"Running on Empty" by Peter G. Peterson

Bush's tax cuts have squandered an era of prosperity and doomed our kids to a crippled economy, argues the former secretary of commerce. But the Democrats, he insists in this dark and brilliant jeremiad, have done no better.

By Farhad Manjoo

Jul 21, 2004 | Shortly before George W. Bush was sworn into office, an aide to the incoming president called up Peter G. Peterson, a former secretary of commerce under Richard Nixon, to chat about the nation's finances. "You people have a God-sent opportunity," Peterson, one of the Republican Party's fiercest deficit hawks, told the Bush official. At the time, the federal government was awash in cash; after eight years of Bill Clinton's stewardship, the 10-year budget surplus stood at $5.6 trillion, and Bush's legislative challenge looked similar to the problem faced by Richard Pryor's character in "Brewster's Millions" -- finding ways to spend all that coin.

Despite the happy short-term outlook, though, Peterson reminded the Bush aide that the United States faced a frightening long-term balance sheet. This is the same doomsday scenario you've heard a thousand times before, and by now you're probably weary of it: As more than 70 million baby boomers begin retiring later in the decade, the Social Security and Medicare programs are destined to sink into multitrillion-dollar deficits, causing enormous hardships for younger Americans. Bush had a chance to avert disaster, Peterson told his aide. By using the immediate surpluses to fix the looming crisis, the new president could possibly solve "one of the largest fiscal challenges in our history."

But when the Bush official went to more senior aides with Peterson's advice, the answer came back as you'd expect: There would be no immediate effort to fix Social Security and Medicare during George W. Bush's presidency. "Sorry, Pete," the official told Peterson. "Tax cuts come first."

This is the story of Peter Peterson's life. Politicians and their assistants are always soliciting his advice, constantly appointing him to blue-ribbon panels and influential committees, forever congratulating him on his prudence and pragmatism. And yet they're always ignoring him, too. Everybody listens to Peterson, but nobody does what he counsels. As he describes in his brilliant new book, "Running on Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It," he has offered the same practical advice for decades -- Reform long-term entitlements! -- to presidents and lawmakers of both parties. His words have gone almost universally unheeded.

The Democrats he encounters either refuse to believe that there's a problem with Social Security and Medicare, or they insist that it's a problem we can solve with a few small, painless tax increases and other legislative tweaks. Republicans concede there might be a problem, but they're not too concerned about it; for them, the government's inability to fund two massive social programs fits well with a small-government, libertarian ethos.

During the past 50 years, both sides have not only ignored the challenges ahead but have exacerbated them by more or less simultaneously approving giant tax cuts and spending increases. Thanks to their actions, we are all in profound trouble. As Peterson methodically lays out, when the tab comes due over the coming decades, Americans will face a grim choice: To pay for the retirement and skyrocketing healthcare costs of the baby boomers, taxes on future working Americans -- that is, on today's young people -- will need to be hiked substantially or benefits to the elderly will have to be drastically reduced. If no policy changes are made, in about 20 years or so "the whole dynamic spins out of control," Peterson says -- eventually, spending on Social Security and Medicare will consume such a huge percentage of national income that the nation's economy could "simply shatter." But we could be in trouble even before then: In a scenario that people like Robert Rubin, Warren Buffett, Paul Volcker and economists at the International Monetary Fund have recently been fretting about, our mountain of debt might soon lead foreigners to suddenly sour on the United States, causing the dollar to plunge, interest rates to spike, and global recession to follow. Volcker, the longtime chief of the Federal Reserve during the 1980s, tells Peterson that he sees a 75 percent chance of such a crisis occurring within five years.

None of this is news. The problems we face are the combined product of decades-old policies and long-foreseen realities -- rising healthcare costs, increasing life spans, falling birthrates, a falling savings rate, a tendency to import more than we export. Despite years of warning, we have, amazingly, done nothing to avoid disaster. The really frightening thing is that even during this election year, Americans -- the candidates as well as the voters -- remain largely indifferent to the crisis. "Running on Empty" is a tour de force; even if you disagree with Peterson's proposed solutions, the book makes it almost impossible to deny that we do have problems. But will anyone listen to Peter Peterson this time?

Next Page: An entire career spent warning us of the dark fiscal winter that lies ahead

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