In “The Wizard of Oz,” Dorothy and her friends pull back a curtain to discover a small old man who has been manipulating all of their travails in the chaotic land of Oz.
Perhaps policymakers should look behind the curtain of “a recovery is coming” to see the wizard that may derail any projected long-term economic health — growing, unsustainable and dangerous federal indebtedness.
It seems clear that Treasury Secretary Timothy F. Geithner and Lawrence H. Summers, director of the National Economic Council and assistant to the president for economic policy, have peeked behind the curtain. On “This Week” on Aug. 2, Mr. Geithner acknowledged that he knows what is coming when he said the administration would do whatever was necessary to get the deficit under control. That same day on “Face the Nation,” Mr. Summers denied that more taxes were on the table, but as I watched, I thought I saw someone who would rather not be having the discussion at all.
Their appearances revealed that they know what is going on — they just dont know what can be done, politically, about it.
The re-estimates of projected deficits and federal indebtedness just released by the Congressional Budget Office (CBO) and the Office of Management and Budget show that deficits are worse than forecast just a few months ago and federal indebtedness is greater. At a symposium on deficits and debt in late spring hosted by the Bipartisan Policy Center, the foremost federal budget experts in the country were unanimous on three things: Deficits would rise, not decline, from forecasts; total federal indebtedness over the next decade would continue to surpass any previous estimates; and the United States was nearing a level of indebtedness that could undermine both the nation’s economy and its security.
Those experts were right — things are worse than officials told us they would be.
Our current-year deficit will hit 11.2 percent of gross domestic product (GDP), the highest percentage since the end of World War II. By the end of the next decade, the United States will spend more money paying the interest on the public debt than it will on any other governmental activities except Medicare and Social Security.
America will be spending more to service its debt than it will spend on education, the environment, infrastructure, scientific research, national defense and all the other things our Founding Fathers thought were important to the nation.
Our debt is on an unsustainable path. Who says so? President Obama, Federal Reserve Board Chairman Ben S. Bernanke, Senate Budget Committee Chairman Kent Conrad, CBO Director Douglas W. Elmendorf, the Republican leadership of the House and Senate, and most of the leaders of those nations that we hope will buy trillions of dollars of new federal bonds.
Finally, best estimates are that if current policy continues, federal debt will soar from 41 percent of GDP in 2008 to more than 60 percent at the end of fiscal 2010. Foreign governments and other entities already fund a large proportion of our debt. If current projections prove correct, and I believe they will, we will be depending upon foreign purchases of more than 40 percent of our annual debt issuance. Many experts think anything over 40 percent spells danger for the nation.
In the 1990s, we faced a similar situation. President Clinton and his administration joined with congressional Republicans and Democrats to produce balanced federal budgets for the first (and last) time in 50 years. As one of the authors of that legislation, I can tell you that those negotiations were difficult and involved fundamental compromises.
That same resolve is needed now. The problem is bigger, the dangers more acute and the choices more painful.
Everything the government does — spending and taxing — must be on the table once again.
Even more than health care reform (and its enormous new costs) or spending on remediation of global climate change, deficit reduction must be task No. 1 for America. All the rest we do will amount to very little if our economy collapses under the weight of unprecedented debt.
But time is passing, demographics are against us, and the world is watching.
Pete V. Domenici served as a Republican senator from New Mexico from 1973 to 2009. He was chairman or ranking member of the U.S. Senate Budget Committee longer than any other senator in history. He is a senior fellow at the Bipartisan Policy Center.