The Peterson-Pew Budget Commission met from 2009 to 2011 to make recommendations about how to improve the nation’s fiscal future. This site is historical and not regularly updated.


Event 2/16: Avoiding a Government Debt Crisis

The Peterson-Pew Commission on Budget Reform hosted a conference, “Avoiding a Government Debt Crisis,” on Tuesday, February 16 in Washington, DC. The event brought together a wide spectrum of economists, politicos and fiscal experts to discuss the nation’s fiscal plight and how to change course. The event was moderated by CRFB President, Maya MacGuineas.*

Peterson-Pew Commission co-chair and former Congressman Charlie Stenholm* opened the event by putting the situation in perspective. In noting that people like him have warned for years about the nation’s unsustainable fiscal path while “nothing seems to change except the problem gets worse” he also observed that the recent travails of the economy seem to have changed public perception and now Americans seem to realize that “America is not too big to fail.”

The first panel of the conference discussed the need for a shared fiscal goal and panelists expressed a great deal of agreement on the need for a target and what it should look like. Urban Institute fellow and former CBO director Rudolph Penner* explained why stabilizing the debt-to-GDP ratio was an appropriate target and referred to the goal of 60 percent of GDP recommended by the Peterson-Pew Commission and other groups. He also argued that Americans are currently not prepared for the necessary changes that will be required to reach that target.

John Podesta, president of the Center for American Progress, contended that the biggest obstacle is a lack of political will in Washington to make the tough decisions to stabilize the debt. He noted that there is “more agreement across the political spectrum on what the targets ought to be than there is the capacity of our political system to actually produce the results to reach those targets.” He observed the tension between the goals of spurring the economy in the short term while setting a credible path to sustainability in the longer term, and compared it to squeezing an aircraft carrier through the Panama Canal. He also said that statutory mechanisms to enforce fiscal discipline were vital.

Urban Institute president Robert Reischauer* saw a debt “trigger” that would take effect if annual debt targets are not reached as a promising mechanism. The Peterson-Pew Commission recommended a trigger that applies equally to spending cuts and tax increases in the report Red Ink Rising. He also made the point that we are handing our children and grandchildren a huge burden through excessive borrowing and warned that we risk becoming a “fiscal slave” to other countries. He said fiscal goals must be understandable, attainable, and flexible. He also detailed six steps to a fiscally sustainable path:

1.) convince the public and their elected representatives that something must be done;

2.) specify a goal;

3.) set a date for attaining the goal;

4.) establish benchmarks;

5.) create a mechanism to ensure progress towards achieving the goal;

6.) enforcement.

Douglas Holtz-Eakin,* president of the American Action Forum, said the need for a fiscal goal was “transparent” with our debt “endangering both our prosperity and our freedom.” According to Holtz-Eakin, a fiscal goal would make it easier for lawmakers to say “no” to the myriad of programs and initiatives they are asked to fund. He also agreed with earlier comments by Reischauer that the debt-to-GDP ratio is a difficult concept for Americans to understand and would require a great deal of educating the public. That sort of education would be critical to pressure policymakers to make the hard choices to put the U.S. on a sustainable fiscal path.


David Walker,* president and CEO of the Peter G. Peterson Foundation, also called for a fiscal goal, arguing that “A great nation does not remain great by being a debtor nation.” He also stated that the U.S. is at a “critical crossroads” in its history and that the decisions we make, and fail to make, within the next five years will largely determine our future. He warned that we face large, growing structural deficits that threaten our future; noting that in twelve years the biggest line item in the federal budget could be interest on the debt. Walker lambasted accounting practices that mask the true severity of the debt problem. He said that although high government borrowing has not yet caused interest rates to rise, the actions of our foreign lenders “speak loudly” – that they are purchasing shorter-term treasuries and looking at investments other than U.S. debt. Walker observed four parallels between the subprime meltdown and current government finances:

1.) a disconnect between who benefitted from the financial bubble and who paid the price;

2.) a lack of transparency;

3.) too much debt; and

4.) a failure of oversight and risk management.

He also noted two big differences: the sheer size of the current problem and that no one will bail out the U.S. He said that a fiscal commission is important and provided recommendations to ensure its success:

• everything must be on the table;

• it must engage and educate Americans outside the Beltway on the tough choices that are necessary and the consequences of inaction;

• it must set goals such as the debt-to-GDP ratio recommended by the Peterson-Pew Commission;

• it must include capable and credible members committed to bipartisanship and finding real solutions; and

• its recommendations must be acted on by Congress.


The next panel offered the international and market perspective on our unsustainable path and what the tipping point would be for a fiscal crisis. Martin Baily of the Brookings Institution observed that we have a broken political framework yet people still flock to U.S. treasuries. However bad the situation looks in the U.S., it probably looks better than other overseas economies, except for maybe China. Markets may be expecting a recovery in the U.S. that is stronger than in Europe, and there may be greater room to resolve the problem in the U.S. since we start with lower tax rates (we could institute a VAT tax, for example). Baily said global markets are a little bit more optimistic than some of the speakers alluded to. There is a tipping point, though people are not sure where it is. It would show up as higher interest rates and potentially a lower dollar. He hopes the U.S. learns that if we go too far, then the value of our debt starts to depreciate, and we should not push the envelope. We are in the hands of our creditors, but they are in our hands too. Nobody wants to see a collapse of the dollar and a lack of access to the U.S. dollar. The right debate is not being created by politicians around health care and other budget items, and until we get the right debate, no one will vote for politicians who will support the types of decisions that need to be made.

According to Richard Berner, Managing Director, Co-Head of Global Economics and Chief U.S. Economist, Morgan Stanley, investors understand we have a little time to do something about our budget, but they are alarmed when looking at deficits projected as far as the eye can see. They know there is no credible plan yet to grapple with the budget problem. Four fears investors have: inflation, factors that drive real interest rates, currency risk, and the risks associated with the uncertainty in financial markets. Inflation risk may show up in the United States. Factors that drive real interest rates – they are comparatively low to overseas markets and economies. There is a very real risk that real interest rates will go up. We cannot quantify political risk. We need solutions. He said the U.S. needs a credible plan for reducing the debt. He noted that he is a "card-carrying member" of the Committee for a Responsible Federal Budget's Announcement Effect Club, whose members believe that announcing a credible plan now to reduce the debt as the economy recovers will improve economic prospects in the short-run because creditors' fears will be allayed.  

Carlo Cottarelli, Director of the Fiscal Affairs Department at the International Monetary Fund, said the fiscal problems of the U.S. are common to most advanced countries. He said institutional reforms could be implemented now to reduce debt in the longer term. He and Berner agreed on the need for the U.S. to develop a credible plan now for reducing its debt. He referred to research showing that high debt can raise interest rates and lower economic growth. He argued against using inflation to lower the debt-to-GDP ratio. He said tough decisions on revenue and spending are needed.


A panel of respected political commentators then examined the political dimension. Atlantic Monthly senior editor Clive Crook contended that the public, and thus politicians, are not scared enough yet to address long term fiscal problem. Beginning longer-term planning now would actually help with shorter-term stimulus, but there is no long-term focus in the current debate.

Former Congressman Jim Kolbe* said there has never been such a toxic political environment in Washington. Dealing with our fiscal problems will be difficult in this atmosphere.

Norman Ornstein of the American Enterprise Institute agreed with Kolbe that Washington is more dysfunctional than ever. He also agreed that there is populist anger against those in power. He echoed Stenholm’s opening remarks that redistricting reform is needed to elect leaders willing to work together and address challenging issues. Bipartisanship, leadership and consensus are needed; currently none of those is evident.

Jamal Simmons, principal at the Raben Group, noted that politicians are not good at taking away things from voters. Elected officials only have negative examples of what happens when they make unpopular decisions. All the panelists agreed that everything, including entitlements and tax reform, should be on the table in confronting the debt.



Federal Reserve Bank of Kansas City president Thomas Hoenig, provided the concluding keynote address, forcefully arguing against having the central bank bail out the country by monetizing the debt (see a more detailed summary of Hoenig’s remarks here). In his remarks, titled “Knocking on the Central Bank’s Door,” Hoenig echoed the sentiments of other speakers at the forum that U.S. fiscal policy is on an unsustainable course. He said it is an ‘inescapable conclusion … that U.S. fiscal policy must focus on reducing the debt build up and avoid the consequences of not doing so.” But he contended that having the Fed print more money to purchase the mounting debt would lead to an inflation-induced financial crisis.


*Peterson-Pew Commission on Budget Reform commissioner

Event 12/14: Release of 'Red Ink Rising'

On December 14, the Peterson-Pew Commission on Budget Reform hosted a public event , moderated by David Wessel of the Wall Street Journal, to announce the release of its report, Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt.  The six panelists included a distinguished group of fiscal experts, including among their many titles, former chairmen and ranking members of the House Budget Committee (Bill Frenzel, Jim Nussle, and Jim Jones) and two former CBO directors (Alice Rivlin and Douglas Holtz-Eakin). The panelists discussed the Commission’s proposal to address the debt. (See the webcast of the event below).
Bill Frenzel, the co-chair of the Commission, started off the event by discussing the plan. The Peterson-Pew Commission on Budget Reform calls on policy makers to stabilize the national debt through a six-step plan.  The commission recommends that Congress and the President commit now to stabilize the debt at 60 percent of GDP by 2018, develop a credible package over the next year to attain that goal, begin phasing in the plan in 2012, implement a “debt trigger” mechanism to ensure that the process stays on track, and continue to reduce the debt as a share of the economy after 2018.
The economic and financial consequences of the debt problem also worried the panel. Jim Jones, a former head of the American Stock Exchange as well as the ambassador to Mexico, warned that financial markets are irrational and that a debt crisis can emerge overnight. During his time in Mexico, he saw how government debt can overwhelm families as its economic implications force them out of their homes and lower their standards of living. Douglas Holtz-Eakin warned that growing government debt will crowd out private investment and hurt economic growth.
Then, the panel turned to the politics of solving the debt problem. Jim Nussle argued that it will take a crisis or rude awakening to spur politicians to act. It might be a financial or market crisis, but he also believed that a political event, such as a midterm election loss or a presidential race where debt was a major issue, might force policymakers into overcoming their differences. Panelists also discussed the role of presidential leadership in solving this problem. Bill Frenzel thinks it will require the President to present a plan and even after that, require the President to force Congress to sit down and discuss a solution to the debt. Alice Rivlin echoed his comments and suggested that the 2011 budget (due from the White House in early February) will show how serious the White House is about addressing the debt (and how much they fear the political consequences of not addressing it).   And then Charlie Stenholm, a Commission co-chair, offered that we also need political reform (specifically the redistricting of congressional seats) to ensure that we can address difficult problems such as the debt.

Event 9/16: Beyond PAYGO

On September 16, the Peterson-Pew Commission on Budget Reform hosted its first public event -- Beyond PAYGO. Five panelists discussed recent proposals to gain control over mandatory spending and put the budget on a sustainable path. (See the webcast of the event below).

The Commission also issued its first policy paper at the event, “A Closer Look at the President’s FY 2010 Budget Process Reform Proposals.” The "Closer Look" paper examines in detail how the administration's first budget takes a few initial steps toward establishing a more fiscally responsible and credible budget process. In addition, it describes the deficiencies and significant omissions in the administration's budget, including the PAYGO exceptions, its complexity, and lack of caps on discretionary spending.

The overflow event was headlined by a star-studded cast of policy wonks with expertise in budget policy and process (yes, there is such a thing as a group of star-studded policy wonks). Panelists included former heads of CBO and OMB, leaders of prominent D.C. think tanks, and former members of Congress. Moderator Morton Kondracke, executive editor of Roll Call, kicked things off by reminding everyone of the predictions that the federal budget will soon be almost entirely eaten up by the cost of a few entitlement programs, and that will mean drastic cuts elsewhere in the budget, large tax increases, or a return to the dark ages.

Unfortunately, as Kondracke and many panelists noted, budget reform isn’t the type of thing that gets people – or politicians – worked up. Ross Perot has been the only recent politician on the national platform to make the subject his true focus.  And though a handful of politicians, including President Obama, have urged legislative action and made compelling statements about the need to change our spending patters before we drown in a sea of red ink, it isn’t an issue that tends to stir voters.

There was pretty broad agreement that we are, as so many have been cautioning, in a big fiscal hole that’s getting deeper. After that, though, few panelists expressed much hope that Congress would do much about it anytime soon. Panelist Jim Nussle, a Commission member and former Chairman of the House Budget Committee, pointed out that politicians are really good at saying yes, but not so good at saying no. Everyone agreed that the path to reform means everyone has to have some “skin in the game” – that both spending cuts and revenue (tax) increases have to be on the table. Neither option is politically popular.

The panel discussion was spirited but pessimistic. There was one note of optimism from Robert Greenstein: He declared that for once, he was not the lone pessimist on the panel, and argued that, “you can see some glimmers of hope,” including the administration’s submission of a legislative proposal to reinstate a statutory pay-as-you-go (PAYGO) rule.

Many of the skeptics – both on the panel and in the audience-- voiced the opinion that the Commission’s work, and its larger report on budget reform due to be released later this year, will contribute to the debate by bringing public notice to the problem and by pressuring Congress to re-gain control over spending. They all agreed that any solutions have to be bi-partisan.


Morton Kondracke
Roll Call

Featured Speakers
Robert Reischauer
Former CBO Director
The Urban Institute
Peterson-Pew Commission on Budget Reform

Jim Nussle
Former OMB Director and House Budget Committee Chairman
The Nussle Group
Peterson-Pew Commission on Budget Reform

Rudolph Penner
Former CBO Director
The Urban Institute
Peterson-Pew Commission on Budget Reform

Tim Penny
Former Member of Congress
Peterson-Pew Commission on Budget Reform
Co-chair, Committee for a Responsible Federal Budget

Robert Greenstein
Center on Budget and Policy Priorities

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