A quick scan at the policy agenda facing federal and state officials alike shows a number of problems with consequences that will balloon in future decades. A sample of these new kinds of longer-term policy problems are:
· The implications of aging for the federal budget
· The looming state and local pension and retiree health care cost liabilities
· The exponential growth in health care costs
· Global warming
· The exhaustion of oil
These problems threaten to explode over the next several decades, causing unacceptable damage to the economy and the social fabric of the nation. For instance, models by GAO, CBO and even the president's OMB show that, absent policy changes, federal deficits will grow to unsustainable levels in as little as two decades, rising to over 10 percent of the economy. State and local governments face structural fiscal pressures that will grow exponentially over time, thanks to the escalation of Medicaid in state budgets and the largely unrecognized costs of providing health care for retired state and local employees. Left unchecked and absent reforms on the tax and spending sides of their budgets, these trends portend a fiscal future in which the federal government and many states will be able to do little else but mail checks to the elderly and their doctors.
For each of these areas, policy changes are inevitable -- the question is not whether, but when and how. Early action will pay dividends by intercepting the growth of the problem before it requires precipitous and hasty actions in the face of an economic, social or ecological crisis. If started early enough, changes in social, economic, and fiscal commitments can be phased in, permitting publics time to make adjustments in their own plans and expectations.
At our best, our nation responds to summons for common sacrifice -- whether it be fighting wars or responding to terrorism. However, unlike wars or depressions of the past, these longer-term problems do not constitute the proverbial wolf at the door, but are more akin to the "termites in the basement," which, although not immediately apparent, can bring the entire edifice down if not dealt with proactively.
These problems raise a vexing intertemporal dilemma for the current generation of decision makers and voters -- whether to make sacrifices today to head off some projected crisis in future decades. Whether it be Social Security, global warming or budgetary restraint, those most threatened by change will correctly note that, even though representing the consensus of most experts, long-term projections are inherently uncertain.
Political leaders and publics must weigh two different kinds of risk stemming from this uncertainty -- the risk of asking for too much near-term sacrifice should the long-term crisis fail to materialize or the risk of failing to act to head off a crisis that proves even worse than projected. If this is indeed the tradeoff, early action is still preferable since the consequences of excessive sacrifice are reversible -- benefit cuts or tax increases can be given back. The consequences of failing to act are far worse in that they are irreversible -- the coming warming of the planet, the energy crunch and the fiscal crunch will each take a truly wrenching and precipitous toll on an unprepared nation. By failing to act, current generations are, in effect, opting to make decisions to drastically contract the options available to future generations of voters and their leaders.
Do our public officials have sufficient political incentives or slack to act with foresight, to phase in changes now before they become destabilizing and disruptive? Many would say "no" and point to short-term political horizons facing elected officials and a polarized national party system that is less cooperative than it has been in years. Political leaders are under greater pressure from a wider range of interest groups and 24/7 media coverage -- an environment fostering political caution more than proactive leadership. Such a grim political landscape has prompted some to suggest that longer-term problems will be addressed only when they in fact appear as crises -- a prospect that would send the nation reeling from one shock to another, forcing the hand of reluctant policymakers.
Despite these formidable political obstacles, our nation and others have undertaken reforms in the recent past to change the course of longer-term policy. The 1983 Greenspan commission succeeded in mustering political consensus behind reforms to Social Security that, while not permanently solving the program's sustainability problems, at least made substantial progress. Other nations have made substantial reforms in their own pension and tax systems in the past 20 years.
How can these long-term issues be made more compelling to publics and their leaders? In some respects, analysts have helped bring these longer-term concerns into sharper relief, whether it be through long-term models or accounting statements showing accrued pension liabilities on state and local balance sheets. More could be done at federal and state levels to highlight the long-term. The 10-year time frame for estimating the cost of federal tax legislation is too short, while most state budgetary horizons look forward only several years.
Ultimately, public and political leadership will be essential. In fact, public leaders have stepped up in some cases. For instance, an unlikely coalition of the Brookings Institution and the Heritage Foundation has joined the Concord Coalition and others, such as Comptroller General David Walker, in a "fiscal wake-up tour" to generate interest in addressing the long-term fiscal outlook. While they will never agree on the solution, leaders from both of these think tanks acknowledge that some of their sacred cows will need to be on the table given the size of the long-term gap.
Thanks to a fashionably feeble faith in our democracy's ability to rise to challenges, most would discount the potential for such initiatives to make a difference. However, in a fragmented system with polarized dialogue and a disappearing center, initiatives like these can effectively reset the public dialogue and should be celebrated for what they are -- progress.
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