If you extend the current fiscal and economic trend lines, by 2040 the United States will be in no way the leading nation much less the only real superpower. David Walker postulates that we may not be a superpower at all. He’s published a book laying it all in detail. The former comptroller general joined Federal Drive with Tom Temin to discuss.
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Tom Temin: David, good to have you back.
David Walker: Tom, thank you very much for the opportunity. It’s a pleasure to be back.
Tom Temin: Now, back in the days when you were riding around on a car on a video in the idea of I.O.U.S.A, we were worried about the trillions being added to the national debt. And now in recent years, in fact, in recent months, how many trillions have been added, we’re losing count. So it sounds like the things that you were worried about back then have only accelerated?
David Walker: Well, that’s true, Tom. I mean, we’re now over $27 trillion in debt. But then when you end up adding other liabilities, such as unfunded pensions, retiree health care, environmental cleanup cost, unfunded Social Security and Medicare promises, it’s closer to $90 trillion. Within the next year, we’re going to pass the all time record of public debt to GDP, which was incurred at the end of World War II. The difference is, after World War Two, we started bringing it down dramatically. And now we’re increasing it dramatically. Clearly unacceptable, clearly unsustainable, clearly a threat to our future.
Tom Temin: Yes. And your new book lays out the idea that by 2040, we will be just a fraction in terms of the relative presence of the United States on the economic front. And that has a lot of implications for the cultural influential military fronts as well. What’s your thesis?
David Walker: Well, the thesis is it takes for things to be a superpower, you have to be a respected country that has global economic, diplomatic, military, and cultural influence. The truth is, since World War II, we’ve been the only country that met all those four criteria. But now we have an emerging rival, China. They’ve already passed us on GDP based on purchasing power parity, they’ve already passed this on the number of diplomatic missions, they’re committed to pass us militarily. And believe it or not, they own the largest movie chain in the United States trying to have cultural influence here. So the bottom line is they have a plan, they’re executing on their plan. We don’t have a plan, and we’re losing ground. All that at a time where we have increasing security threats and increasing fiscal pressures, which will make it more difficult for us to do what we need to do to remain a superpower in 2040 and beyond.
Tom Temin: And often on the show we talk about issues that can be affected or that affect the federal workforce. But this is really not a function of the US standing bureaucracy. This is really politics, it sounds like and the politicians failing to have a vision and being able to work together to realize it.
David Walker: Well, the truth is, is that while we have the government Performance and Results Act and the Modernization Act after that, we still don’t have a comprehensive strategic integrated, outcome based and resource constrained plan for the United States. China does. They’ve got a long term plan, we don’t have a plan, we consider our budget to be a plan, which is a one year document, and we’re not doing a very good job on that. So it’s about policy. And it’s about operations. The truth is the government has grown very large. It has promised a lot. And it has lost control the budget. We’re going to need to make major changes in order to a stay a superpower and be make sure that our future is better than our past.
Tom Temin: So how did we get to that point? I mean, if you look at the so called discretionary portion of the budget, that’s been fairly steady at around 1.3 trillion. And if you look at tax receipts, they have been fairly steady. We have these benefits, programs and we have debt and the interest on the debt. It seems like Congress doesn’t want to take control of the elements that are driving these growing deficits.
David Walker: Well, all depends upon the period of time you look at. For example, Tom, if you look at 1912, the US government was 2% of the economy. In 2019, it was 21. Now obviously, it’s bigger than that in 2020 because of COVID-19. If you look at the control of the budget in 1912, we controlled 97% of the budget, the only part of the budget that was in control was interest, which you can’t control. Now, you look at where we are today and we only control about 29% of the budget in a normal year and going down. And that 29% includes all the express and enumerated responsibilities envisioned for the federal government under the Constitution of the United States. And every year it’s not just a matter of the debt goes up, the unfunded obligations go much more than the debt goes up. And yet nothing’s being done about it.
Tom Temin: And let’s presume that this happens continually. And we are out in 2014. What does the United States look like and what does the world look like?
David Walker: Well, the fact is, is that the number one priority is your economy. If we don’t end up doing a better job of putting our finances in order, then we’re going to have much slower economic growth, which means much less opportunity. We’ve already declined from about 50% of global GDP down to around 22% and declining, not because ours is going down over time, but because others are going up faster than ours. And so we need to recognize that we’re not exempt from the laws of prudent finance, you can’t spend more money than you make charge it to the credit card, self deal on your own debt, which is what the Federal Reserve is doing with our debt and not expect to have a day of reckoning. The fear I have, quite frankly, is now we have a new so called modern monetary theory, which is unproven, contrary to history, contrary to long established economic theory, and it is downright dangerous. That basically says deficits and debt don’t matter as long as you can borrow and your own reserve currency until you have excess inflation. Well, the problem with that is, it will cause excess inflation, which is exactly what you want to avoid because as we know, inflation is the cruelest tax of all.
Tom Temin: I think it was Metternich that said crowns rest on debt and maybe ours is resting on debt right now. But let me ask you about this other factor, we are about 320 — and the Census will come out shortly — maybe 340-350 million people, China is more than a billion people and India is more than a billion people. Is there some natural constant at which point they’re just going to be bigger and grow faster, because they have three times our population or six times combined?
David Walker: Well, China and India are gonna dominate again, with regard to global GDP based on purchasing power parity, as we look at the future. Now, we’re still going to have a higher per capita GDP because they have much greater gaps between the haves and the have nots. Although that’s frankly, one of our domestic tranquility problems, we still have large gaps on income, wealth, and education. And education is really the key. We’ve got to deal with our education gaps in order to be able to remain competitive in order to close these other gaps. And in order to make sure that we don’t have increasing domestic tranquility problems in the future. And obviously, if the economy’s strong, then you have more opportunity. But if the economy is weak, then that exacerbates our problems.
Tom Temin: So we have Joe Biden and Donald Trump arguing about Lord knows what on their respective non debate platforms. What should the next president do on this particular issue do you think?
David Walker: Well, that’s what the book is all about, Tom. I mean, this book is staunchly fact based and nonpartisan. I’m not trying to influence the election in any way. But what I am trying to do is I’m trying to influence the agenda, the next president, whoever that might be, and the next Congress, whichever party might control because the truth is that we need to do what we have to do to beat COVID-19. And we’ve spent a lot of money and we’re going to spend more money in order to be able to do that. But COVID-19 needs to serve as a wake up call on a call to action. And we need to start recognize reality that we have to start putting our finances in order if we want to stay at a superpower in 2040. And if we want to be a republic that strives to create a more perfect union.
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Tom Temin: Alright, and how would you rate the chances of that happening?
David Walker: I don’t give it percentages. But I will tell you this– you’re not going to go anywhere, unless the president knighted states, whomever that might be, makes it a priority, because only the president is elected by all the people. Only the President has the bully pulpit, the Congress, there’s nobody really in charge of the Congress. There are people that are in charge of political parties, or as Washington would say, factions. You can’t run a country by committee. You have to have leadership. And one of the biggest problems we’ve had in this country for a number of years, at least 20, is a leadership deficit. That’s our biggest problem.
Tom Temin: David Walker is former Comptroller General and author of America in 2040: Still a Superpower? And that’s a question mark, I should add. Thanks so much for joining me.
David Walker: Anytime, Tom. Thank you so much.