Leaning on The Panic Button

By STANLEY W. CLOUD WASHINGTON

For two centuries, the idea that the federal debt would be the ruin of America was among the nation's great political hobgoblins -- right up there with the Red Menace and the Yellow Peril. Public indebtedness, said Thomas Jefferson, who spent $27,267,622 of the national treasure to purchase Louisiana, is "the greatest danger to be feared." Herbert Hoover, whose policies helped usher in the Great Depression, declared that "government borrowing . . . is a device to load our extravagance and waste onto the next generation." Eventually, though, as Armageddon kept getting postponed and new generations thrived, the issue receded into the more fevered right-wing swamps. Then came the 1980s.

Under Ronald Reagan, a conservative who had earlier inveighed against federal red ink from any soapbox he could find, the U.S. went from being the world's largest creditor nation to being the world's largest debtor. When Reagan took office, the budget deficit was about $74 billion, and the national debt (i.e., the sum of all previous deficits) was nearly $1 trillion. In three years the deficit had soared to $200 billion; and when George Bush steps down, he will leave behind a projected fiscal 1993 deficit of about $340 billion. Today interest on the debt consumes 20% of the federal budget, up from 15% four years ago and a total debt approaching $4 trillion. Suddenly, after all this time, Jefferson and Hoover -- not to mention the early Reagan -- seem to have been right. This thing is getting serious.

But not, perhaps, quite so serious as Harry E. Figgie Jr. believes. Figgie is the author, along with University of Arizona economics professor Gerald J. Swanson, of a slim best seller titled Bankruptcy 1995: The Coming Collapse of America and How to Stop It (Little, Brown; $19.95). If you want a really good holiday-season scare, be sure to pick up this half-baked Figgie pudding of doomsday scenarios and vague nostrums. The tone is set in the first two startling sentences of the introduction: "In 1995," Figgie writes, "the United States of America, as we know it today, will cease to exist. That year, the country will have spent itself into a bankruptcy from which there will be no return." Figgie, the CEO of Figgie International, an agglomeration of companies that produce everything from footballs to fire extinguishers, then describes how the U.S. would collapse under its great mountain of public debt, now at $4 trillion and climbing.

First Figgie describes a week from hell in 1995. He focuses on the plight of the fictional Betsy and Tom Roth, God-fearing, hard-working folks with two kids and a couple of grandparents to feed, who suddenly find themselves belly up. Among the things that happen to Betsy and Tom in the course of just seven days: they lose their jobs, their daughter's college is closed, their credit cards are canceled, their bank fails, their food costs soar, their son is seriously injured when a poorly maintained bridge collapses and the car he's in plunges into a river. By week's end a newspaper headline explains everything: DOLLAR IN FREE FALL, cries the paper, NATION IS BANKRUPT. Figgie isn't talking about mere possibilities here. In his view, shared by retiring Republican Senator Warren Rudman in a slightly less hysterical foreword to the book, the plight of Tom and Betsy will be shared by virtually every American if the country does not change its profligate ways.

Who is to blame? Who isn't? Figgie attacks Congress, every President since John F. Kennedy and every citizen except himself (although the kind of leveraged buyouts with which he made his fortune helped push up the private debt that also plagues the U.S. these days). Indeed, Figgie blames Americans for all their economic troubles. He is so intent on finding domestic culprits, for instance, that he ignores the role of oil embargoes in the high inflation rates of the 1970s.

And what solutions does he recommend? Here Figgie goes all mushy. Basically, he urges the writing of letters to Congress, the appointment of a huge commission of businesspeople to fight a "war" against debt and overspending, and a freeze on federal spending at the current level, with all revenue above that point dedicated to deficit reduction. If "the end of America as we know it" is truly at hand, these lame measures are too little and too late to prevent it.

There is no disputing that America's 12-digit deficits and 13-digit national debt are major economic threats that must be brought under control. Compounding interest alone is becoming a kind of national black hole, sucking up ever greater proportions of the federal budget. As debt payments crowd out other spending, the annual deficit is making it increasingly difficult for the government to provide the basic services that Americans expect. But Figgie overstates the problem -- using some highly dubious statistics in the process -- and understates the solution. The debt must be dealt with more calmly but also more forcefully, in a way that does not plunge the economy back into recession, or worse.

Most economists agree that the best answer lies in some carefully crafted combination of spending cuts (especially in entitlements like Medicare and farm supports) and tax increases. Early signs from President-elect Clinton's transition headquarters suggest that he is beginning to grasp that reality. If he can build enough public support to push a serious package of economic and budgetary reform through Congress, he will have earned the gratitude of his fellow Americans for years to come. He will also have taken a great load off the mind of Harry E. Figgie Jr., prophet of the apocalypse.

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