If you extend the current fiscal and economic trend lines, by 2040 the United States will by no means be the leading nation, let alone the only true superpower. David Walker postulates that we may not be a superpower at all. He published a book outlining everything in detail. The former Comptroller General has joined Federal Drive with Tom Temin to discuss.
Tom Temin: David, good to see you again.
David Walker: Tom, thank you very much for the opportunity. It is a pleasure to be back.
Tom Temin: Now, when you were driving around on a video in the idea of IOUSA, we were worried about the trillions of dollars added to the national debt. And now, in recent years, in fact, in recent months, how many billions of billions have been added, we are losing count. So it looks like the things that worried you at the time have only accelerated?
David Walker: Well that’s right, Tom. I mean, we now have over $ 27 trillion in debt. But then when you end up adding other liabilities, such as unfunded pensions, retiree health care, environmental clean-up costs, unfunded social security and insurance pledges – disease, that’s close to $ 90 trillion. Over the next year, we will pass the all-time high of public debt to GDP, which was incurred at the end of World War II. The difference is that after WWII we started to reduce it considerably. And now we are increasing it considerably. 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 only a fraction of the relative presence of the United States on the economic front. And it also has many implications for culturally influential military fronts. What is your thesis?
David Walker: Well the thesis is that things have 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 are the only country that meets these four criteria. But now we have an emerging rival, China. They have already passed on to us on the GDP based on purchasing power parity, they have already passed on to us on the number of diplomatic missions, they are committed to overtaking us militarily. And believe it or not, they own the biggest movie chain in America trying to have cultural influence here. So at the end of the day they have a plan, they execute their plan. We don’t have a plan and we’re losing ground. All of this at a time when we have growing security threats and growing fiscal pressures, which will make it harder 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 may be affected or that affect the federal workforce. But that’s really not a function of the permanent American bureaucracy. This is really politics, it looks like politicians don’t have a vision and can’t work together to achieve it.
David Walker: Well, the truth is that even though we have the Government Performance and Results Law and the Modernization Law after that, we still do not have a comprehensive, results-based, and resource-limited integrated strategic plan. for the United States. China is doing it. They have a long-term plan, we don’t have a plan, we look at our budget as a plan, which is a one-year document, and we’re not doing a very good job on it. It is therefore a matter of politics. And these are operations. The truth is, the government has grown very big. He promised a lot. And he lost control of the budget. We’re going to have to make some major changes in order to remain a superpower and make sure our future is better than our past.
Tom Temin: So how did we come to this? I mean, if you look at the so-called discretionary portion of the budget, it’s been pretty stable at around $ 1.3 trillion. And if you look at tax revenues, they’ve been pretty stable. We have these benefits, these programs, and we have the debt and the interest on the debt. It appears that Congress does not want to take control of the things that are causing these growing deficits.
David Walker: Well it all depends on the time period you are looking 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 in 2020 because of COVID-19. If you look at the budget control in 1912, we controlled 97% of the budget, the only part of the budget that was under control was interest, which you cannot control. Now you look at where we are today and we only control about 29% of the budget in a normal and declining year. And that 29% includes all of the express and enumerated responsibilities contemplated for the federal government under the United States Constitution. And every year, it’s not just a matter of increasing debt, unfunded obligations increase much more than debt increases. And yet nothing is done about it.
Tom Temin: And suppose this is happening all the time. And we’re releasing in 2014. What is the United States like and what is the world like?
David Walker: Well the point is, the number one priority is your economy. If we fail to get our finances in order better, then we will have much slower economic growth, which means a lot less opportunity. We’ve already gone from around 50% of global GDP to around 22% and declining, not because ours is shrinking over time, but because others are growing faster than ours. And so we have to recognize that we are not exempt from the laws of prudent finance, you cannot spend more money than you charge on the credit card, process your own debt yourself, which is what the Federal Reserve is doing with our debt and not expecting to be held to account. The fear I have, quite frankly, is that we now have a new so-called modern monetary theory, which is unproven, unlike history, unlike long-established economic theory, and it is. downright dangerous. This essentially means that deficits and debt don’t matter as long as you can borrow and reserve your own currency until you have excess inflation. Well, the problem with this is that it will cause excessive 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 who said the crowns are on debt and maybe ours is on debt right now. But let me ask you about this other factor, there are around 320 of us – and the census will come out shortly – maybe 340-350 million people, China over a billion people and India over. a billion people. Is there a natural constant that they’re just going to get bigger and grow faster, because they have three times our population or six times combined?
David Walker: Well, China and India are going to dominate again, when it comes to global GDP based on purchasing power parity, as we look to the future. Now we’re always going to have a higher GDP per capita because there are much larger gaps between the haves and have-nots. While this is frankly one of our domestic tranquility issues, we still have large gaps in income, wealth and education. And education really is the key. We have to deal with our education gaps so that we can remain competitive to fill these other gaps. And to make sure that we don’t have growing domestic tranquility issues in the future. And of course, if the economy is strong, then you have more opportunities. But if the economy is weak, it makes our problems worse.
Tom Temin: So we have Joe Biden and Donald Trump arguing over god knows what on their respective platforms without debate. What do you think the next president should do on this particular issue?
David Walker: Well, that’s the subject of the book, Tom. I mean, this book is firmly based on facts and not partisan. I am not in any way trying to influence the elections. But what I’m trying to do is try to influence the agenda, the next president, whoever he is, and the next Congress, whatever party that might be in control because the truth is we have 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 to be able to do that. But COVID-19 must serve as a red flag for a call to action. And we have to start recognizing the reality that we have to start putting our finances in order if we are to stay in a superpower in 2040. And if we are to be a republic that strives for a more perfect union.
Tom Temin: Okay, and how would you rate the chances of that happening?
David Walker: I am not giving percentages. But I’ll tell you this: You’re not going anywhere, unless the ennobled president, whoever he is, makes it a priority, because only the president is elected by all the people. Only the president is in charge of bullies, Congress, there is no one really in charge of Congress. There are people who run political parties, or as Washington would say, factions. You cannot run a country in 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 years, is a leadership deficit. This is our biggest problem.
Tom Temin: David Walker is the former Comptroller General and author of America in 2040: Still a Superpower? And that’s a question mark, should I add. Thank you very much for joining me.
David Walker: Anytime, Tom. Thank you so much.