I saw my old friend Alice Rivlin on television recently, discussing the stimulus and the economy. Seeing her reminded me of a conversation we had when I was chairman of the Budget Committee and she was director of the Congressional Budget Office.
At that time, the CBO baseline deficits were rising, as the economy continued to decline and unemployment rose. The private deficit estimates were approaching $100 billion. I had to take this information to then-Senate Majority Leader Howard Baker (R-Tenn.), so I checked with Alice to make sure the numbers were right. [IMGCAP(1)]
Well, I am not sure, she replied, but I worry that if we make the task of deficit reduction seem impossible, then Congress might simply throw up its hands altogether.
She stressed that the numbers were estimates, with large margins for error. The $100 billion was a worse case scenario (not a best case or worst case). So, I decided I wouldnt announce to the world that $100 billion estimates existed and hoped that deficit projections less than that would keep the appetite for fiscal restraint alive in the Senate.
I am reminded of those challenges by the performance so far of both the Bush and Obama administrations. And I sympathize with their dilemmas.
Treasury Secretary Timothy Geithner has to produce a stabilization plan that most private analysts say will cost from $1.5 trillion to $3 trillion. President Barack Obama signed an stimulus package that approached $1 trillion. And Congress has failed to pass most of the fiscal 2009 appropriations bills, totaling hundreds of billions.
Clearly, Congress simply wont digest such huge numbers without serious heartburn. So, what to do?
Let me give the administration, and Congressional leaders, some advice, hard-earned: Tell the truth.
Say something like this to the public: We dont know how much all this will cost, but probably in the trillions of dollars, much of which will come out of the public treasury. Right now, we are trying to catch up with a rapidly deteriorating situation that afflicts global financial markets and economies to an extent none of us have experienced before.
We cant guarantee success. But our suggestions are a consensus of the best minds we can consult. In a perfect world, Congress and the administration would have coordinated the stimulus package with the stabilization initiative, and we cant be certain how they will interact.
Sorry to be so honest with you, but thats the truth.
To his great credit, despite media criticism, Obama has tried to do this, without scaring the world by mentioning probable estimates of costs. But, if the reaction of Wall Street to the Geithner proposal and its costs are any indication, Congress and the public require more reality therapy.
Based on my experience as Budget chairman, I suspect four things:
Projected deficits for fiscal 2009-2012 are probably substantially understated;
the global economy continues to deteriorate more rapidly than almost any government anticipated;
national debt over fiscal 2009-2019 may be as much as 50 percent higher than the CBO estimate of $15.9 trillion; and
payment on that debt will be much more expensive, annually and across the entire time frame, than almost anyone now anticipates.
If my suspicions are well-founded, we will face a great unknown who will buy government-issued debt and, more important, how much will buyers charge us to purchase T-bills, notes and bonds?
The Chinese already find their large holding of U.S. debt obnoxious. Many commentators note that it will be hard for China to sell its massive holdings of our debt, because by selling in large quantities they will suffer large losses. Even more perceptive analysts say, quite properly, maybe the Chinese will be reluctant to buy any more of it.
Once, I heard a very wise man say, If you have to swallow a frog, do it quickly.
This $2 trillion to $4 trillion exercise is a mighty big frog. Better to admit that right up front, and grab a big glass of water to wash it down.
Former Senate Budget Chairman Pete Domenici (R-N.M.) is a senior fellow at the Bipartisan Policy Center.