7 May 2010

Stranger than fiction

A new book by former US Comptroller General, David Walker, makes some shocking claims and revelations:

“The recession and attendant financial shock appear to be easing as I write this. But in Washington, financial imprudence is part of the fabric of government. You can see that in a single document that gets updated every year: the US budget. In Washington, they speak of our ‘fiscal exposure’ - the sum of all the benefits, programs, debt payments, and other expenses that will cost us big bucks in the future whether or not we want to cut spending. The term I've used for all of that is our ‘federal financial hole.’ In the first eight years of this century it has grown from $20.4 trillion to $56.4 trillion - a 176 percent increase.

Maybe you have a few bills - mortgage payment, auto loan, cable TV, phone - deducted automatically from your checking account. How would you feel if those expenses had risen 176 percent in eight years while your income remained steady?

The hole is getting deeper because we are doing little to bring our income into line with our spending. And until now I haven't even talked about the interest payments on our federal debt. Suppose our government fails to increase federal revenues above the current rate. Based on the GAO's latest long-range alternative budget simulation, within about twelve years, our interest payments will become the largest single expenditure in the federal budget. By 2040, all of our federal tax revenues will add up to enough to cover only our two biggest expenses: interest on our debt and Medicare and Medicaid. Everything else - Social Security, defense, education, road building, you name it - will fail to be funded.

As you know, benefits payments are the biggest chunk of the government's massive obligation. Since the 1960s, the growth of these mandatory payments has overtaken what we spend on defense as a share of our national output - and what we spend on everything else in our federal budget, from law enforcement to border protection, children's programs to national parks, highways to foreign aid.

Although defense has declined dramatically as a percentage of the overall federal budget over the past forty years, we have actually increased total defense spending. In recent years, we have added resources to fight terrorism abroad. That means that other discretionary programs are much more susceptible to cutting. These include education, research, transportation, infrastructure, and other programs that, if properly designed and effectively executed, can promote economic growth and development.”

Sobering thoughts in just one page – imagine the effect – of the entire book.