Former Secretary of Commerce Peter G. Peterson advocated a mandatory level of personal saving and a reduction in Social Security benefits in his Malcolm Wiener Lecture yesterday at the Kennedy School of Government.
The event, entitled, “The Tri-Deficits: Why They Matter and What To Do About Them?,” drew a crowd of almost 200 people, from college freshmen to Malcolm Wiener himself.
Peterson’s lecture warned of massive deficits and the enormously harmful effects they will have on the American economy. He identified three main categories: the current account deficit, the budget deficit, and the savings deficit.
Peterson’s lecture was rife with self-deprecation—after being introduced as “the most powerful secretary of commerce since Herbert Hoover,” Peterson quipped, “there have been no powerful secretaries of commerce.”
A self described “equal opportunity basher,” Peterson put the situation in clear and serious terms, taking a highly critical tone towards politicians and the government in general.
Peterson said that the country faces both methodological and structural problems.
The U.S. has “short-term-itis,” avoids asking the important questions, and has a political system that has developed such that politicians cannot address the real issues and win elections, he said.
Taking on social security first, Peterson pointed to three possible solutions: borrowing money, decreasing benefits, and increasing taxes. He ultimately concluded that the best way to address its effect on the budget deficit is by cutting benefits by reforming the wage-indexing program, which is used to calculate the amount of benefits distributed.
Peterson added that the other two options are either politically impossible (doubling payroll taxes) or economically infeasible (continuing to borrow money from foreign countries).
Peterson also addressed Medicare, which accounts for most of the $74 trillion in unfunded liabilities.
However, he added that there are serious political concerns associated with addressing this issue, because it would require a system comparable to rationing, he said.
A politician who advocated requiring living wills, Peterson noted by way of example, lost an election after being dubbed “Dr. Death.”
A potential solution Peterson strongly suggested is a bipartisan commission similar to the 9-11 Commission.
A failure to reform these programs, Peterson said, would be akin to choosing to “continue to ride a [dead] horse—that is not sustainable.”
Peterson said the savings deficit is also a serious problem—the U.S. has gone from the biggest saver in the world to the biggest consumer. Peterson advocated mandatory saving as the solution, a proposal that he admits is quite controversial.