The Return of Gravity
For the sixty years after World War II, to be a mayor, governor, college president, or president of the United States involved, on most days and in most ways, giving things to people. For the next decade at least, to be a mayor, governor, college president, or president of the United States will mean, on more days and in more ways, taking things away from people. As our leaders move from distributing generosity to apportioning sacrifice and deciding how much to take away from whom, we have to be much smarter than we have been recently. We have to cut, tax, and invest in ways that will both get our fiscal house in order and reinvest in the elements of our formula for success. Nations that don’t invest in their future tend not to do well there.
That means that every mayor, governor, and member of Congress, not to mention every president we elect, must be guided by this truth: If we keep spending as we have in the past, we are mortgaging—indeed sabotaging—our nation’s future. But if we don’t spend on the right things, something we have generally done since the nineteenth century, we are just as surely mortgaging, and sabotaging, our future. We can no longer avoid making choices. The future depends not only on keeping markets from crushing us but also on upgrading all the pillars of our formula for success. We not only have to get well as a country; we have to get strong again.
Jack Markell, the governor of Delaware, explained to us that he now confronts this challenge every day. “Governing is twice as hard as it used to be,” he said. In the past, “a forward-thinking governor could advance his or her agenda by taking the incremental revenues generated by a growing economy and then have just one fight with the legislature: over where you spend the additional money.” That was because, for most states most of the time—save for a few periods of recession over the last sixty years—governors had steadily rising tax revenues at their disposal. That era has ended. “Now you have to have two fights with the legislature,” explained Markell. “First you have to fight over where the cuts get made and then, once you have freed up the resources, you have to fight over where you spend the money. So governing is twice as hard as it used to be.”
And it is going to get even harder.
In 2010, America was still reeling from the Great Recession and it was unrealistic to expect we would have the budget fight then that we need to have. In early 2011, the struggle got under way in earnest with the bitter wrangle over government funding for the remainder of the fiscal year ending September 30. The government was nearly shut down over whether or not to cut an additional $40 billion from President Obama’s budget. That event marked the beginning of what will be a protracted, difficult, and surely bitter political process to correct the country’s dangerous fiscal course. For that inevitable process, which will surely involve heated and complicated horse-trading before it is completed, we offer four guidelines for America to follow.
The first guideline is the need for seriousness. We face a huge budgetary problem—the product of three decades of gross irresponsibility. Rhetoric, posturing, marginal changes, future targets—none of these will solve this problem. Anyone who proposes solutions that are not at the scale of the problem and don’t require immediate actions is not being serious.
The second guideline involves the purpose of the exercise. It is not simply to reduce the deficit but to ensure prosperity. Solvency is vital, but it is not enough. To uphold American greatness the country will have to do more than get its debt-to-GDP ratio to a reasonable and sustainable level, although it will certainly have to do that. It will also have to equip its people with the skills and the tools that have always been part of our formula for economic growth. Providing them will cost money and require new long-term investments. To assure the nation’s economic future we will have to spend more, not less, on some things: certainly infrastructure and research and development, and probably education as well. This will be especially difficult to accomplish at a time when valued programs are shrinking and taxes are rising; but if we do not invest in upgrading our formula, we will forfeit the indispensable condition for sustaining the American dream and maintaining American power in the world: economic growth. Anyone who says we can forgo spending of this kind does not understand either American history or the world in which we are now living.
The third guideline is that the cuts have to take place across the board. One thing we must not do is try to bring the budget back toward balance by making most, let alone all, of the spending cuts in “nonsecurity discretionary spending”—the 12 percent of the budget that does not include Social Security, Medicare, Medicaid, defense, and interest on the national debt. That is the part of the budget where all the education, innovation, and infrastructure programs, essential to our formula for prosperity, reside. To destroy them to save money would be akin to trying to lose weight by cutting off two of your fingers. You won’t lose much weight, but you will be forever handicapped in securing and keeping a good job.
That means that reductions in entitlement programs such as Social Security and Medicare are inevitable, as are measures to slow the rate of increase in general health-care costs. Everything has to be on the table, and everything is going to get cut one way or another. Anyone who says that these programs can continue exactly as they are is not being serious. Reform will likely require some form of means-testing Medicare and Social Security benefits; pushing back the retirement ages for Social Security and adjusting the cost of living index; and, most important, finding ways to slow the growth in the costs of Medicare, which covers health insurance for all those over sixty-five, as well as Medicaid and the Children’s Health Insurance Program to support the poor. In the 1950s, health-care spending accounted for 4 percent of GDP. Today it is around 17 percent and heading for 30 percent by 2030, but without better outcomes than in countries such as Canada, which spends only 10 percent of its GDP on health care. More than 20 percent of all Medicare spending occurs in the last two months of life, and 30 percent in the last year, using the remarkable new technologies we have invented.
According to CBS’s 60 Minutes (August 8, 2010), in 2009 “Medicare paid $55 billion just for doctor and hospital bills during the last two months of patients’ lives. That’s more than the budget for the Department of Homeland Security, or the Department of Education. And it has been estimated that 20 to 30 percent of these medical expenses may have had no meaningful impact. Most of the bills are paid for by the federal government with few or no questions asked.” Indeed, Medicare is barred by law from rejecting any treatment based on cost. As people live longer and more expensive technology and drugs become available to prolong their lives, the combination becomes a prescription for bankrupting the country—unless we slow down the growth in health spending across the board. This will require some implicit rationing of the end-of-life care for which the government will pay.
“We need a budget for how much we can afford to spend on Medicare,” said David Walker. “We cannot keep writing a blank check. Right now Medicare has no budget. We are the only major industrialized nation that does not have a budget for how much public resources are allocated for health care. We are the only country that is dumb enough to write a blank check for health care. Everybody else knows that it can bankrupt you.” The United States today, he argues, has first to decide how much it can afford to allocate on government-supported health-care programs—primarily Medicare and Medicaid. Once we have determined the basic health-care budget we can afford, we have to decide how to allocate it. That is, said Walker, “we have to decide what level of universal health care is appropriate, affordable, and sustainable based on society’s needs and individual wants.” We have promised people a level of health care that we cannot sustain.
As we decide what is affordable and sustainable, particularly care in the last year of people’s lives, decisions will have to be evidence based. “If a medical intervention is going to meaningfully improve or extend life, it should be done,” argues Walker. “If it is not going to meaningfully improve or extend life, then it shou
ld not be done.” Today, added Walker, “a lot of it does not pass this test. In fact, some of these high-tech interventions are not even in the patient’s interest.” Individuals and employers ought to be able to spend as much of their own money as they want for medical care right up to the end of their lives, concluded Walker, “but when you’re talking about taxpayer resources, there’s a limit to how much resources we have.”
As part of controlling health spending, we will have to move to a system whereby hospitals and doctors are reimbursed for proven quality and cost-effective services, rather than for procedures alone. This will require a uniform system of health-care information whereby consumers will be able to access a hospital’s or individual doctor’s performance records and prices for different procedures. If I am having a kidney removed, I want to go to the doctor with the best record at the best price—on the basis of criteria established by an independent medical board. Doctors and hospitals who will not participate will not get reimbursement from government programs or private insurers. Consumers also must be exposed to the true costs of their health care, and the differences in quality, so they have incentives to get the best care for the best price. Currently, the vast majority of health-care bills are paid to the provider by the government or private insurance companies on the basis of procedures alone (“Here is how much you get for a colonoscopy”), without reference to outcomes. And most patients never look at a medical bill showing the costs of care. It is hard to bring prices down when you can’t shop.
Moreover, we are all going to have to take better care of ourselves. So much of America’s health-care spending goes to preventable chronic illnesses, such as diabetes and complications from obesity—which the health-care industry then creates all sorts of expensive technologies to mitigate. We simply can’t afford to have so many overweight people, and we certainly can’t afford to have roughly 40 million Americans still smoking, which, according to the Centers for Disease Control and Prevention, still causes at least 30 percent of cancer deaths and 80 percent of lung cancer deaths.
In the cuts in spending that America will have to make, foreign policy cannot be exempt. Defense spending is invariably among the biggest items in the federal budget, and it, too, will have to be reduced. We favor retaining the American military and political roles in Europe, East Asia, and the Middle East, which are crucial for the stability and prosperity of those regions. But America will have to find ways to do these things at a lower cost than in the past.
As Michael argued in his 2010 book, The Frugal Superpower: America’s Global Leadership in a Cash-Strapped Era, the country can no longer afford the kind of military intervention that became common in the post–Cold War era. In that period the United States has conducted military operations in Somalia, Haiti, Bosnia, Kosovo, Afghanistan, Iraq, and Libya—and sent troops to all except the last country. The dispatch of troops involved America in the unexpected, unwanted, protracted, difficult, frustrating, expensive, and seldom entirely successful task of nation-building: that is, building the institutions of government where they have collapsed, or never existed at all. Whatever the intrinsic value of these interventions, they have become too expensive. We need the resources they consume to reduce our deficits and to upgrade our formula for prosperity. We need these resources, in other words, for nation-building in America.
The fourth guideline is that we cannot simply cut our way to fiscal sanity. We also will have to raise revenue through taxation—and as many Americans as possible have to contribute something. While the best-off among us ought to contribute proportionally more than the least affluent, no one can be entirely exempt. No segment of the Greatest Generation opted out of World War II or the Cold War, and no part of the baby boom generation—ultrarich, upper class, middle class, lower class, retirees—can be excused from the task the nation confronts. As a society, we need to pick some functional level of poverty, and every American above that level should contribute something by way of income taxes. Some combination of tax reform that includes the closing of loopholes, taxing energy, eliminating farm subsidies, and raising marginal rates for the wealthy—and for the middle class as well—will be needed. Anyone who says that we can restore order to our nation’s finances today without raising taxes is not being serious.
In the end, both parties are going to have to give up on their ideologies and accept a blended arrangement of across-the-board cuts in entitlements, defense, and discretionary programs, along with across-the-society tax increases and the closing of tax loopholes, plus some targeted investments. The proposal by the 2010 bipartisan National Commission on Fiscal Responsibility and Reform, chaired by Alan Simpson and Erskine Bowles, is the kind of framework that is required. Unfortunately American politics in the second decade of the twenty-first century do not lend themselves to such a national effort.
“It has been so long since the two parties have worked together to take things away from people,” David Stockman observed, that “they are out of shape.”
We had better get into shape. Reducing the deficit is not just an accounting issue or a food fight among policy wonks. It is the baby boomers’ Greatest Generation moment. The future of the country is in our hands, as it was for the GIs on the beaches of Normandy. We have to do something hard, we have to do it now, and we can only do it together.
Atlanta’s mayor, Kasim Reed, understands what we have to do because he starred in the off-Broadway mini-version of this play in his own city. A former Georgia state senator, Reed won Atlanta’s mayoral race in December 2009 by 714 votes. The day he took office, Atlanta had only $7.4 million in reserves and an out-of-control budget, and was laying off so many firefighters there were often only three firemen on a truck, which is below national standards. Reed started his reforms by enlisting two professionals, not cronies, to help run the city: Peter Aman, a partner at the consulting firm Bain & Company, to be his chief operating officer; and John Mellott, the former publisher of The Atlanta Journal-Constitution, to lead a pension-review panel. To end the war on math in Atlanta politics, Reed had to bring in outsiders whose assessment of exactly where the city stood financially was unimpeachable. When he took over the mayor’s chair in early 2010, runaway city pensions—which had increased by 30 percent in the early 2000s and been made retroactive for all city police, fire, and municipal union workers—were eating up 20 percent of tax revenues, and rising. So between 2001 and 2009, Atlanta’s unfunded defined-pension obligation grew from $321 million to $1.484 billion. Reed couldn’t cut existing pensions without lawsuits, but he reduced pensions for all new employees to pre-2000 levels and raised the vesting period from ten to fifteen years. When union members picketed city hall, Reed invited them all into his office—in shifts—and patiently explained, with charts and spreadsheets, that without pension reform everyone’s pensions would eventually go bust. By getting the city’s budget under control, Reed then had some money to invest in more police and, what he wanted most, to reopen the sixteen recreation centers and swimming pools in the city’s most disadvantaged neighborhoods, which had been shuttered for lack of funds. “People were shooting dice in the empty pools,” he said. Local businesses have since funded some after-school job-skills programs in the reopened centers.
Cutting some programs, raising some taxes, and increasing some necessary investments—that will be the essence of American politics as we try to overcome our dalliance with the notion that math doesn’t matter. Here we are in total agreement with Erskine Bowles, who said that the biggest lesson he drew from co-chairing the president’s commission with Alan Simpson was this: “When we started out on this project, we said, ‘We’re doing this for our grandchildren.’ Then we said, ‘We’re doing this for our children.’ Now we realize that this is for us.”
He is absolutely right. This is our job. This is our mess. It cannot wait. We made it. We need to fix it in our time, at our expense—but with an eye on the future, not just the present. What is at stake here is nothing less than whether or not we’re going to g
ive the next generation a chance at the American dream.
TEN
The War on Physics and Other Good Things
Virtually all of America’s energy and climate challenges today can be traced back to one pivotal year and the way life imitated one dramatic film.
The year was 1979, and the film was The China Syndrome.
Set in California’s fictional Ventana nuclear plant, The China Syndrome stars Jane Fonda as a television reporter, Michael Douglas as her cameraman, and Daniel Valdez as her soundman. The movie opens with the three of them being escorted to the observation room at the nuclear reactor to do a feature story on its operations for a local TV station. The room has large soundproof windows that overlook the control room below. Douglas is told not to film but surreptitiously does so anyway. Suddenly there is a panic in the control room. A close-up of a watercooler shows bubbles floating to the top. There is a vibration. “What the hell is that?” asks the shift supervisor, played by Jack Lemmon. An alarm sounds. He taps a gauge, which quickly changes to show the level of coolant to be low. “We have a serious condition!” he says. The panicked staff watches the gauge, as it appears that the reactor core could be exposed. Eventually the coolant levels return to normal and everyone breathes a sigh of relief. In an editing room back at the TV station, Douglas shows his footage to his colleagues. His producer refuses to air it for fear of a lawsuit.
Leaving the station after the evening news, Fonda is told that Douglas has absconded with the film and that she has to get it back. She finds Douglas in a screening room showing the film to a physics professor and a nuclear engineer. The engineer says that it looks as if the reactor’s core indeed may have come close to exposure. The professor says that that could have led to the “China Syndrome.” “If the nuclear core is exposed,” he says, “the fuel heats up and nothing can stop it. It will melt through the bottom of the plant, theoretically to China. As soon as it hits groundwater, it blasts into the atmosphere and sends out clouds of radioactivity. The number of people killed would depend on which way the wind is blowing.”
That Used to Be Us: How America Fell Behind in the World It Invented and How We Can Come Back Page 22
