Niall Ferguson & Laurence J. Kotlikoff: Why a New New Deal Is Needed
President Bush's Social Security proposal looks to be dead in the water--and a good thing, too. The plan was half-baked and fiscally irresponsible. The American public took one look and realized it provided neither personal nor national financial security. Even many Republican congressmen didn't buy it. So much for the president's post-election political capital.
For their part, the Democrats are quietly exultant. Their Nancy Reagan-inspired strategy--"Just say no!"--has helped stymie the president. It looks like a classic victory for the political opposition.
Yet, as Bob Dylan wisely observed in "Just Like Tom Thumb's Blues," "[N]egativity don't pull you through." Sure, it may work as a short-term political strategy. But, in the long term, it won't save the United States from the very real fiscal crisis it faces. Just because the president's proposal deserved to be junked doesn't mean there isn't a fiscal problem that urgently needs addressing.
Consider what happens if we allow the status quo to continue: Either (a) government deficits reach an intolerable size in the eyes of financial markets, forcing a sudden collapse of the system via spiraling interest rates; (b) the proportion of income that has to be taken from the young (i.e., people who enter the workforce in the years ahead) and given to the old (those who have retired) rises to a point at which the young have to use literally all of their after-tax savings to purchase government bonds and, thus, are unable to accumulate physical capital; or (c) the United States becomes so dependent on foreign capital to finance investment and consumption that the U.S. capital stock becomes foreign-owned and all income from capital flows abroad.
Unless they believe in the Leninist principle--"the worse, the better"-- Democrats need to come up with a better strategy than just waiting for one of these things to happen to Republicans. Instead of being relentlessly negative, Democrats need to recognize the magnitude of the problem we face and come up with some credible solutions of their own, sooner rather than later. What we have in mind is a new New Deal--a combination of fundamental Social Security reform, health care reform, and tax reform. A new New Deal could help Democrats win the voters they failed to persuade last November. It could also help a Democratic administration deal with our country's immense demographic and fiscal problems.