Many Americans mistake the United States’ capability to borrow money as an indicator that our nation is incapable of incurring the same fiscal mess Greece currently finds itself in. In reality, this isn’t so, and this mentality could prove dangerous for America’s future if used to placate lawmakers regarding the actual state of our fiscal house. Former Federal Reserve chairman Alan Greenspan explains in an article published today in the Wall Street Journal that subdued long-term interest rates are “fostering a sense of complacency that can have dire consequences.”
But the crisis is real. In the past 18 months, the federal debt has surged from $5.5 to $8.6 trillion, and spending by Congress continues as if money grew on trees in Washington.
Writes Greenspan, “The current federal debt explosion is being driven by an inability to stem new spending initiatives. Having appropriated hundreds of billions of dollars on new programs in the last year and a half, it is very difficult for Congress to deny an additional one or two billion dollars for programs that significant constituencies perceive as urgent. The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms. This is not new. For at least a quarter century analysts have been aware of the pending surge in baby boomer retirees.”
Lawmakers have recently begun to take baby steps in the directions of sound fiscal policy, but they have a long way to go. The president’s deficit commission, flawed though it may be, was created to explore ways to reduce the deficit. President Obama also recently proposed strengthening the president’s ability to control spending through line-item rescissions (an ability he actually already has) and reducing discretionary spending by targeting redundant or ineffective federal programs.
However, Greenspan states that he does “not believe that our lawmakers or others are aware of the degree of impairment of our fiscal brakes.” Indeed, to truly take the pedal off the metal on accelerating federal spending, Congress must target entitlement reform. Entitlement programs, which include Medicare, Medicaid, and Social Security, threaten to cripple the United States through insurmountable levels of unfunded liabilities. Moreover, this crisis cannot be averted through economic growth or tax hikes, as Greenspan explains that increasing taxes would “sap economic growth (and the tax base) and accordingly achieve little added revenues.”
Episodes of fiscal meltdowns on the other side of the globe should not be discounted by Americans as irrelevant to the future of the United States’ own economy. It’s time to take the message to heart and hit the brakes on fiscal recklessness?
