The book has [inaudible] thank you very much and appreciate you coming out. Thank you. [applause] thank you leslie and thank you to aubrey jenkins. The book, copies of the book are available outside, and please join us for a reception to celebrate the new book and to meet each other. Thank you. [applause] [inaudible conversations] every weekend booktv offers programming focused on nonfiction authors and books. Keep watching for more here on cspan2. And watch any of our past programs online at booktv. Org. Michael tanner talks about the growing National Debt next on booktv. In his latest book, going for broke, the Cato Institute fellow argues for sweeping solutions to the u. S. Debt problem which focus on restructuring Social Security, medicaid and medicare. Host michael tanner, nice to be with you. So today were going to discuss your book going for broke. Maybe you could just start by talking a little bit about what prompted you to write this book. Guest well one of the things thats frustrated me lately is people have stopped paying attention to the deficit and the debt crisis. We sort of think weve beaten it because the deficit is down, its down a lot really in the last couple of years and people think that sort of solves the problem. But the reality is were in a very temporary lull, and within just a year or so were going to see the deficits go back up. Were adding to the debt every year. We havent even begun to hit the problem thats going to kick in when the real entitlements, medicaid medicare, Social Security start to add up, and if we dont start acting now while sort of the sun the shining, were going to be in real trouble once the rain starts. Host so walk us through the numbers. So you say the deficit is down, the debt, were still adding to it every year. I think a lot of people probably dont understand the difference between the deficit and the debt, so start there and walk us through the numbers of how were doing in those different fiscal metrics. The deaf silt is this years deficit is this years shortfall, and its going to be somewhere in the 450 billion range which sounds like a lot of money, but consider just about three or four years ago we were up in the 1. 4 trillion range so were doing a lot better than we were there. But as i say thats just a temporary thing. Were going to in a couple of years begin to see that begin to go up. If you add up the shortfall each year, then you get the debt, and thats the total amount that we owe. And you can think of it sort of with your Household Budget that if you run short this week thats your deficit. But if youre running short every week and so you take more out on your credit cards this week and next week and the week after that thats the debt youre ultimately going to owe. And so when we talk about the National Debt, thats what were talking about, how much the deficit has added up each year. And the National Debt consists of both the debt held by the public which is the debt thats in your portfolio. If you have government bonds, you have treasury bonds, you have debt held by the public. Youre the public. Of course, its also the part that the chinese hold and the japanese and so on, foreign governments hold about 40 of it but thats sort of one type of debt. Its the most solid, the hardest debt, the debt the economists talk about a lot. It also includes, though, whats called intergovernmental debt which is debt that one part of the government owe f owes the other, the Social Security, the medicare, the Highway Trust Fund where the government, essentially, owes these programs a surgeon amount of money. And that a certain amount of money. And that adds up to 18 trillion right now a little over that. And thats the National Debt that makes the headlines that everybody talks about in the papers. But theres also the third kind of debt which is the unfunded liability or intergenerational debt of these programs like Social Security and medicare where we know how much we owe under current law in the future to pay these benefits under these programs, and we also know pretty well what were going to be taking in in tax revenue to support these programs, and theres a gap between the two. While thats not as solid as, say, a government treasury bond that we owe right now its still money weve promised to pay, and we dont have the revenue to pay it, and thats a kind of debt too. Throw all that in, and were talking about a real debt thats anywhere from 70 120 trillion depending on how you want to measure it. Host those are some eyepopping numbers. Lets go back down to sort of the first one, the debt held by the public. And as a share of the economy i think thats about twice the average that it has been historically. What does that mean for people . One of the things thats tough about these fiscal issues is connecting them to peoples daily lives but what should people think when they hear, oh, the debt is twice the historical average or unsustainable trajectory . What does that mean for them . Guest right now were in a fortunate set of circumstances because the rest of the world is so messed up that people are willing to lend us money at absurdly rates of interest low rates of interest. But the reality is when we talk about debt held by the public, theres a lot of problems with it. One thing, it actually begins to slow Economic Growth when it reaches the level were at. Businesses, for example find it a little more difficult to borrow money, or people are less willing to take the risk of investment because they see that down the road thats going to be something theyre going to have to pay back through higher taxes, so theyre less willing to take risks less willing to invest. All of that slows Economic Growth, and its been estimated that our children are going to be some 2,000 a year poorer simply because of the level of debt that were carrying. Host 2,000 every year right . 2,000 5,000 guest thats right our children will be simply because of the amount of debt were carrying right now. Second, we have to pay interest on this debt, and that interest begins to crowd out other government spending. I mean eventually you end up with spending a lot of money that youre simply paying to Foreign Investors that youre not able to invest on things that you might want to whether youre a republican and want to spend that money on defense or youre a democrat and want to spend that money on social programs. Instead were paying back interest on investors who are collecting government bonds. That seems like a pretty big waste of money. Host yeah. A lot of times people talk about, you know, if we just got rid of waste fraud and abuse in the budget and this is all of us who look at the budget know this is a silly thing to think well fix the budget, but one of the areas you could really make improvements is you bring down the cost of the carrying costs the interest payments. Thats the Fastest Growing part of the budget those interest payments. Guest thats right. Those Interest Rates right now are very low. If they get back to the historic rates of interest weve had to pay in the past, were going to be shoveling money out the door again, that doesnt do anything. Its not defending us, not helping poor people, it is simply money going to people to pay them in essence, to lend us money. So its a real waste of money in the classic sense of the world. Think of it like your credit card, i mean, maybe you get something when you actually buy whatever it is, the new flat screen tv, but then when you pay that 16 18 interest on your credit cards thats just money youre paying to the bank. Host yeah. So i think i saw an estimate that if Interest Rates were to go up one percentage point, that would cost the government about 130 billion additional dollars every year right . Were talking about staggering numbers in terms of rates are very low right now. If and when they go up, thats going to increase the cost a lot. And it can squeeze out whether youre the most liberal and you want to spend more money on social programs, if youre spending on interest youre not spending on those priorities. One of the things you talk about in the book is that there are arguments that people make, dont worry about this, we owe it to ourselves. Talk about that. Guest thats right. Thats the classic keynesian argument that says we shouldnt worry about debt because in the end, we simply owe that debt to ourselves. We can argue, of course, foreigners hold a certain amount of their debt, but we hold some is of their debt, so maybe it equals out in the end. The bigger problem with that is that the distribution of who holds that debt is not the same thing as who gets benefits from the debt today. Now, to make the argument in a sort of classic sense if you borrowed money to go to college lets say, and you took that money and because you went to college you then earned higher wages when you got out and you used that to pay back the debt, youre no worse off because you borrowed that money to go to college. The problem is that a lot of that money were borrowing right now is not investment, its not to make our wages better in the future or improve our infrastructure or do something thats somehow going to make higher Economic Growth in the future that makes it easier to pay it back. Instead a lot of thats just redistribution today. Essentially, we borrow that money to give it to somebody who then spends it. Its gone. So its not being invested host so its consumption. Guest factually, its consumption exactly. The person whos ultimately going to pay it back in the future may not necessarily be the same one who benefited from it today. So it may be like someone else had to pay back that host my kids. Guest ah, there you go. And so theres an unfairness to the redistribution of it that needs to be thought of as well, and people are going to think about that in the future. That debts going to have to be repaid, and thats going to headache their decisions they make today in terms of investment and growth, so we may not see the benefits from that College Education may not necessarily be there if some business that was going to hire you instead has to pay back your loan. Host i think its a really interesting point about whos borrowing and whos doing the spending because you do hear a lot of people saying, dont worry, were borrowing it from ourselves, not to worry. If we were investing to grow the economy for the next generation, thats very different than if were consuming and we dont want to pay the bills, were handing them to the next generation. Talk about the impacts that are part of this. Guest in many ways its an unfair taxation without representation. Essentially, we get to consume today, and our kids have to pay the bills and they didnt get to vote on this at all. Were talking about generations not even born yet are going to have to pay for our consumption today. Its like saying youre going to have a little party today, and youll leave, you know send the bill onto your kids. They didnt get to go to the party. In addition to that, i dont think people realize how little investment we actually do. Only about 13 of federal spending is something thats considered investment, and thats even a broad definition of investment on, say education and things like that. Not just sort of the hard investment of building roads and bridges and so on. So when we talk about federal spending were not talking about investment. Vast majority of its consumption. Its taking money from person a and giving it to person b. That may or may not be justified, but it doesnt do anything to grow the economy for the future. Host why dont you talk about Discretionary Spending versus mandatory spending or entitlements. Guest this is one i hear a great deal. People will argue, theyll say well, Social Securitys not an entitlement program. I paid into the program when i had, when i was working, and i get back what i paid in plus the interest or whatever. Its not like a Welfare Program where thats an entitlement. The reality both those sides of that are wrong. Entitlements really just a legal or accounting term that refers to mandatory spending. Its spending that congress doesnt vote on every year. Theres no annual appropriations bill for Social Security, for example. There are people people are entitled to it assuming theyve met certain criteria, and Congress Spends whatever the federal government spends whatever is necessary to meet those benefits. Theres no actual vote on that issue. Thats all an entitlement means. By that definition Social Security is an entitlement. But welfare traditional welfare is not because they actually appropriate the money on an annual basis for tan i have. Those tanf. Host so onethird of the budget goes through the appropriation process. Twothirds of the budget doesnt go through it at all. How do people decide which program is in which . How do you decide which is a mandatory program versus whats discretionary that goes through the appropriations process which is tricky each year, they often are not passing Appropriations Bills sometimes but how is it determined which is which . Guest it specifies in the original enacting legislation for the program, whatever it is, whether or not its going to be subject to annual appropriations, how it is legally defined in terms of the budget process. So certain programs have five year, a vote every five years like the farm bill has or every ten years. Some programs like medicare, medicaid, Social Security have no vote at all. Essentially, you can look at the those programs are subject to congressional votes or domestic Discretionary Spending everything from the fbi to the fda department of Commerce Department of education all lumped into that. Thats about 16 of federal spending. And another 16 is defense spending, at least defense Discretionary Spending the nonwar fighting part of defense spending. Thats essentially it. Thats all congress basically talks about when its talking about spending. Thats what the budget bills all about really s those two sets of programs while everything from entitlement programs like Social Security, medicare and medicaid interest on the debt, multiyear programs all of that is outside Congress Annual votes. Host and then to bring up another word people hear sequester. We put in place the sequester a couple years ago. Talk about that. Guest sequester basically was a cap over the next ten years, i think were about three years into it now. And, but that only affected the two types of Discretionary Spending. It only affected domestic Discretionary Spending and defense Discretionary Spending, and it limited essentially them. It was designed to impose, essentially, a set of cuts each year that were going to be split evenly between domestic discretionary and defense Discretionary Spending. Now, were already seeing in the new, latest republican budget that theyve managed to take some money from defense Discretionary Spending and shift it to the overseas contingency operations, the warfighting portion, so it doesnt apply to that portion of it. But there was no, essentially there was no sequester reductions to the mandatory spending programs. There was some things that went on with medicare, but that was outside of the pure sequester. So its, basically, a cap on those two types of programs, and it is largely responsible i think, for the slowdown weve seen in spending over last couple of years. Host now, you bring up something that we do a lot here in washington which is budget gimmickings. [laughter] the overseas contingencies operations oco its kind of becoming a slush fund for other parts of the budgeter where the government talks about putting more money into this emergency area. They actually put normal budgeting areas put the money into that, and then theyre able to spend more than theyre supposed to. Budget gimmicks, we see that all the time here in washington as a way to get around things. What do you think of those . Guest i think theyre purely dishonest and clearly what the republicans just did with the defense spending was simply designed to try to get out from underneath host they dont want to stick with the caps, they dont want to pay for getting rid of them. Guest thats right. And if they waived the caps on defense spending, the democrats were going to insist they waive the caps on they essentially took the money thats not overseas warfighting material or not emergency spending and they simply took routine spending and put it in there. Host uhhuh. Guest and the congress does this all the time with emergency spending whether its National Natural disasters which they end up spending money on states that had nowhere near the Natural Disaster that occurred or defense spending, of course, much of the iran and iraq wars was fought off budget. And was simply spending that didnt apply to normal budget rules because of that. So the congress does this sort of thing all the time. And it makes honest budgeting very difficult. Certainly, it also raises questions about how much you can trust promises into the future whenever they come up with these gimmicks theyre going to have that says, well, we will balance the budget the ten years from now in some way. Not exactly trustworthy when you really look at it. Often those balanced budgets involve savings that are very mysterious. One of my favorites is that they continually save money by not invading countries [laughter] for years after we pulled out of iraq we continue to save money by not invading iraq. Host well, and a lot of those savings because they do tenyear budgets. You see the numbers for ten years, a lot of t