget. So it is pretty important for people to pay attention to it.

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Q: And as for the economy, do you think it as complicated as
people think it is, or no? Is it an approachable topic for most?

Alice Rivlin:
I do not think the economy is nearly as diffi cult to understand as many people seem to think. I think it is a little bit like math phobia. People say, oh, well, you know, I never was good at math. But the economy does not involve much math.

People know about taxes. They know about spending. They know about unemployment. If it hits them, it is a disaster. So those are things that people can fi gure out.

Q: What does an institution like Brookings do?

Alice Rivlin:
The Brookings Institution does public policy research. That is, we write books and articles and other kinds of publications, and we talk on the air about public policy problems, like taxes and international trade, and budget defi cits, and the war in Iraq, all kinds of public policy issues. We are a nonpartisan organization. We try to do the best job that we can to do fair and impartial research. That does not mean people do not have opinions. Of course they have opinions. But we are dedicated to doing fair and impartial research.

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