Douglas Holtz-Eakin, notable for being the director of the Congressional Budget Office, for having been a Professor of Economics as Syracuse and Columbia, and for being the father of Colin Holtz-Eakin ’07, spoke about the current US economy and the challenges facing the incoming Congress last night in SCI 101.
Professor John Caskey introduced Dr. Holtz-Eakin, who proceeded to start his talk with a summary of the role and responsibility of the CBO. He explained that his organization is nonpartisan by tradition and by statute and was formed during the Nixon administration after Nixon refused to spend money that Congress had appropriated. Nowadays, the CBO puts out studies on all sorts of topics that are salient to the economic and policy decisions the government must make. Holtz-Eakin then listed off the important economic events of the last four years, which include several rounds of tax cuts, creating terrorism insurance, two wars, and the application of steel tariffs. “Not my fault,” he noted after mentioning the tariffs, proving that he is a true economist by denying any connection to a measure that gets in the way of free trade.
“We need more good economics in Washington,” said Holtz-Eakin to begin his outline of the current economic climate. First, he painted the Administration’s picture by describing the Administration’s official budget projections for the upcoming years. The White House expects the budget deficit to fall from its current $413 billion and 3.6% of GDP in 2004 to 2.5% by 2009 and then stabilize. If this happens, said Holtz-Eakin, the deficit will remain at a reasonable level and the economy will do just fine. But the administration’s projections ignore the large expenditure of the continuing occupation of Iraq and the loss of revenue that would occur if the Bush tax cuts are, as Bush hopes, made permanent. The administration has also made the modernization and expansion of our military a stated goal, and of course achieving those ends will not be done for free. So, things are not as good as the administration would have us believe, and the impending crises of Social Security and Medicare will only exacerbate our problems.
In five years, the baby boomer generation will hit retirement age, and spending on Social Security and Medicare as a percentage of GDP will skyrocket. The increasing costs of medical care only make the problem worse. No easy solution is in sight-Holtz-Eakin told the story of the time he asked his 25-man staff of health care experts what they would do to solve the problem of Medicare and received 25 different answers. He then related the impending government budget crisis to the crises faced by pension funds in the private sector that are failing, causing individuals to not receive the payouts that were supposed to support their retirement. Relating economics to public policy was a common theme in the talk. Holtz-Eakin described in detail how public works projects would quickly be pushed aside when Medicare and Social Security started eating up more of the budget.
Our administration is aware of the crisis, but it hopes that we will be able to “grow our way out of it”; if the economy grows fast enough, there will be more money available and all of our problems will be solved. While acknowledging that such growth is not statistically impossible, Holtz-Eakin cautioned the audience that it is not very likely.
Holtz-Eakin finished talk with a discussion of what he expects the incoming Congress to focus its discussions on. He sees the Social Security problem as one that will be highly politicized, but also thinks that the parties may arrive at a suitable solution. Political concerns will also influence the amount of money spent on Iraq and fixing the pension system. The chief problem facing the new Congress will be reconfiguring the social programs of last century, many of which arose in the New Deal era, to fit into the modern economic climate. Holtz-Eakin answered several audience questions after his talk, discussing the effects of the rapidly accumulating national debt, the idea of privatizing social security, the estate tax, and what we can learn from Europe.