Debt and Loving It
David Wessel's Red Ink is a handy but revealing guide to the federal budget.
Most voters know almost nothing about the federal budget: Few can correctly answer basic questions about how much it spends, how and whom it taxes, and how much is spent on different parts of the budget. On average, for example, surveys shows that on average respondents estimate that anywhere 10 to 25 percent of the federal budget is devoted to foreign aid. In fact, it's closer to 1 percent. A CNN poll last year found that Americans believe that about 5 percent of the federal budget is devoted to public broadcasting. The reality? It's about 0.1 percent.
This presents obvious challenges to budget reform: If voters don't understand the reality of public finances, it's difficult to make the case for necessary changes. But that can be remedied. And anyone who wants to get a sense of how the budget works—and how it doesn't—would do well to David Wessel's new book, Red Ink: Inside the High Stakes Politics of the Federal Budget. Wessel, a Pullitzer Prize winning columnist and reporter for The Wall Street Journal, is a clear and knowledgable guide to the way Washington goes about the business of spending, taxing, and borrowing. And while his book doesn't quite deliver on the drama promised in the subtitle, it does offer a concise and balanced primer on the federal budget's history, structure, and long-term problems.
The federal budget is an inherently complex subject that could easily become boring. But Wessel staves off yawns by painting miniature portraits of lovable wonks from across the political spectrum: Republicans like former Office of Managament and Budget director Rob Portman and House Budget Committee Chairman Paul Ryan and Democrats like current OMB director Jack Lew and former White House economic adviser Christina Romer. Wessel uses these characters to relay various perspectives and pieces of information about the budget.
Portman, who worked as the Bush administration's top budgeting official, tells Wessel that the biggest issue facing the nation's finances is health care spending. Jack Lew, Obama's current budget director, says much the same thing. "It's the things that people want that are causing the problem," Lew tells Wessel, going on to name Social Security, Medicare, and Medicaid as three particularly large drivers of budget trouble. Part of what makes his book work so well is that, whenever possible, he shows where the two sides agree rather than playing up their conflict.
Unlike most Americans, Wessel and his guide wonks all know an awful lot about the budget. And through his subjects, he gets right to the core of the problem: Big-ticket programs that much of the public loves but few want to pay for—with health care at the top of the list. Growing levels of automatic spending on those programs is what will drive the long-term debt to unsustainable levels. Because of the aging of the population and the growing cost of health care, paying for those old programs won't be possible on historical revenue levels. Which means that the status quo can't continue, and will require some sort of reform. Higher taxes. Reduced spending. Restructured entitlements. The alternative is to continue running giant-sized deficits, let debt levels grow even further, and wait for a debt crisis to attack. In other words, something's got to give.
The question is what. Wessel takes no firm position on how to rework the budget, except that something—or some things—must be done, and that in order for reforms to be sufficient, they will also need to be substantial. "Small changes," he writes, "will not suffice."
Rather than provide an answer, Wessel provides a tour of the budget's history, structure, and various perspectives on how think about its problems and put it back on a sustainable path—all with a scrupulous eye for even political balance. And as he explains the budget's various facets, he also reveals a little bit about his own perspective.
Overall, Wessel doesn't side with either party, but he does view the nation's fiscal problems from the peculiar but familiar perspective of Washington's budgeting elite. He writes that last summer's debt deal will result in "deep, across-the-board spending cuts" despite the fact that those "cuts" will merely result in slightly slower spending growth. He describes process of raising the federal debt limit by forcing Congress to vote to allow more borrowing as "bizarre," as if it is inconceivable that anyone should want to implement procedural barriers to additional borrowing. He sees little difference between tax expenditures and spending because there is little difference in their effects on the budget. (This is not to defend the existence of tax expenditures, which should generally be wiped from the budget. But the problem is less in how much they "cost" and more about the way they distort, complicate, and tilt the tax code in ways that make it less fair and efficient.)
He acknowledges that the debt path is unsustainable, but writes that "right now, all this federal government borrowing isn't a problem." This is true in the narrow sense that the biggest consequence of federal borrowing today is large (and growing) debt service payments. But the problem is what happens when federal officials persist in borrowing as if it's not really a problem. A mentality that shrugs at today's borrowing makes it more likely that it will lead to problems. As Wessel writes:
No one really knows how much the U.S. government can borrow before global investors get uneasy and begin to demand higher interest rates. The national debt exceeded 100 percent of GDP during World War II and then came down as the economy sprinted. But history suggests that debt of that level is in the danger zone. Think Argentina, circa 2001. Think Greece, circa 2012.
There's an awful lot that Americans don't know about the budget, and there's quite a bit to learn from Wessel's readable and generally fair book. But as it turns out, there are at least a few things that the Washington's wonky elite don't quite get either.
