RECENTLY, many politicians and economists have launched a new approach to the exploding U.S. deficit: Don't worry, be happy.
Tired of wrestling with how to untie our fiscal Gordian knot, these folks now suggest we simply learn to live with our red ink. They advise us to indulge our urge to spend our children's money, advocating Strangelove Economics ("How I learned to stop worrying and love the deficit").
Candidates this year have treated the deficit like the skunk at the garden party. They advocate "investment" (spending) and "tax cuts." But they seem to be choking on "deficit reduction," offering only minimal measures in that direction.
The problem is that the winner of the race will have no mandate for change with a $4 trillion debt hanging over his head. Unless federal borrowing is decreased, thus reducing interest payments, there will be no money to pay for campaign promises. Perhaps Ross Perot will finally incite discussion.
Don't misunderstand me. Deficit reduction is not a panacea for all our economic problems. But it will re-establish fiscal equilibrium and avert economic turmoil in the years ahead. Even those who preach against reductions now must recognize that it is the weight of huge deficits amassed in the last 20 years that has mired us in the current recession. The debt and attendant $200 billion annual interest prevent us from deploying traditional countercyclical measures -- cutting taxes and raising spending -- as we have done in every past recession.
The federal red ink has crippled growth by reducing national savings and capital formation. In 1979, when the gross national product was $2.5 trillion, savings in the U.S. totaled $109 billion. But a run of huge deficits over the next 13 years devoured savings and dramatically reduced the capital for investment. By 1992, the GNP stood at $5.7 trillion but savings totaled only $22 billion.
Moreover, we continue to accumulate debt. The government's liabilities should terrify everyone under 21 (or those who have kids that age). Adults today will receive $14 trillion more in benefits than they pay in taxes. This translates into a $150,000 gap for every household.
Between 1993 and 1997 the government will collect $657 billion in payroll taxes and premiums for Medicare, but it expects to pay out $913 billion in benefits. It's estimated that by 2020, Social Security and Medicare taxes will increase to between 29 percent and 37 percent of payroll deductions. Today, 70 percent of American families pay more in Social Security taxes than they do in income taxes. Almost 50 percent of federal spending goes for mandatory entitlements, and the amount is rising rapidly.
Cutting the deficit will involve tough decisions and hurt some people in the short run. But it is far preferable to the calamity that will result if we refuse. That's why former Sen. Paul Tsongas and I have formed the Concord Coalition, a nonpartisan, grass-roots group that hopes to break the gridlock, reduce the debt and build a future for our kids, not hand them the bill.
The time has come to put up or shut up. A freeze on federal programs is acceptable. Reasonable military cuts are warranted. New revenues must be considered. And ballooning entitlement programs must be reformed.
America has always held the promise of a better tomorrow. Not JTC now. And not if we succumb to the siren call for the feel-good, quick-fix policies advanced by Dr. Strangelove economists and politicians. Unless we change course -- reduce our debt, save more, invest more -- our children and grandchildren will be the first generation of Americans to have fewer opportunities and a lower standard of living than their parents.
Warren B. Rudman is a Republican senator from New Hampshire.