Dave Walker's Speech: What Would the Founders Say?

Peter G. Peterson Foundation ^ | October 27, 2008 | Hon. David M. Walker,

[WackySam]

American Council on Technology Williamsburg, PA October 27, 2008

Thanks Mike, it’s good to be in Williamsburg, and back before this group. I had an opportunity to participate in this annual conference when I was Comptroller General of the United States, and you were meeting in Hershey, PA. I’ve been asked to speak on the issue of What would the Founders say—meaning the Founding Fathers—but I also recognize the theme of your conference, and therefore I’ll talk a little about technology as well. What would the Founders say about where we are today? How can we get back on track? What are some of the challenges and opportunities we face? I’ll address these issues and then touch on some of the opportunities I see in the technology area. I’ll also provide you with some tips that will help you to capitalize on those opportunities.

Let me start off by saying something I think all of us could agree on: America is a great country, arguably the greatest in the history of mankind. And now let me transition to a statement that you may not all agree with, but which results from a fact-based analysis of data, which is the business I’m in: America is not as great as we think we are, and our nation is at a critical crossroads. I emphasize, we’re at a critical crossroads, and the decisions that we make or we fail to make in the next five to seven years will have a profound effect on what this country will look like domestically and on our standing internationally. I believe that very strongly, and that is the primary reason why I left a job I loved, as Comptroller General of the United States, and an agency that I loved, the Government Accountability Office, to join with Pete Peterson and others in a fight for America’s future. I believe that our collective clock is ticking, time is working against us, and it’s time Washington started making some tough choices, rather than continuing to kick the can down the road.

Let me go back to the founding of our Republic. I have on my office desk a copy of the Constitution. I also have one in my briefcase that I carry with me. And, between us, I even own some neckties that have major elements of the Constitution on them. In my view, the time may have come when we need to distribute copies of the Constitution and require federal elected officials and key policymakers to pass a periodic exam on its content and meaning. Candidly, it seems that there are quite a few people in Washington, including those in very high positions of power, who, based on their words and actions, may not have read the Constitution in quite some time.

That said, let me address several of the key principles and values that provide a solid foundation for our great republic.

First, we were founded on concepts of freedom and opportunity. We were founded on the principle that the federal government would have fairly limited roles—roles that could not be effectively discharged by the states and which should not be discharged by the private sector.

We were founded on the concept of thrift, on limiting our involvement in foreign conflicts, on being cautious of factions, and on looking at elected office as public service. Whereby elected office was something that one did by coming out of their normal occupation for a limited, or medium, period of time, but then they went back to their regular occupation. We were focused on the future. The American Dream was about maximizing opportunity, and capitalizing on one’s God-given talents. Importantly, the American Dream included our collective stewardship responsibility to make sure that we left this country not only better off, but better positioned for the future. For our children, for our grandchildren and for future generations.

Now that’s how we were founded. Let me talk to you about some of the concerns I have about where we are today.

Rather than being a country of opportunity, we have become more and more an entitlement-oriented society. People now believe they are entitled to a range of things beyond the Bill of Rights and related constitutional and legal protections just because they live in this country.

Rather than having a limited and specified role of the federal government, as was established at the outset of our republic when the federal government represented two percent of the economy, the federal government currently represents over twenty percent of our economy, and it’s headed to thirty percent-plus on autopilot.

Rather than focusing on the express and enumerated responsibilities envisioned for the federal government in the Constitution—like defense, treasury, foreign policy, Congress, Executive Office of the President, Postal Service, etc.— 62 percent of the federal government’s budget is now on autopilot. And the 38 percent that’s not includes every express and enumerated responsibility envisioned by the Founding Fathers for the federal government. And these core responsibilities are getting squeezed more and more as time goes by.

Our country was also founded on thrift. We had debtors’ prisons in the early years of our nation. Today, we are a country where our federal government and too many Americans have become addicted to debt, and a country where many have no shame in not paying their debts and in declaring bankruptcy.

Rather than heeding the Founding Fathers’ caution to not become involved in foreign conflicts, we now find ourselves engaged in the first pre-emptive war in the history of our great country—a war that was never declared by the Congress.

Rather than being concerned about factions—and I note that the Founding Fathers viewed political parties as factions—we now have reached a time that the Founding Fathers feared: a country where party loyalty might trump the public’s interest.

And rather than having a time where people would come out of their real jobs or real careers to serve the public for a medium or limited period of time, and go back to their real jobs in their local communities, we now have a significant majority of elected officials who view their position as a job, and they want to make a career out of it. And when they leave Congress, many aspire to be lobbyists in Washington. This closed circuit situation does not facilitate actions that bring about dramatic and fundamental reform. In summary, we have lost our way, and we need to find our way back home.

In addition to getting back to basics, we also face a range of key sustainability challenges that Washington is not taking seriously enough. If we don’t address them, they will threaten our future domestic prosperity, and potentially our tranquility. Also at stake are our international standing and competitiveness, and possibly our national security. These sustainability challenges include a range of issues—and I’ll just mention a few, and then expand on a subset in a few minutes.

Our current fiscal policy, our healthcare system, our entitlement programs, our tax systems, savings rates, research and development, energy, education, environment, immigration, infrastructure, Iraq, defense, and foreign relations policies are unsustainable in their present form. They need varying degrees of change and course corrections. Some are more critical and acute than others, but they all are unsustainable in their present form.

We have been resting on our past successes and our current sole superpower status for too long. We need to wake up and make a series of major policy, operational, and even political, reforms if we want our collective future to be better than our past. I’ll now address some of the challenges, and make a few comments about each.

From a policy standpoint: our fiscal house is a mess. In the last year, we went from a $163 billion unified budget deficit to a $455 billion deficit, and that was before all the recent “rescue” and “bailout” actions. That’s also before we began really feeling the effects of the current recession. So the simple fact of the matter is that, as of September 30, 2007, this nation was in a roughly $53 trillion hole. That amounts to over $455,000 per household, at a time when median household income was less than $50,000. And that hole gets deeper every year by at least $2-3 trillion even with a balanced budget, and we are heading in the wrong direction in that regard.

Washington has not learned the three rules of holes.

First, when you’re in a hole, stop digging. Secondly, when you’re in a $53 trillion hole that is getting deeper every day, you better have a plan to figure out how you’re going to climb out. And thirdly, once you start making progress on climbing out, you better have some mechanisms and safeguards in place to keep from falling back in. Washington has yet to learn the first rule of holes, and based on the recent tax cut, spending increase, and entitlement expansion promises made on the campaign trail, I sure hope that these candidates don’t mean what they’re saying, because they would make our ultimate challenge even greater.

And I say that because from a fiscal standpoint, Peterson Foundation professionals analyzed both of the major candidates proposals as of September 30, 2008, and if they were to become law, they would make our fiscal situation worse, not better. Neither one of them was stepping up to the plate to speak the truth to the American people about the need for tough choices.

It’s time to move past pandering and political rhetoric. It’s time to start telling the truth, and to position ourselves to begin to deliver some real results. It’s no wonder that the American people have had such a low opinion of their elected officials, on both ends of Pennsylvania Avenue because people often don’t say what they mean, and they don’t do what they say. And that’s obviously something that we need to be able to move past, as I’ll expound on in a few minutes.

We’ve got to gain control of our fiscal future. We’ve got to reform our entitlement programs—Social Security, Medicare and Medicaid. We also need to re-impose tough budget controls after we turn our economy around, while also engaging in comprehensive healthcare and tax reform in installments and over time. And we’ve got to reduce our dependence on foreign lenders. Today, roughly half of America’s debt is held by foreign lenders, and 70 to 80 percent of all the new federal debt is purchased by foreign lenders.

Why? Because we, as Americans in the aggregate, are great at spending, but poor at saving. And that means we have to go to countries that are good at saving, and who understand what a rainy day is, and who are willing to save in order to invest in a better future. The simple fact is that we are exposing our economy, our international standing, and our national security by having more and more of the nation’s debt held by foreign lenders, who may or may not share our long-term interests.

From an operational standpoint, the federal government spends $3 trillion a year on direct spending. It also foregoes revenues of a trillion dollars per year in tax preferences, such as deductions, exclusions, credits, etc. It issues thousands of pages of regulations a year. Despite this fact, it does not have a strategic plan, and it never has. Furthermore, it does not have a set of key outcome-based indicators in order to focus on decision-making, on what are we trying to achieve, and on how best to measure success. Such indicators could be used for planning, authorization, re-authorization, appropriations, oversight, and a whole range of other activities. As a result, in the absence of having a plan, you’re going nowhere fast; and in the absence of having key outcome-based indicators, all you have is input and output activity in order to be able to measure what’s going on.

And what does that mean? That means that if you want to show that you care about something, you spend more money, you give another tax preference, or you issue a regulation. And if you do that, it may or may not make a difference. And quite frankly, sometimes it may take you in the wrong direction. And you won’t even know it.

We don’t have real chief operating officers in many federal agencies. Government is too process versus results-oriented, and it has too many players, layers and silos. The federal government has too many high-risk areas, and we are not leveraging technology or capitalizing on our most valuable asset—our human capital—nearly to the extent that we should be.

We face major risks, and yet we have real opportunities in connection with both. From a political standpoint, our redistricting process, our campaign finance rules, and the fact that we now have too many career politicians are issues that we’re ultimately going to have to come to grips with.

And from a cultural standpoint, we must come to grips with the fact that we suffer from three societal afflictions: myopia, or nearsightedness; tunnel-vision, or seeing one issue at a time without seeing the big picture and understanding the interrelationship and interdependency of issues; and finally, self-centeredness. All too frequently, people have a live-for-today and a me-first-mentality. There are clear exceptions to this, but this is truly a broad-based, societal challenge.

We must learn the lessons of history. The Roman Republic was the longest-standing republic in the history of mankind. The Roman Empire lasted over a thousand years. There were many people that said Rome was too big to fail. I am sure that most of the citizens of the Roman Empire felt that way. The simple facts of the matter are that Rome fell for at least four reasons, and please listen carefully.

A decline in moral values and political civility at home; an overconfident and overextended military; fiscal irresponsibility by the central government; and an inability to control one’s borders. Does that sound familiar?

It’s time to wake up, study history, learn from it, and take steps to make sure that we are the first republic to stand the test of time. And from a fiscal standpoint, we must also learn from the Suez Crisis of 1956. At that time, the United States held a significant amount of the United Kingdom’s debt. Nassar, who was president of Egypt, moved to take control of the Suez Canal and to nationalize it. When the UK, France and Israel wanted to challenge that, the President of the United States called the Prime Minister of England, and suggested that if he wanted us to continue to support the pound sterling and to purchase their debt on a prospective basis, that they needed to reconsider their planned actions. And sure enough, they did. And ladies and gentleman, Britain was an ally. Possibly the greatest ally that we have today.

I was reading the New York Times this morning, and I read a number of publications, but since I’m based in New York now, I read the Times. Today is the 150th anniversary of Theodore Roosevelt’s birth, a former New Yorker and one of my favorite presidents. And let me read from page A23, which is on the Op-Ed page, written by Edmund Morris, who is a great author who wrote an excellent book about T.R. According to Morris, if T.R. were alive, he might say:

“I am heartsick over the delay, the blundering, the fatuous and complacent inefficiency, and the effort to substitute glittering rhetoric for action.”

He said essentially the same thing over 100 years ago, and unfortunately, it is still true today. But we need to be taking steps to make sure that it doesn’t continue to be the case over the long haul. In my view, we need a dramatic change of course. We need the application of tough love principles in Washington. We need to get back to basics, and we need to focus on the future.

There are four factors that exist with regard to the current subprime mortgage crisis that also exist with regards to the federal government’s finances. Let me share them with you:

First, a disconnect between those who benefit from current practices and policies, and those who will pay the price and bear the burden. In the case of the mortgage-based subprime crisis, the people who originated the mortgages and made all the fees, didn’t hold on to the mortgages, and therefore they did not suffer the losses. In the case of the federal government’s finances, today’s taxpayers benefit from low tax and high spend policies, while tomorrow’s taxpayers will pay the price and bear the burden.

Secondly, a lack of transparency as to the nature, extent and magnitude of some of these securitized mortgage arrangements and of some derivatives. As a result, people didn’t understand what they had, and ended up suffering a lot of very large and unpleasant surprises when things started unwinding.

Thirdly, just as there was not enough transparency with regard to a number of the securities instruments we’re dealing with today, the federal government is not focused on the right numbers. Our problem is not the current deficit (although it’s bad and is going to get worse before it gets better), and our problem is not the current debt (although it’s over $10 trillion and will probably come close to doubling under this presidency). Our problem is our off-balance sheet obligations: that is, the unfunded promises for Medicare and Social Security—each represent obligations that are not on the balance sheet and which all-together are four to five times greater than the liabilities that are on the balance sheet. These unfunded promises are growing faster than inflation and, in many cases (like health care), growing faster than the economy.

We cannot inflate our way out of this problem since the obligations that represent our real challenge grow faster than inflation. We cannot tax our way out of this problem (although some higher taxes are inevitable). We must make tough choices, and the sooner we do it, the sooner we can get the miracle of compounding to work for us rather than against us.

So, to our third factor: Too much leverage, too much debt, not enough cash flow, and an overreliance on credit ratings. Major, venerable institutions went out of business or needed a government “bailout” because they didn’t adequately understand and/or manage the risks involved. The United States is overly reliant on leverage, on good times and in bad. We’re already negative cash-flow in Medicare, we’re going to be in a negative cash-flow position in connection with Social Security within nine year. In addition, the triple-A credit rating that we hold as a nation today is at risk. Moody’s and S&P have already signaled that, and yet we have not woken up or started to take steps to try and protect our credit rating.

And last, but certainly not least, the failure—and let me underline that word: the failure—of private sector and government oversight and risk-management mechanisms to take steps to prevent a crisis, in spite of clear and compelling warning signals that have been going off for at least a year. In the case of the mortgage-based subprime, that is evident. In the case of the federal government, since 2003, Washington has been totally out of control. At the end of 2002, the statutory budget controls expired, which had helped to take us to from large and growing deficits to large and growing surpluses. Since then, we’ve had unfinanced tax cuts, unfinanced entitlement expansions, unfinanced general spending, unfinanced war costs, and unfinanced bail-outs. Increasingly, mortgaging the future of our kids and grandkids is not only fiscally irresponsible, it is morally reprehensible.

And yet, Washington still sleeps. And in fact, if we listened to what the Presidential candidates had to say on the campaign trail, they want to dig deeper and faster. Now don’t get me wrong: deficits and debt levels are going to get worse before they get better. That is understandable since we are in a recession and we face an immediate challenge in connection with the current sub-prime crisis.

There are three big differences between the federal government’s challenge and the current subprime mortgage. First, the federal government’s problem is not as immediate. Secondly, the federal government’s problem is much, much bigger, and therefore the consequences of a crisis would be worse. Thirdly, nobody is going to bail America out of a crisis. We are going to have to solve our own problem.

And let me clarify: when Congress and the President finally did act to address the current sub-prime crisis, they claimed leadership in the face of a crisis. Ladies and gentlemen, it was not leadership. Leadership is about looking forward into the future, seeing the trends, challenges, and opportunities, and then taking affirmative steps to capitalize on opportunities to mitigate risks and to avoid crises. That’s what leadership is. Laggardship is waiting until you face an immediate crisis and then doing something, when if you had done the right thing a long time ago, we wouldn’t have had the crisis to begin with. We need more leadership rather than laggardship from Washington.

It’s understandable that the next President of the United States, no matter who it is, is going to be focused first and foremost on what can be done to implement these new authorities effectively, equitably, economically, and in a way that doesn’t reward bad behavior or past sins.

The next administration is going to have to do what they can to try to figure out what needs to be done with the regulatory oversight structures to try to minimize the possibility of this happening again. They’re going to have to minimize the cost to our economy, because in my view, we are in a recession, though you never know for sure until you look in the rearview mirror for two quarters. In addition, they’re going to have to do what they need to do to restore public confidence which is at, or near an all-time low. They are also going to have to pursue an economic stimulus plan that hopefully will be timely, temporary, targeted, reasonable in size, and appropriately structured.

Our fiscal situation is going to get worse in the short-term. It is critically important that the new administration also demonstrate leadership by being able to be honest with the American people and by putting a mechanism in place that will help us begin to address the large and growing financial challenge facing the United States, so that we can avoid a super sub-prime crisis that would be associated with a meltdown of the federal government’s finances.

The best way to do that is to address the short-term issues that I talked about before, and then to create—and don’t moan too much when I say this because I’m going to explain it—a capable and credible fiscal future commission. One that is not like the typical commission because it would be comprised of capable Republicans, Democrats and Independents who are knowledgeable and respected. This group would go outside of Washington’s Beltway, to state the facts and speak the truth to the American people, and listen to the American people.

The commissioners would have the authority to put everything on the table, from entitlement reforms, budget controls and spending constraints, to tax increases. They would have the ability to be able to make recommendations for at least four things: a) statutory budget controls; b) comprehensive Social Security reform; c) round one of tax reform; and d) round one of health care reform. And if they were able to achieve a super-majority vote on a set of recommendations, they would not only be guaranteed congressional hearings, but their proposal would also be guaranteed a vote in the Congress with limited ability to amend. That is, any amendment made could not undercut the fiscal bottom-line associated with the Commission’s recommendations.

I believe that if we were to do this, and if it were to report within a year, hopefully we will have passed the immediate crisis and turned the corner on the economy. The Commission would allow us to take some steps to diffuse our ticking time-bomb associated with the federal governments deteriorating financial situation. And I believe that if we did it the right way we could achieve at least at $15 trillion down payment on our $50 plus trillion imbalance: a down payment that is a lot more than a lot of these subprime mortgages, some of which had none. Think what that would do to public trust and confidence? Think what that would do for Washington’s credibility? It would do a lot. And we sure need it. I’m hoping that the next President won’t just focus on today, that he will also focus on our future because all of us have a stake in the outcome.

Let me close on technology and then open it up to Q&A. I do believe that given where we are as a nation and the challenges we face, there are opportunities for those in the technology industry. I would give you several specific examples—and these are illustrative, and by no means exhaustive. From a strategic standpoint, this nation desperately needs to be able to develop a set of key national outcome based indicators: economic, safety, security, social, environmental, where we can leverage technology to make this information available not only to policy-makers, but to citizens as well. We need to understand where we are, where we’re making progress, where we’re not, and how we compare to others to help focus on outcomes.

We have to move to the point where we’re focused on outcomes. We have to move beyond the point where the incumbents talk about what went well, and where the people that are trying to throw them out only talk about what went wrong. We need to have a more informed and a more inclusive view of where we are. We need to leverage technology to stimulate citizen engagement and collaboration. We currently have a dysfunctional democracy. We need to use technology to help improve citizen engagement and collaboration in order to try to help educate, achieve consensus in order to be able to make necessary changes.

On the operations of government, there are tremendous technology applications for defense and homeland security needs focusing on what our real security threats are: economic cyber-warfare and terrorism rather than conventional threats. Clearly, technology can enable us to focus on controlling and responding to these threats.

There are real needs and opportunities in the area of health care. With regard to the care provided, with regard to electronic health care records, and with regard to cost and quality information. There are real opportunities for what are likely to be supplemental, individual accounts on top of a reformed base defined-benefit Social Security program. These supplemental and automatic accounts would help supplement our anemic savings rate, give people a meaningful pre-retirement death benefit, and a supplemental post-retirement benefit. Let me re-emphasize, these accounts would be a supplement to, not a substitute for, a solvent, sustainable, and secure defined benefit program for Social Security.

From a management standpoint, there are opportunities to improve the use of technology for financial performance management and other operational purposes. If Brazil can have a modern and integrated financial and performance management information system for its federal government,then why can’t the United States? We also need to be able to do more to access information, while being concerned with security and privacy, in order to facilitate knowledge management between all the different silos and stovepipes that represent the federal government.

Now, as far as tips, if you’re in the government, or a contractor, we need to focus on setting realistic requirements—realistic requirements—based upon clearly defined needs, not unlimited and moving wants or dreams. We need to focus on things that can be delivered on time and within budget. There’s a huge expectation gap here.

We need to focus more on designing new systems that use adequately mature technologies—whether they’re information systems, weapons systems, or communications systems. Specifically, we have to make sure that we have the appropriate maturity of technology before we move to the different stages of the acquisition process. We need to be sure we have a better alignment of interests between the taxpayers and the contractors as to risk and reward.

And, last but certainly not least, we need to be sure that government has enough civil servants who are looking out for the public interest, who have the knowledge and skills to be able to manage the cost, quality and performance of those activities that are being contracted out. Because if you don’t, everyone is going to get in trouble, and all parties will share in the embarrassment when things go wrong. On the other hand, if we can address these, we can achieve more with whatever resources we have, we can maximize our opportunities, mitigate our risks—and I underline the word mitigate. You can’t maximize opportunities and minimize risks, it doesn’t work. We have to mitigate and manage risk, and we can all be the better off for it.

In closing, we live in a great country, probably the greatest in the history of mankind. But we are at a critical crossroads, and we need to start making some tough choices. And the sooner the better. We must rise to meet this challenge. We can make sure that our future is better than our past if the first 3 words in the Constitution come alive: “We the People.” We the People are responsible and accountable for what does or doesn’t happen in Washington and the other capitals around this country.

The time for dramatic policy, operational, political and other reforms is now. And with your help, we can make it happen sooner, rather than later. So that the United States will be the first Republic to stand the test of time. So that we will discharge our stewardship responsibility to our country, children and grandchildren. And so collective future will be better than our past. Thank you very much.

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