GAO looks at a bleak future

Earlier this month, the Government Accountability Office (GAO – formerly known as the General Accounting Office) released its report 21st Century Challenges: Reexamining the Base of the Federal Government. The report is worth a careful read by anyone interested in the future of the US.
Testifying before the Senate Homeland Security and Governmental Affairs Committee last week, David Walker, Comptroller General of the United States, stressed the report’s findings that

our nation is on an unsustainable fiscal path. Longterm budget simulations by GAO, the Congressional Budget Office (CBO), and others show that, over the long term we face a large and growing structural deficit due primarily to known demographic trends and rising health care costs. Continuing on this unsustainable fiscal path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our national security.

That is a sobering enough statement. But both the report and Mr. Walker’s testimony delved much deeper into the forces shaping our fiscal future and the challenges ahead. As Mr. Walker stated,

Our recent entry into a new century has helped to remind us of how much has changed in the past several decades-whether it be rapid shifts in the aging of our population, the globalization of economic transactions, the significant advances in technology, and changing security threats. If government is to effectively address these trends, it cannot accept its existing programs, policies and activities as “givens.” Outmoded commitments and operations can constitute an encumbrance on the present and future that can erode the capacity of the nation to better align its government with the needs and demands of a changing world and society.

The report looks at 8 “Forces Shaping the United States and Its Place in the World”:

Large and Growing Long-term Fiscal Imbalance-The U.S. government’s long-term financial condition and fiscal outlook present enormous challenges to the nation’s ability to respond to forces that shape American society, the United States’ place in the world, and the role of the federal government. The short-term deficits are but a prelude to a projected worsening long-term fiscal outlook driven largely by known demographic trends and rising health care costs.
Evolving National and Homeland Security Policies-The dissolution of the Soviet Union in 1991 and the emergence of the more diffuse threats posed by terrorism to the nation’s national and homeland security have led to major shifts in strategic threats. While these new security concerns are already prompting changes in defense postures and international relationships, preparedness and responses to these new threats also carry wide ranging and unprecedented implications for domestic policies, programs, and infrastructures.
Increasing Global Interdependence-The rapid increase in the movement of economic and financial goods, people, and information has prompted more widespread realization that the nation is no longer self-contained, either in its problems or their solutions. The growing interdependence of nations, while carrying clear economic and social benefits, also places new challenges on the national agenda and tasks policymakers to recognize the need to work in partnerships across boundaries to achieve vital national goals.
The Changing Economy-The shift to a knowledge-based economy and the adoption of new technology has created the potential for higher productivity but posed new challenges associated with sustaining the investment in human capital and research and development that is so vital to continued growth. While the sustainability of U.S. economic growth has been aided by trade liberalization and increased market competition in key sectors, the sustainability of growth over the longer term will require a reversal of the declining national savings rate that is so vital to fueling capital investment and productivity growth.
Demographic Shifts-An aging and more diverse population will prompt higher spending on federal retirement and health programs. Unless there is strength in the underlying sources of productivity-education, technology and research and development-low labor force growth will lead to slower economic growth and federal revenue growth over the longer term. As labor becomes ever more scarce, a greater share of the work force will be comprised of foreign-born workers, women, and minorities with broad-scale implications for education, training, child care, and immigration policies.
Science and Technology Advances-Rapid changes in science and technology present great opportunities to improve the quality of life and the economy, whether it be finding new sources of energy, curing diseases, or enhancing the nation’s information and communications capacities. However, technologies raise their own unique vulnerabilities, risks, and privacy and equity concerns that must be addressed by policymakers.
Quality of Life Trends-Large segments of the population enjoy greater economic prosperity than ever before, and the well being of many Americans has improved dramatically thanks to breakthroughs in health care and improvements in environmental protection. However, these improvements have not been evenly distributed across the nation, as more than 40 million Americans lacking health insurance demonstrate. Prosperity has prompted its own stresses, as population growth and sprawl create demand for new transportation and communication infrastructure.
Diverse Governance Structures and Tools-To deliver on the public’s needs and wants, the nation’s system will be pressed to adapt its existing policy-making processes and management systems. The governance structures and management processes that emerge will be shaped by the above forces (e.g., increasing interdependency, scientific and technological changes, and security threats), and will depend on having sufficient foresight, a continuous reexamination and updating of priorities, ongoing oversight, and reliable and results-oriented national performance indicators.

These forces are similar to the challenges that we have outline before and that form the core charter for the proposed Commission on the Future of the US Economy (see the Athena Alliance website). If anything, the GAO report down plays the economic ordeal that may confront us as we grapple with the shift to an Intangibles Economy.
Reading through the GAO report only heightens our conclusion that we need the Commission to craft a set of bipartisan solutions – now more than ever.

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