Running On Empty

Pete Peterson’s latest book, “Running on Empty”, will scare the hell out of you if you believe that tomorrow will automatically be better than today. On the other hand, if you want to read a sober, clear-headed analysis of how we got here and how we can perhaps get out of this mess, this is the book for you.

Peterson argues that we are on the road to bankruptcy. The numbers are staggering. If we do nothing, eventually the entire federal budget would have to be devoted to entitlements, such as Medicare and Social Security.

We have become a nation that has allowed our politicians to bring us to this point. The political class is more interested in winning the next election than in trying to solve our problems. Each side demonizes the other, convinced that all wisdom, truth and justice lies on its side. Neither side is willing to ask us to sacrifice today for a better tomorrow for us and our kids and grandkids. Peterson urges us to take up President Kennedy’s challenge: “Ask not what your country can do for you. Ask what you can do for your country.” And what we can do for our country, Peterson says, is take back our government so that it serves our needs today while ensuring that it will serve our and our kids’ and grandkids’ needs tomorrow.

Peterson, a Republican who has served in government, takes both Republicans and Democrats to task; Republicans largely because of their mania for cutting taxes no matter what needs go unmet, Democrats for expanding entitlements no matter what they cost today or tomorrow. And, he attributes a fair amount of our difficulties with each party to the gerrymandering that practically ensures the re-election of incumbent Congressmen.

You’ve probably read about Bush’s commitment to reform Social Security by allowing people to establish investment accounts with part of their payroll taxes. Since Social Security benefits are paid from the payroll taxes collected today, switching some of these taxes into an investment account means that the benefits that would have been paid by these missing taxes will have to be found elsewhere. Bush proposes to borrow the money for it; some estimates are that we would have to borrow a trillion dollars.

Peterson’s proposal for Social Security is more nuanced:

• he wants to index benefits to prices rather than wages as they are done now.
• he, an investment banker, believes in investing for one’s future but he wants the investment to be mandatory as it is in other countries such as Singapore, Chile and Australia.
• for those who are unable to contribute to the preceding investment accounts, the government should do so.

The deficits generated by Medicare dwarf those of Social Security; they’re about three times as much. And, the recent prescription benefit does not make the numbers smaller. Here, Peterson is on shakier ground in suggesting changes. He advocates:

• managed competition such as that provided to federal employees.
• promote higher deductibles and co-payments.
• determine which treatments work and which don’t.
• reduce litigation costs by instituting malpractice reform.
• promote public health.
• provide insurance for those currently uninsured.
• eliminate the tax deductibility of employer-paid coverage.
• introduce global budgetary caps.

How we keep the books is one of the themes of Peterson’s thesis. The government does an extremely poor job in producing financial records that can be understood by most people or that help it to actually manage. Peterson points out time and again that Congress should apply to the federal government the same rules and regulations (such as Sarbanes-Oxley) that it enacts into law for everybody else.

My limited experience with municipal budgets reinforces Peterson’s claim that the budget process of the largest financial entity in the world stinks. Most people cannot understand the government’s finances. We budget on a short term, not long term basis. We keep the books on a cash, not accrual, basis. It’s as though the feds operate in the dark ages.

But nothing will happen unless we reform our nation’s politics and parties starting with restoring the electoral process by eliminating gerrymandering thus giving people a decent hope of defeating an incumbent.

We own the airwaves. Why can’t television and radio stations be made to give time to qualified candidates since the stations are using our airwaves? This would reduce the massive amounts of money needed to conduct an election in the twenty-first century.

Remember the civics classes we had when we, the older generation, were kids? We learned how our government was supposed to run and what our duties as citizens were. Have our kids or grandkids taken such a class? Would it not make sense to try to educate them about their roles as citizens? As John Quincy Adams, President and Congressman, said when asked what he felt was his most important job, it is that of CITIZEN.