8:38 a.m., March 30, 2011----If the United States is to overcome its growing national debt and achieve fiscal responsibility, budget action must be bipartisan and new rules must be enforceable, says Alice Rivlin, senior fellow of economic studies at the Brookings Institution.

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Rivlin, an expert on the federal budget, discussed her views in a talk entitled “Debt, Deficits, and Democracy” at the annual Hutchinson Lecture in macroeconomics to an audience of more than 250 students, faculty and community members Tuesday, March 22.

Rivlin has a long and distinguished career in government, having served as founding director of the Congressional Budget Office, OMB director and vice chair of the Federal Reserve Board.

Debts and deficits

“If you look ahead at anyone's projections of the federal budget, you will see that we are on a course which is unsustainable,” began Rivlin. “We simply cannot go on like this.”

Rivlin noted that under current policy, the projection of federal spending over the next decade is rising faster than the economy can grow.

“Even after the economy recovers from the recession -- even with growth -- federal spending will still go up faster and revenue will continue to fall,” said Rivlin.

Rivlin cited Medicare, Medicaid and, to a lesser extent Social Security, as programs in need of reform.

“We have an expensive health care system and costs are rising,” said Rivlin. “Medicare and Medicaid are being driven by the retirement of the baby boomer generation, resulting in an increasing number of people requiring care.”

Further, according to Rivlin, the world regarded the U.S. Treasury bond as the safest security in the world. If anything bad happened, she said, the world wanted to buy more so the U.S. has historically had no trouble borrowing at very low interest rates using the dollar as currency.

“We've been living in a sort of fool's paradise that less wealthy and well-positioned nations can't live in,” said Rivlin. “So what we're facing now is the possibility that someday we'll wake up and the Treasury can't market its bonds.”

All of this, said Rivlin, results in a number of problems including more difficulty financing the nation's debt, rising interest rates and the possibility of sending the economy into a worse recession.

Democracy

As a leader in federal budget policy, Rivlin was asked to join two separate commissions to reach a bipartisan agreement on policies to address the nation's debt crisis.

In January 2010, she was named along with former U.S. Sen. Pete Domenici to chair a Debt Reduction Task Force sponsored by the Bipartisan Policy Center in Washington, D.C. Shortly thereafter, Rivlin was named by President Barack Obama to his National Commission on Fiscal Responsibility and Reform.

The challenge facing these two commissions, noted Rivlin, was the question of what to do to resolve the budgetary deficit problem.

“I think the greatest lesson I learned is that whatever we do, it has to be bipartisan,” said Rivlin. “I think it is a real test of our democracy, not so much of our ability to solve the problem, but of our ability to come together despite considerable polarization.”

Rivlin noted that to solve problems, especially “a looming debt problem of this magnitude,” compromise is a necessity.

“The solutions might involve unpleasant negotiations and unpopular rules, so one party can't do it without the other party,” she said.

Of her work on the commissions, Rivlin noted it was encouraging to see that, despite elections and campaigning outside, when the commission members came together they addressed the issues in a constructive, critical and less partisan way.

“Another thing that was evident among the commission work was the education that everyone went through working through the question of what to do,” said Rivlin. “We learned a number of things.”

Reform and potential solutions

Among the lessons learned during her commission work, Rivlin first noted that we can't “grow our way out” of the problem. She also found that the problem can't be solved on the spending side or taxing side alone; both need to be considered.

“We tackled the health care system and the thing to realize is that while this particular reform might mean that somebody might get less health care, the crux of the problem is that the cost is growing faster than the economy can grow,” said Rivlin. “So we need to control health care costs.”

Rivlin also said the commissions “tackled Social Security.” She noted that in order to ensure that Social Security can pay benefits to future generations reform is necessary but it “shouldn't take much -- a combination of changes on the revenue side and the benefits side -- to fix it.”

Rivlin also noted the need to stop discretionary spending and reform personal and corporate taxes to make the country more competitive.

According to Rivlin, the inefficiency of the current tax system, which is filled with special provisions, provides an opportunity for reforms that both increase economic efficiency and increase revenues.

Both commissions called for reforms that lower tax rates while expanding the tax base. The Bipartisan Policy Center's Task Force that Rivlin co-chaired also suggested the need for a modest national sales tax.

“We need to grow the economy, we need investment in the future, we need education and infrastructure,” said Rivlin. “But we also need to cut back on what isn't contributing to growth.”

Sponsored by the Department of Economics in UD's Alfred Lerner College of Business and Economics, the annual lecture was established in 1990 to honor the distinguished academic career of the late Harry D. Hutchinson, a professor of economics who taught at UD from 1959-89.

Article by Kathryn A. Marrone