There is a fictional series named After America which speculates what would happen to the world if America was mysteriously wiped out. As it turns out, the result was chaos, with the disappearance of the American defense shield, the economic foundation of world commerce, and the countless social and diplomatic networks we help manage.
The reckless economic policies the country has been following for the past decade will not result in such a dramatic collapse as After America portrays, but it gives a glimpse of some of the possibilities. Out of control deficits, deferred maintenance of crucial infrastructure, and the investment of trillions in the wrong real estate products crashed real estate values, mortgages, and finally the economy itself, creating an unsustainable fiscal situation.
With the suddenness of the fictional book, the global bond market could turn on the United States, as it has on Portugal, Ireland, Greece, and Spain (a.k.a. the PIGS nations). Our stakes are much higher and include the loss of the dollar as the world’s reserve currency, interest rate spikes, even larger deficits as the financing costs of government at all levels double and triple, reduction in the ability of the Defense Department to project power, further housing foreclosures since nearly all mortgages are guaranteed by the federal government, and on and on.
The two leaders of the deficit commission, Erskine Bowles and former Senator Alan Simpson, took on all of the sacred cows and have produced an outstanding starting point for debate. Ideas like limiting the mortgage tax deduction to only first homes with mortgages under $500,000, raising the average age of Social Security eligibility since we are living longer, and simplifying the economically damaging tax system are among many other overdue reforms.
The idea that most appeals to advocates for increased infrastructure investment is the raising of the gas tax by fifteen cents--something we should have done years ago. In fact, I would recommend at least a 25 cent increase, as Sens. Tom Carper (D-Del.) and George Voinovich (R-Ohio) just did, with 15 cents going for transportation and 10 cents toward deficit reduction. I would also suggest that the 15 cents go into the trust fund and be spent only after the Congress reauthorize the transportation bill with reforms including performance metrics, mode-neutral spending formulas (not favoring any one mode, like highways), metropolitan planning that drives transportation policies from the bottom up, increased ability for local governments to raise local funding, including private sector value capture, and many more ideas.
But the job of the deficit commission is to get the country’s fiscal house in order, not set transportation, defense, Social Security, or other policies. This first draft, a display of courage, should be taken seriously if we are to avoid a tragedy similar to After America.