David Frum: It's Less About the Credit Crisis and More About Chronic Problems | Big Think

David Frum: It's Less About the Credit Crisis and More About Chronic Problems

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It is less about Wall Street and more about healthcare.

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David Frum:

David Frum is the author of five books, including two New York Times bestsellers: THE RIGHT MAN: The Surprise Presidency of George W. Bush (2003), and co-author with Richard Perle of AN END TO EVIL: What's Next in the War on Terror (2004).

Frum is a resident fellow at the American Enterprise Institute and writes a daily column for National Review Online. He contributes frequently to the editorial pages of The New York Times and The Wall Street Journal, as well as the Great Britain's Daily Telegraph and Canada's National Post. He appears regularly on CNN, Fox News, and the BBC. In 2001-2002, David Frum served as a speechwriter and special assistant to President George W. Bush.

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TRANSCRIPT:

Question: Can anyone from either side of the aisle reasonably address the credit crisis?

David Frum: I think when you think about the economic problems the country [USA] faces, you need to distinguish between the emergencies and then the chronic problems. And one of the things where we get in trouble in political life is when we spend so much time on the emergency, that we lose track of the longer term difficulty.

I have no doubt that the United States will successfully work its way through this credit crisis, that interest rates will be lowered, the Federal Reserve will apply money where it can.

Ben Bernanke has done a series of brilliant improvisations; for example, he's now allowing investment banks to borrow from the Federal Reserve, which only commercial banks used to be able to do, as a way of getting capital into the markets and calming things.

I don't worry too much about the credit crisis. What I worry about instead are two deeper problems that require something more than just good emergency management. I worry about the crisis in middle class incomes, but it's wrong to call it a crisis because it's been going on for so long; but the deep reasons why a successful modern economy, and not just in the United States, but everywhere, seems to be concentrating its rewards on a few people and why so many people feel that they are left out of this.

And then I worry about the finances of the United States in that we have a really chronic fiscal problem where the country's obligations are much greater than its projected revenues. Where we're soon going to have this massive wave of retirements, where the country has written checks that it can only honor by imposing taxes on productive enterprise that are going to slow the growth of the economy and make it even more impossible to honor the checks than it already is.

When I think what am I worried about, I'm not worried that there's going to be some debacle on Wall Street that's going to defeat the Federal Reserve, I'm worried that you're going to have an audience for destructive, radical ideas because middle class people feel under pressure. And I'm worried that the United States has made commitments that it can only honor by corroding its own productiveness.

Topic: It sounds like you are talking about a Social Security Crisis.

David Frum: It's not just Social Security.

I used the word crisis and I'm sorry, because what I mean is a chronic corrosion, a gradual weakening, and it's not just Social Security. The medical commitments are even bigger. The United States has promised over the next 40 years to write tens of trillions of dollars of checks that are greater than the projected revenues of the United States, and that is a big problem. And if the United States tries to solve that problem by saying, "Well, we'll raise the taxes to try to honor the checks," what that will mean is it will crush the productive economy and one of the things that is one of the great arts-- I think Louis the Fourteenth's finance minister said, "The art of taxation is to extract the maximum feathers from the goose with the minimum of hissing."

Well, we're in danger of having a situation where the government is not getting very many feathers and there's a lot of hissing. And one thing to bear in mind as you look at the future of the country [USA] in the 2030s, that it's generally true that the more homogeneous a country is, the easier it is for it to be taxed to support programs.

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