On December 14, the Peterson-Pew Commission on Budget Reform hosted a public event, moderated by David Wessel of the Wall Street Journal, to announce the release of its report, Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt. The six panelists included a distinguished group of fiscal experts, including among their many titles, former chairmen and ranking members of the House Budget Committee (Bill Frenzel, Jim Nussle, and Jim Jones) and two former CBO directors (Alice Rivlin and Douglas Holtz-Eakin). The panelists discussed the Commission’s proposal to address the debt.
Bill Frenzel, the co-chair of the Commission, started off the event by discussing the plan. The Peterson-Pew Commission on Budget Reform calls on policy makers to stabilize the national debt through a six-step plan. The commission recommends that Congress and the President commit now to stabilize the debt at 60 percent of GDP by 2018, develop a credible package over the next year to attain that goal, begin phasing in the plan in 2012, implement a “debt trigger” mechanism to ensure that the process stays on track, and continue to reduce the debt as a share of the economy after 2018.
The economic and financial consequences of the debt problem also worried the panel. Jim Jones, a former head of the American Stock Exchange as well as the ambassador to Mexico, warned that financial markets are irrational and that a debt crisis can emerge overnight. During his time in Mexico, he saw how government debt can overwhelm families as its economic implications force them out of their homes and lower their standards of living. Douglas Holtz-Eakin warned that growing government debt will crowd out private investment and hurt economic growth.
Then, the panel turned to the politics of solving the debt problem. Jim Nussle argued that it will take a crisis or rude awakening to spur politicians to act. It might be a financial or market crisis, but he also believed that a political event, such as a midterm election loss or a presidential race where debt was a major issue, might force policymakers into overcoming their differences. Panelists also discussed the role of presidential leadership in solving this problem. Bill Frenzel thinks it will require the President to present a plan and even after that, require the President to force Congress to sit down and discuss a solution to the debt. Alice Rivlin echoed his comments and suggested that the 2011 budget (due from the White House in early February) will show how serious the White House is about addressing the debt (and how much they fear the political consequences of not addressing it). And then Charlie Stenholm, a Commission co-chair, offered that we also need political reform (specifically the redistricting of congressional seats) to ensure that we can address difficult problems such as the debt.
The Peterson-Pew Commission on Budget Reform is a joint venture of the Peter G. Peterson Foundation, The Pew Charitable Trusts, and the Committee for a Responsible Federal Budget. The Commission has convened the nation's preeminent budget experts to develop a new fiscal framework and make recommendations for how best to strengthen the budget process. After making its recommendations, the Commission will work closely with Members of Congress and the White House on implementing these and other related reforms to the budget. Additional information on the Peterson-Pew Commission on Budget Reform is available at: www.budgetreform.org.