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Running on Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It Kindle Edition
When Bush came to office in 2001, the 10-year budget balance was officially projected to be at a surplus of $5.6 trillion. But after three big tax cuts, the bursting of the stock-market bubble, and the devastating effects of 9/11on the economy, the surplus has evaporated, and the deficit is expected to grow to $ 5-trillion over the next decade. The domestic deficit is only the half of it. Given our $500 billion trade deficit and our anemic savings rate, we depend on an unprecedented $2 billion of foreign capital every working day. If foreign confidence were to wane, this could lead to the dreaded hard landing.
Peter G. Peterson--a lifelong Republican, chairman of the Blackstone Group, and former secretary of commerce under Nixon--shatters the myths with hard facts and a harrowing view of the twin deficit's real impact. Republicans and Democrats alike have mortgaged America's future through reckless tax cuts, out-of-control spending and Enron-style accounting in Congress. And the situation will only get worse as the Baby Boom generation begins to retire, making unprecedented demands on entitlement programs like Social Security and Medicare. Despite what Bush says, we are on a path that could end in economic meltdown, and we simply cannot grow out of the deficit.
In Running On Empty, Peterson sounds the warning bell and prescribes a set of detailed solutions which, if implemented early, will prevent the need for draconian measures later. He takes us behind the politicians' smoke-and-mirror games, and forcefully explains what we must do to rescue the future of our country.
- LanguageEnglish
- PublisherFarrar, Straus and Giroux
- Publication dateAugust 1, 2004
- File size1756 KB
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Editorial Reviews
From Publishers Weekly
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Review
"Today, too many of our country's key economic decisions are being made with an eye to the next election rather than to the next generation. This book explains in simple but powerful terms why it's imperative that our attention must be refocused now." --Warren E. Buffett, CEO Berkshire Hathaway
"For anyone who is concerned about the future of their children and grandchildren, Pete Peterson's Running on Empty is required reading. Pete lays out in extraordinary detail how both major political parties have ignored the fiscal juggernaut that is bearing down upon us. His facts are irrefutable; his opinions grounded in those facts. It is a chilling story of what could be a fiscal disaster for this country that we all love." --Senator Warren B. Rudman
"As Peter Peterson, a long and courageous advocate of fiscal responsibility puts it in Running on Empty, "I want to ask every American, young people especially: Is your future better off now than it was four years ago--now that you are saddled with these large new liabilities and the higher taxes that must eventually accompany them?" If that isn't an election issue, I don't know what is." --Thomas J. Friedman, New York Times Columnist
"This book is a clear, realistic, insightful and compelling picture of America's fiscal and economic future. And, unlike most, this book actually proposes solutions. This book deserves to be the intellectual foundation for a movement to put the fuel back in our tank." --Bob Kerrey
"Pete Peterson has performed a great national service with Running on Empty. No one knows better the costly consequences of record deficits for future generations. This is a wake up call we cannot ignore." --Tom Brokaw
...
About the Author
Excerpt. © Reprinted by permission. All rights reserved.
PREFACE: WHY THIS BOOK NOW?
Less than three short years after America absorbed the double blows of 9/11 and the collapse of the bubble economy, a new mood of triumphalism reemerged in many quarters. Saddam Hussein was dragged from his spider hole and humiliated before the world. Inflation and interest rates remained low while productivity and profits soared. The stock market roared back and investors began reading their statements again. So quick was the rise in manufacturing and consumption that freight backed up on the nation's railroads and waterways.
Yet if it seemed the dawn of another "Morning in America," many Americans still felt a chill in the air: at what price did America purchase its recovery? Yes, nearly everyone agreed that tax cuts and a big run in federal spending had helped to stimulate the economy. Everyone agreed the Fed had been right to cut interest rates. But even after three big tax cuts in a row, a boom in home refinancing, and zero percent auto loans, the economy was slow to produce jobs, personal savings rates skidded to historic lows, and the nation faced ballooning budget and trade deficits stretching as far as the eye can see.
Meanwhile, the oldest baby boomers are just a few years away from retirement. Today, Social Security still runs a sizable cash-flow surplus, which covers the roughly equal cash-flow deficit in Medicare. But official projections show that within fifteen years both programs will be paying out far more in benefits than they collect in taxes, with Medicare's red ink far surpassing that of Social Security. Indeed, if one looks at Social Security and Medicare together, including both Medicare's hospital and physician programs, they go from a modest combined cash-flow deficit of about $25 billion in 2003 to an unthinkable annual cash-flow deficit of $783 billion in 2020 (or $519 billion in today's dollars). And that annual deficit is projected to reach $4.3 trillion (that's $4,300 billion) by 2040 (or $1.6 trillion in today's dollars). No longer will Congress be able to use Social Security tax dollars to pay for Medicare's deficits or for other government operations. Unless Social Security and, in particular, Medicare benefits are brought under control, the government will face stark options: either draconian cuts in defense, education, transportation, the criminal justice and other programs, or huge tax hikes—or, of course, both.
What were the politicians preparing to do about all this? The Republicans wanted to make all of their recent tax cuts permanent, while also pushing for big increases in spending on defense, homeland security, energy subsidies, and miscellaneous pork. Meanwhile, the Democrats vowed to do away with the tax cuts for the rich, preserve tax cuts for the middle class, put new money into education, health care, highway construction, and miscellaneous pork while promising to do nothing about the big deficits in Social Security and Medicare—except perhaps to make them bigger. After a costly new expansion of Medicare to pay for prescription drugs, the Democrats complained it "didn't go far enough," thereby suggesting we make an already unsustainable program even more unsustainable.
America was back, but for how long? Were we celebrating an economic Pyrrhic victory?
Buried deep in the financial pages, telltale signs are appearing that suggest America may well be headed for a financial meltdown. In January 2004 the staff of the International Monetary Fund, who normally worry about profligate nations like Argentina, took direct aim at the United States, warning the world that we are careening toward insolvency. They point to a huge and growing imbalance between what the federal government has promised to pay in future benefits and what it can reasonably expect to collect in future taxes. Its long-term structural deficit now exceeds 500 percent of gross domestic product. Closing that gap, the IMF calculated, "would require an immediate and permanent 60 percent hike in the federal income tax, or a 50 percent cut in Social Security and Medicare benefits."
Adding to the gathering fiscal storm is America's growing dependence on foreign capital. Because Americans import far more goods and services than they export, and because the federal government borrows so much and Americans save so little, the American economy is increasingly owned by, or indebted to, foreigners. This is America's other deficit, the so-called current-account deficit, which indicates how much of our birthright we are selling off to foreigners, or promising to pay them in future interest payments. Last year the United States imported capital from foreigners at an unprecedented rate—four billion dollars every working day.
These "twin deficits"—the U.S. budget deficit and America's current-account deficit—pose a dual challenge. Today's budget deficits consume so much of the nation's meager savings that we must turn to other countries to finance our home mortgages, credit card balances, and the business investments that fuel our growth. Thus, if foreigners stopped providing us with so much easy money, interest rates would likely shoot up, the dollar would likely sink, and the economy would likely stall. This flow of easy money also reduces pressure on our government to cut its own reckless borrowing, and on ordinary Americans to reduce their consumption and increase their savings.
For a long time this arrangement has been a boon for American consumers. This borrowing from abroad allowed us to buy lots of cheap imports, even if it caused many Americans to get hooked on credit and others to lose their jobs to foreign competition. Fred Bergsten, director of the Institute for International Economics, observes, "We finally understand the true meaning of supply-side economics. Foreigners supply most of the goods and all of the money."
But the arrangement cannot last indefinitely: we have for too long consumed far more than we have produced as a nation. International economists agree that the odds of severe adjustment problems mount rapidly once an economy exceeds a current account deficit of 5 percent of GDP. In 2003 our current-account deficit just reached that mark. It is now half again as large, as a percentage of GDP, as our previous record set in 1987, a year that saw a one-third drop in the dollar and a still legendary stock market crash. And New York Fed economists expect the current-account deficit to climb still higher.
Taking the longer view, we must also remember our creditors, notably western Europe and Japan, are aging even more rapidly than the United States. They will eventually need their savings at home to pay for their own retirement systems, which are even more costly than our own. China, another major U.S. creditor, is also aging rapidly, while also needing huge amounts of capital to finance its own industrial expansion.
Product details
- ASIN : B003H4I558
- Publisher : Farrar, Straus and Giroux; First edition (August 1, 2004)
- Publication date : August 1, 2004
- Language : English
- File size : 1756 KB
- Text-to-Speech : Enabled
- Screen Reader : Supported
- Enhanced typesetting : Enabled
- X-Ray : Not Enabled
- Word Wise : Enabled
- Sticky notes : On Kindle Scribe
- Print length : 296 pages
- Best Sellers Rank: #993,031 in Kindle Store (See Top 100 in Kindle Store)
- #287 in Political Parties (Kindle Store)
- #707 in Economic Conditions (Kindle Store)
- #963 in Political Parties (Books)
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The book does have some flaws, in my opinion. In many respects it is too optimistic about the future of America's economy. While there has been some economic growth in recent years, keep in mind that economic growth is generally measured by GDP. GDP is a highly inaccurate measure; it does not take into account the effects of population growth, or the costs of pollution, or depletion of natural resources, or decline in standards of living. A somewhat more accurate measure, the Index of Sustainable Economic Welfare (ISEW), shows that in fact there has been almost no real economic growth in the U.S. since the 1970s. Peterson also does not take into account the fact that due to Hubbert's peak in oil recovery we are likely to see substantially higher energy prices in years to come. This only reinforces the need to get our house in order.
Peterson's prescriptions are good as far as they go. Peterson proposes indexing Social Security benefits to prices instead of wages. This would work only if prices rise more slowly than wages, which may not be the case in the future. I would propose indexing Social Security benefits to either wages or prices, whichever rises the least in a given year. Peterson does a great job pointing out the flaws of Medicare and links them to flaws in the overall health care system, which I thought was well done. I would consider Peterson's suggestions the absolute minimum of what should be done. If for whatever reason we can't implement these needed reforms, in my opinion both Social Security and Medicare should be ELIMINATED, PERIOD. We've tried for years to contain costs in these programs, with absolutely nothing to show for it. Maybe we should just get rid of them. Keep in mind that before these programs were started, seniors weren't starving in the streets.
But the author stopped short of discussing the disease (our moneyed political system) and the cure (full public financing of campaigns). Government spending decisions are usually made for one reason alone: congressmen are paid to spend money! Not by you and me but by the special interests who fund their elections and want financial favors.
As an insider I expect that Petersen could have given us the gruesome facts, and I would suggest he do in a sequel.
No matter what your social or economic concern, just follow the money: the common denominator is always the dollar bill. In most cases, the side who contributes the most wins. Our congressmen might just as well put their votes on eBay, it is that blatant.
Peterson's strongest recommendation was to fix the gerrymandering of congressional redistricting. That didn't do it for me. If congress is going to make decisions that are in the best interest of their funders, let it be the taxpayers. For $10 per taxpayer per year we could fund our federal election system, and another $5 would fund state elections as is done in Arizona and three other states. Their system is voluntary and thus constitutional.
If I'm going to pay for the elections anyway (through the back door in increased government spending) I'd rather pay for them up front. It's simple: I don't want my representatives bought by anybody, not even the interests I support.
Over time, Asian investors will own bigger percentages of the S&P 500. Cities and states are also selling assets when ordinary taxes and bond sales can't raise sufficient funds. Foreign investors will continue to buy shares of Fortune 500 blue chip companies. Since Fortune 500 companies provide reliable returns the world has an insatiable appetite for these assets.