AMERICA, THE DEBT-RIDDEN
August 23, 2004
America is going broke, according to Peter G. Peterson, former chairman of the New York Federal Reserve Bank. In his new book, "Running on Empty," he describes the difficulty America will have in digging itself out of debt as the country pays for baby-boomer entitlements.
According to Peterson:
- Benefit spending now accounts for about one-eighth of gross domestic product.
- The new Medicare drug benefit will cost $2 trillion over ten years.
- The current account deficit -- which is what America must borrow to finance the excess of imports over exports -- is now 5.1 percent of GDP, or $540 billion.
- Money owed to foreigners (net financial liabilities) has risen from zero in 1980 to currently $2.6 trillion.
Furthermore, over 90 percent of baby-boomers believe that the government will be unable to keep its financial promises when it comes to benefit programs.
The problem, says Peterson, lies with both Republicans and Democrats. Republicans tax too little, while Democrats spend too much, and in the age of partisanship, it is tempting to make promises to the public with little regard to what will be dumped on future generations.
Peterson recommends that Medicare and Medicaid be shored up by "capping the deductibility of employer health plans" and curbing medical malpractice lawsuits. He also urges America to reforming Social Security by indexing benefits to prices, not wages, and by requiring mandatory savings programs.
Source: Christopher Caldwell, "While the Politicians Fiddle, America Goes Broke," New York Times, August 12, 2004; and Peter G. Peterson, "Running on Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It," Farrar, Strauss and Giroux, Copyright 2004.
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