Dealing with the U.S. national debt is one of the most heated topics in Washington. But what can be done to reduce it? In a new book, White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You, Simon Johnson, the Ronald A. Kurtz Professor of Entrepreneurship at the MIT Sloan School of Management, and James Kwak, an associate professor at the University of Connecticut School of Law, offer a recipe of tax hikes and spending cuts as a way of climbing out of the debt trap. Johnson spoke to Zach Church of the MIT Sloan School of Management about the issue. The authors will also give a talk at MIT about the subject on Tuesday, April 10, at MIT.
Q. You argue in White House Burning that politicians have failed since at least the 1980s to take any meaningful, long-term action to manage the national debt. Yet given the tenor of Washington politics, how can anything productive happen?
A. We need to have a stronger and deeper discussion around both the federal government deficit and the national debt. There is a great deal of misunderstanding about both, and we wrote the book to explain the essential points and to suggest how to frame the debate.
There will be a debate in this presidential election year. But will it all be about rhetoric and various kinds of “scares,” potentially from right as well as from the left of the political spectrum? Or will it be a relatively well-informed debate of the kind that American democracy has produced around big issues in the past?
In our book, we go back to the earliest arguments about budgets and debt in American history — and we trace out how a strong sense of fiscal responsibility was established, as well as how we lost that priority in recent decades.
We do not sugarcoat the message. We are not seeking public office or trying to win a popularity contest. We are attempting to explain what really happened to the U.S. budget, and what needs to be done to bring it under control in a reasonable manner.
Q. Your prescription for managing the national debt is a set of new and increased taxes, albeit in some cases replacing existing taxes and tax expenditures. How can politicians sell that policy change to the American public?
A. Relative to other fiscal proposals that are currently seen as “centrist,” our policy suggestions contain relatively more in terms of strengthening tax revenue — and less in terms of cutting social insurance programs, particularly Medicare. This is not a fashionable view — and definitely not flavor of the month in Washington. But our job is not to make politicians look good or to reinforce anyone’s message.
We lay out in plain English what exactly the government does — and how it pays for those activities. And we ask the question: Do you want the government to be involved in supporting older Americans, through Social Security and Medicare? We can certainly make adjustments to those programs, and some of our proposals involve exactly that. But we also argue that this social insurance function for government makes sense; the private market has never been good at providing health insurance to people in their 70s, 80s, or 90s.
At the same time, we should raise enough revenue to support these programs. Relying on government borrowing indefinitely and to an unlimited degree is not prudent. We can make modest adjustment to taxes — moving them back to the level of the mid-1990s — and place our public finances back onto a sustainable path. There is no need for the precipitate and damaging spending cuts and tax increases now seen in countries like Greece and the United Kingdom.
But we should not be complacent. Ignoring the debt and the deficit is a mistake that will allow anti-government activists to frame the discussion. Think and argue about what you want government to do. And then pay for those activities in a reasonable and responsible manner.
Q. Despite the book's gloomy forecast, you remain optimistic that Americans can summon the political changes needed to reach manageable, even productive, deficits. What can people do to push a gridlocked Congress for a reasonable and functional deficit and debt plan?
A. You should become informed. Don’t rely on the politicians to tell you what is really going on or to define your options. They are in the business of creating dreams — and illusions. Read as much economics as you can. Look for books that explain a great deal and that provide sources for every fact. There is no justification for dumbing down any of this material. All of the key issues are completely comprehensible to every voter if they just take the time to pay attention.
We are not suggesting that everyone needs to agree with the specific suggestions in our book. We do not claim to have all the answers or to have a perfect crystal ball for complex political outcomes. But White House Burning will give you the essential historical background. You will understand how we got here and why. And we do put our cards completely on the table, with regard to what government does and what it could realistically be expected to do.
Let’s have the debate — in an informed manner. And let’s debate everywhere, not just on the political stage. This really matters for you and for your children. For a long time the United States was run in a fiscally responsible manner. This was the basis of our great, shared prosperity. We need to find again our sense of fiscal responsibility. The national debt is too important to be left to the politicians.