How Politicians are Bankrupting the Country, book review

While the Politicians Fiddle, America Goes Broke
By CHRISTOPHER CALDWELL
RUNNING ON EMPTY
How the Democratic and
Republican Parties Are
Bankrupting Our Future and
What Americans Can Do About It
By Peter G. Peterson
242 pages. Farrar, Straus & Giroux. $24.

When George W. Bush was governor of Texas, Peter G. Peterson tried to convince him that the rickety finances of Social Security and Medicare posed a pressing philosophical and moral question. Mr. Peterson has been chairman of several corporations and of the Federal Reserve Bank of New York and was secretary of commerce under President Richard M. Nixon. As president of the Concord Coalition he has warned that politicians are endangering the economy by recklessly promising government benefits that they have no will - and no way - to finance. The question he raised with Governor Bush was ''whether a modern, media-driven democracy that only focuses on immediate crises could respond effectively to a very different kind of threat - a silent, slow-motion, long-term crisis like entitlements."

Three years into the Bush administration, Mr. Peterson has his answer. It is no. Benefit spending now takes up an eighth of gross domestic product and is rising steeply. The deficit has spiked alarmingly since 2000, and under the most favorable demographic circumstances imaginable: for the past two decades the huge baby-boom generation has been in its prime work years, paying benefits for a relatively small number of nonworking seniors and children. Things are about to change dramatically for the worse. Soon, senescent boomers will be collecting the checks, and there will be only two-and-a-quarter workers per beneficiary.

With precision and punch, Mr. Peterson's "Running on Empty" lays out why we are in a lousy position to dig ourselves out of this hole. The United States now has the lowest savings rate in the developed world. Much of the growth in entitlements has been paid for by defense cuts that were reaching their limits even before Sept. 11. The annual current-account deficit - what America has to borrow to finance its excess of imports over exports - is a dangerously high $540 billion, or 5.1 percent of gross domestic product. Net financial liabilities to foreigners have risen to $2.6 trillion today, from zero in 1980. With a third of public debt held abroad, the consoling thought that ''we owe it to ourselves" is no longer operative.

For the rest of this book review, see link NY Times, “Books of the Times: Running on Empty,” still available without cost of new online subscription service now required to view their regular columnists.

http://www.nytimes.com/2004/08/12/books/12cald.html?ei=5070&en=6f294dd76b210efa&ex=1128052800&pagewanted=print&position=

NY Times, August 12, 2004