Former Federal Reserve Chairman Alan Greenspan wrote an op-ed warning that the United States can no longer operate in such high levels of debt. If it continues down this road, explained Greenspan, America risks heading into waters for which Greece has recently run aground.
Nobody disagrees that the national debt is way too high, but there are, and have been, economists that insist that a country can operate in debt, since it’s a part of growth. But the value of U.S. currency and our ability to borrow has been ratcheted down more and more since we went off of the gold standard. This is that “look in the mirror” moment where we need to make balancing budgets and paying down debt our number one priority.
What Greenspan is concerned about is that people are not as alarmed because interest rates are relatively low, but he warns that those rates can go up at any time. The low interest rates can and will help as the housing market creeps back up, but are we being lulled into a false sense of security?
Greenspan sees the answer coming from cuts in certain programs, such as Medicare, and by not adding large tax increases. Cuts in Medicare are unlikely with the current political state of affairs nationally, but it is possible that the federal government has a plan to reduce the debt that has not yet become clear.
If you were betting, the smart money is on Washington cutting the defense budget. This is risky in a time like this, but the president wants to reduce the debt – even though he just raised it. Cutting Medicare might be a possibility, but you would need to take into account that our population is aging and Medicare is a successful program.
Greenspan is right about spending less, but the question is where and for how long? The American people can go along with cuts to important programs if they know that the cuts are temporary and that once the deficit is knocked out, things could be added back slowly and prudently. That is the only way to approach cuts, whether they come from defense spending or entitlement programs.
The other important thing that happened was that Governor David Paterson announced that he wants to make the next governor more powerful on budget matters. Right now, New York’s constitution calls for a balanced budget, but there is no statutory requirement and there is nothing to require the legislature to balance the budget. There is also no language stating that New York cannot carry a deficit over into the next year. Under Paterson’s plan, the state would risk losing borrowing power if it does not balance the budget.
People will see this as Paterson gasping for air as his final months play out, and they should not. A plan to take balancing the budget more seriously is a good idea. Perhaps there are state constitutional constraints on empowering the executive branch, and it would be no surprise if Paterson sidesteps them - he has gone around procedural matters before. But he is right to approach the budget like this. If Albany is not going to deal with these matters, then the governor has to act.
Paterson’s plan to strengthen the governor’s role in the budget process mirrors Greenspan’s concerns. If Greenspan does not want the United States to turn into Greece, Paterson does not want New York to turn into California. California is anchored down by debt, and there are not many options for them at this point. Paterson is wise to try to avoid that crisis.
Some people think that Paterson’s proposed taxes on tobacco and beverages, for example, are not the answer. Vince Tabone is running for the Assembly in the 26th District in northeast Queens. Tabone feels that taxes such as the ones skewed toward behavior are not the answer. The tax-and-spend members that have followed the lead of Sheldon Silver in Albany are the problem, according to Tabone.
Tabone, a Republican, is in a rare close Assembly race, since that house of state government is often relatively one-sided, leaning heavily Democrat. He knows spending is out of control in Albany, but whether budget cuts are enough will remain to be seen.