I.O.U.S.A - Addison Wiggin [50]
8/26/08 6:58:42 PM
104 The
Interviews
people are making unemployment compensation claims because more people are out of work. So that spending goes up, and the tax revenues go down, and you have an automatic larger defi cit in a recession.
Q: In a recession, what are the key numbers that you are looking for and hoping not to see?
Alice Rivlin: The thing that economists watch all the time is the unemployment rate — how many people are losing their jobs. If the unemployment rate is going up, clearly, that is bad. It is not always the fi rst sign of a recession. Sometimes a recession will start with profi ts going down, and sales going down. Those things happen before the job layoffs happen. But the thing that is hardest on most people, of course, is a rise in the unemployment rate.
Q: Let ’ s imagine for a moment, though, it is 1999 and 2000. If someone were to tell you what our federal debt would be, and what our defi cit would be today, would you be surprised? Can you characterize the road that we have been on fi nancially for the past six or seven years?
Alice Rivlin: In the late 1990s, the economy was growing very strongly. The stock market was rising fast — as it turned out, too fast. And all kinds of signs in the economy were positive.
Unemployment was very low. And even with low unemployment we did not have much infl ation. So the whole economy looked very, very good. And the federal budget looked terrifi c. It had a large surplus in those years in the late 1990s. It had such a large surplus that people were even beginning to worry about the surplus. My then colleague Alan Greenspan worried that the surplus was so large that we would pay off the whole national debt. I never thought that was a very serious worry, but he was genuinely worried about it.
Q: Why would that be a problem?
Alice Rivlin: Well, he thought it would be a problem because then if the government kept running a surplus, it would have to buy private securities. And that would mean that the government would end up owning bonds of states or corporations or even c07.indd 104
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conceivably stock. I did not think we would ever get to that point, so I was not worried about it. But that was what was concerning him, or that is what he said at the time.
Q: But wasn ’ t there a fl ip side to that argument that we should be bolstering our entitlement programs?
Alice Rivlin: Well, when we were running a surplus in the federal budget, [that] was exactly the moment when we should have taken strong measures to shore up the Social Security system.
And, indeed, President Clinton suggested that. He had a slogan for it: “ Save Social Security First. ” He wanted to invest in the Social Security system to make sure that it was solvent for the future, before we cut taxes or did anything else with this surplus.
And in retrospect, that was a very good idea. But we did not do it. People were not suffi ciently concerned about the future to take the prudent measures that we should have taken to invest in the future so that we would have plenty of money to pay for the benefi ts that we know are going to be needed as the baby boom generation retires.
Q: It seems there is a different song that people are singing today, seven or eight years later. How would you characterize the road that we are on? Are we heading toward some severe fi nancial diffi culties?
Alice Rivlin: Right now, if you look at the federal budget, it is running a defi cit and it will probably run a defi cit for the next several years. Those defi cits in the near term — the next three, four, fi ve years — are not huge. They are not off the charts. We have been there before. But what is really worrisome is the longer - run future. If you look at just three programs, Medicare, Medicaid, and Social Security, the spending for those programs under current rules will rise very rapidly over the next few years — indeed, for the foreseeable future. And that is for two reasons. It is mostly because the medical programs are growing, because we are all using more medical