Photographs by Michael Friberg for Bloomberg Businessweek
One chilly afternoon last December, former Wyoming Senator Alan Simpson slipped out of a car and into the studio on New York’s West Side where Jon Stewart tapes The Daily Show. At 6-foot-7, Simpson is hard to miss. He’s all the more recognizable, even to the hipsters and tourists queuing for the show, for having spent the last two years as the Republican partner of Democrat Erskine Bowles, Bill Clinton’s former chief of staff, with whom he has toured the country almost nonstop, warning of America’s impending fiscal doom.
Simpson and Bowles became unlikely celebrities after failing to carry off one of President Obama’s more ambitious first-term endeavors. In 2009 he appointed them to lead his National Commission on Fiscal Responsibility and Reform, a bipartisan group that was supposed to produce a “grand bargain” both parties could endorse to bring the country’s long-term spending and revenue into alignment. Their deliberations yielded a plan that reduced the federal deficit by $4 trillion over 10 years, mainly by cutting Medicare, Medicaid, Social Security, and the military budget; raising taxes mostly on high earners; and curtailing popular-but-expensive tax breaks such as the one for home mortgage interest.
It went nowhere. The members of the Simpson-Bowles commission, as it became known, deadlocked, and the report they produced couldn’t muster the support necessary to force Congress to vote on it. Obama declined to endorse the commission’s plan.
The purpose of this bromance—at least in its public-theater aspect—is to sound the alarm. “We’ve been on the road, probably visited 500,000 people since we turned in the report,” Simpson says when we meet at the Four Seasons Hotel before The Daily Show. “We tell ’em, ‘Pull up a chair, we don’t do bulls- - - or mush. We’ll tell you where your country is heading. We do math, not myths. So listen up.’ ” Audiences get an earful about Washington profligacy, the political system’s cowardice, and the need to take an ax to a whole array of supposedly sacrosanct programs. But mostly they’re told that without a long-overdue budget reckoning America is headed for disaster.
What distinguishes Simpson is his willingness to play the role of entertainer. On the day we met, a group of young antideficit activists calling themselves the Can Kicks Back released a Web video of the 81-year-old dancing Gangnam-style and rapping about the debt.
On The Daily Show, Simpson uncorked his well-practiced shtick. “I tell ya,” he wheezed, at the end of a long rant on rising health-care costs, “if you think this can work when you got to take care of a 3-year-old with a pre-existing condition who’ll live to be 60; when one person in the U.S. weighs more than the other two [and has] diabetes A and B; when guys choose to do booze, drugs, and the whole works and you’ve gotta pay for them—if you think you’re gonna get ’em into a preventive health program, well, the drinks are on me!” Stewart broke up laughing. “Thank God you’re a senator,” he said, “because otherwise you’re just a dude in a chair by the highway yelling at people!”
All of this publicity has helped Simpson and Bowles generate attention beyond the narrow world of policy wonks. A group they co-founded, the Campaign to Fix the Debt, has signed up dozens of chief executive officers and ex-politicians (as well as this magazine’s owner, Michael Bloomberg) and raised $43 million. Simpson takes grief from critics for his hefty speaking fees and expensive lifestyle, which he didn’t forgo while serving on the president’s commission. “I can’t wad my ass into the economy seat, so I pay the spread to get into first class,” he says. Yet all that time spent among business elites has won him converts. You’re now as likely to hear a lecture on the debt from Honeywell (HON) CEO David Cote or Aetna (AET) CEO Mark Bertolini (both members of Fix the Debt) as from a seasoned Washington activist such as MacGuineas.
By having its famous members privately lobby Congress and the president while at the same time running a national PR campaign to awaken the slumbering masses, the group aimed to create a public clamor to force through the changes the president’s commission and its many predecessors could not. The conceit was that Simpson, Bowles, and their allies were wise enough not just to solve the long-term deficit problem, but also to sell their remedy to the country.
Today that confidence looks misplaced. Deficit hawks have been the biggest losers in the budget battles they were counting on to provide the momentum for a grand bargain. Congress and the White House have blown through a series of opportunities to reach a broad budget deal: the April 2011 clash that threatened to shut down the government; the July 2011 debt ceiling meltdown; the December 2011 supercommittee that couldn’t agree on how to reduce the deficit; the yearend fiscal cliff. Now, another zero-sum showdown is at hand, this time over the $1.2 trillion “sequestration,” or automatic spending cuts, that kick in on March 1.
Simpson and Bowles see this deadline as a last-ditch opening for a big deal. These indiscriminate, across-the-board reductions—designed to be so unthinkable that lawmakers would come up with something better—are “stupid, stupid, stupid,” Bowles said at a news conference on Feb. 18. Yet he conceded the odds of Democrats and Republicans agreeing to raise significant tax revenue and curb entitlement spending are vanishingly slim. “The idea of a grand bargain is at best on life support,” he said. After two years of spreading their gospel, Simpson and Bowles are confounded by the lack of urgency. They aren’t wrong about the long-term problem. So why won’t the country heed their warning?
Photograph by White House/AP ImagesThe push to get the U.S. to address its long-term debt began in the years after the Vietnam War, when the economic growth that followed World War II began to sputter. A handful of activists spied trouble on the horizon. “Once growth in the United States began to slow, it sharpened the realization that government probably could not afford all of the commitments it had made,” says Allen Schick, a political scientist and budget theorist at the University of Maryland.
One of the first to spot this problem was Peter Peterson, the Commerce secretary under Richard Nixon and CEO of Lehman Brothers who went on to co-found the Blackstone Group (BX). What concerned Peterson initially was the rapid growth of Social Security as a share of the federal budget, a trend he feared was unsustainable and threatened not just the program but the whole economy. He sounded the alarm in a famous 1982 article in the New York Review of Books (“The Coming Crash of Social Security”) and in the process established himself as the archetypal deficit scold urging immediate political action. “When I was at Lehman, I set up a group called the Bipartisan Budget Appeal, and we’d run double-page newspaper ads saying, ‘Time to get on with it,’ ” Peterson, now 86, recalls.
The following year, in what remains the model of bipartisan grand bargaining, Congress did get on with it, extending Social Security’s solvency through a combination of tax increases and benefit cuts negotiated in private by party luminaries.
But the trick wouldn’t repeat. In 1987, Peterson wrote an Atlantic Monthly cover story admonishing politicians for disregarding the unchecked growth of entitlement spending, particularly Medicare, which he predicted would eventually stifle the economy. He correctly identified the two main cost drivers: an aging populace and what he called health-care hyperinflation. “Any way one looks at it,” he wrote, “the arithmetic is cruel and inescapable.” But this time, his call for benefit cuts and higher taxes went unheeded. “When you’re a scold,” says Schick, “people have a way of turning off their hearing aid.”
Since then, the temptation to fix the problem all at once has seduced presidents and public intellectuals alike. Long before Obama set up the Simpson-Bowles commission, Clinton established the Kerrey-Danforth commission, which shared the same goal, offered many of the same prescriptions, even shared Simpson as a member—and met the same fate. “We came right at the entitlement programs,” Simpson recalls, “which just pissed everybody off, and nobody did anything. Because when you mess with entitlements you get the emotional response that you’re”—here he makes a face and pretends to cry—“hurting seniors, precious seniors, poor old ladies.” He snorts in disgust.
These public efforts were matched by private ones: bipartisan think tank collaborations such as the Domenici-Rivlin Plan, the Galston-MacGuineas Plan, the Concord Coalition’s Zero-Deficit Plan, and on and on. What they shared, besides a balanced budget, was an inability to generate much interest. That was true even though polls routinely suggest that it shouldn’t be. A recent Gallup survey found that 84 percent of Americans think it is “extremely important” or “very important” to deal with the federal budget deficit—a percentage that’s remained more or less constant for decades. Concern never translates into public pressure, because most Americans value the benefits they receive from the government more than they fear the deficit.
“There’s a little Thomas Jefferson inside all of us—we like the idea of cutting government,” says Alan Blinder, a former Federal Reserve vice chairman, who examines the long-term debt in his new book, After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead. “But the main thing in all of us is Alexander Hamilton: When you get down to brass tacks, we want the government to have an army, build roads, and regulate the banks.”
The Simpson-Bowles commission was designed to short-circuit this reluctance by requiring Congress to vote on its recommendations if a supermajority of the commission endorsed them. To ensure the effort was fully resourced, Peterson—who has pledged to devote his $1 billion fortune to the cause of deficit reduction and told me he’s already spent $500 million—kicked in $800,000. In the end, a bipartisan majority—11 of the 18 members—voted for the recommendations, just shy of the 14 needed to compel congressional action.
The White House, which would later tout its own deficit measures as being “informed by the principles of Simpson-Bowles,” declined to endorse the actual plan in 2010. The president’s advisers calculated they’d be better off letting House Republicans pass a budget first and then attacking it as draconian, according to two senior administration officials, who asked not to be named talking about private conversations. “We expected them to embrace it and were surprised that they didn’t,” says Bowles, who met privately with Obama after the report came out. “He couldn’t have been any clearer. He felt that if he embraced it he would be savaged by the left because we had significant reforms to the entitlement programs. And he thought if he endorsed it, Republicans would immediately reject it.”
Photograph by Alex Brandon/AP Images
Simpson, who usually adopts a pox-on-both-your-houses approach, harbors a grudge against Obama for not championing the report. Although withholding the baroque insults he deploys against lesser politicians, he makes clear that he and Bowles both believe Bill Clinton would have acted differently. Simpson does an impression of Bowles imitating his old boss: “Well, ah think this is a great idea! Ahm gonna put my arms around this thing, this was mah idea from the beginning!” Was he saying Clinton would have endorsed it? “Yup,” Simpson replies. “That’s what Erskine says.”
In early December, Simpson and the deficit hawks looked as if they still might pull out a big victory. Obama was back in the Oval Office, Republicans had held on to the House, and the country was hurtling toward the fiscal cliff. Neither party could resolve matters on its own terms. So Obama and House Speaker John Boehner had rekindled their talks to strike a grand bargain and suddenly seemed to be making progress. With the election settled, the political logic made sense: Republicans couldn’t prevent tax increases, but agreeing to a broad deal that cut entitlement programs and reduced corporate tax rates would be a major achievement they could brag about. Democrats would secure substantial new revenue from the rich, while preserving tax cuts and entitlements for the poor and middle class. A procession of CEOs swept through Washington to sanctify the wisdom of such a plan.
Looking and sounding like a Dickens apparition—the Ghost of Fiscal Disasters to Come—Simpson was all over television, darkly warning of what would befall the country if it didn’t seize this opportunity. Privately, he was convinced his moment had arrived. “This one is different for one singular reason: We owe $16 trillion,” he says. “I’ve never seen anything like it in 81 years of life. They’ve dug their own snare!” He was referring to Congress and the $1.2 trillion sequestration cuts that were then about to bite. “They put it there because they knew they’d never be stupid enough to let that happen. Well, every day that goes by proves that they are. So that’s the difference right there. It doesn’t matter whether we go over the cliff or under the cliff. These guys have put their nuts in a vise.”
The last-minute deal Congress struck to avoid the cliff was a huge disappointment to the deficit hawks. It barely put a dent in the long-term debt and didn’t touch entitlement programs or tax loopholes. Worse, it disrupted the factors that had aligned in favor of a grand bargain. By raising $600 billion through higher tax rates on the wealthy, the deal Obama signed on Jan. 2 removed the main incentive for Republicans to negotiate. “If the revenue issue is settled, it defeats the ability to do a grand bargain,” said Judd Gregg, the former Republican senator from New Hampshire and a Fix the Debt board member, just after the election. Sequestration was postponed until March 1. But rather than serve as a catalyst for a big deal, the cuts seem unlikely to yield any deal at all—at least for now. The pressure from across the country never materialized.
The enduring fantasy of deficit hawks like Simpson is that when the big players finally get serious, they’ll huddle in some backroom, roll up their sleeves, and hash out the deal that all right-thinking people know must be made, just as they did in 1983 with Social Security. They’ll be principled, spread the pain evenly. They won’t spare the rich or the old ladies. They’ll put the books in order. “We effectively hit everybody in America,” Simpson says. “That’s what makes our plan so tough.”
It’s no accident that CEOs are the one group that Simpson and Bowles have managed to convince. The surest way to fix the debt is to make deep cuts now, even if that hurts people who depend on government help. That bottom-line way of thinking would make intrinsic sense to a chief executive, who, if presented with a similar situation in his own business, would surely act before the problem spiraled out of control.
But this approach to politics, like Simpson and many of his cohorts, hails from an era that has little connection with how Washington works anymore. For all the probity and wisdom of the eminences who fill the rosters of groups such as Fix the Debt, they tend to be ex-politicians, years removed from the fray—Simpson (ret. 1997), Senator Sam Nunn (ret. 1997), Senator Pete Domenici (ret. 2009), Representative Vic Fazio (ret. 1999). These figures carry weight with editorial boards, network anchors, and pundits, not with Congress or the White House. When a version of the Simpson-Bowles plan came before the House last April, it got crushed 382-38.
Today all the energy in politics is at the grass roots. The Tea Party activists and tech-savvy Obama legions are the real forces shaping America. Politicians and businessmen are usually seen as the villains. When I met Peterson in January, the New York Times had just published a story noting that people in both parties agreed that the Campaign to Fix the Debt had had no impact at all on the deficit talks. Peterson hadn’t known about the story and was disappointed when he found out.
The Simpson-Bowles roadshow and Fix the Debt campaign were intended to succeed where the commission did not. They’d lobby Congress from the inside to persuade members to adopt their solution. At the same time, they would work the outside, appealing directly to the public. Neither strategy has delivered.
The inside approach has found little traction in the Capitol, where the kind of high-minded bipartisanship Simpson and Bowles are selling is considered political suicide. Antitax Republicans, not consensus-minded wise men, have led the budget battles of the last three years. Their overriding goal is not to shrink the deficit, but to stop tax increases. To these Republicans, Simpson’s party credentials are meaningless. Conservatives in Congress regard him as a dinosaur who epitomizes the moderate establishment they’ve sworn to defeat. “His name never comes up,” says Grover Norquist, the antitax activist. “Simpson’s sole purpose is giving cover to Democrats to be for something that reduces the deficit.”
On Feb. 18, Bowles and Simpson unveiled a new plan in Washington that is a tacit concession to this reality. It shifts the terms of a grand bargain considerably to the right by jettisoning much of the tax revenue they had originally proposed in exchange for deeper spending cuts. Bowles says this reflects the current midpoint between Democrats and Republicans. But bowing to Republicans won’t bring support from Democrats, whose president was just reelected after campaigning against Republican fiscal policy. “No one asked them to be political strategists,” says Jared Bernstein, a former top economic adviser to Vice President Joe Biden. “The best elements of their first plan—balancing revenues and cuts, protecting low-income programs—get thrown out the window in their new plan.”
The outside strategy to persuade the public has also fallen short. It depended on scaring people into believing that a crisis is imminent. For all their resources and the attention they garnered, they haven’t managed to do that. Millions of Americans are more anxious about jobs, stagnant wages, slow growth, and a host of other problems. Simpson’s gleeful attacks on safety-net programs like Medicare, while perhaps rational from a budgeting standpoint, can’t have done much to win them over. “We have two parallel discussions going on in the country that need to be merged: growing inequality and the deficit,” says Barney Frank, the Massachusetts Democrat and former chairman of the House Financial Services Committee, who recently retired from Congress. “You can’t pretend those are parallel lines that never touch, because what you do to the deficit affects inequality. Kicking the can down the road is bad. But kicking the asses of the poor is even worse, and that’s what they’re doing.”
Photograph by Diana Walker/Time Life Pictures/Getty Images
Simpson responds to most criticism by insisting that a “debt bomb” could blow the nation’s finances to smithereens at any moment. Testifying before the Senate two years ago, he raised the specter of just such an interest rate shock. “I think it will come before two years,” he predicted.
It hasn’t. Markets are lending to the U.S. at historically low rates. For all the damage they’ve done, the budget crises of the past few years have produced $2.5 trillion in deficit savings. The latest Congressional Budget Office forecast shows that the deficit is falling. This year it will shrink to $845 billion, or 5.3 percent of gross domestic product—the lowest figure since 2008 and nearly half its peak of 10.1 percent in 2009. By 2015, it will fall below 3 percent, a level most economists consider safe. Even health-care inflation, the biggest driver of long-term debt, has suddenly and unexpectedly slowed, a trend that, if it continues, will make balancing the budget much easier than anyone anticipated even a few years ago. Already, Medicare cost projections have fallen $500 billion for the period covered by the original Simpson-Bowles plan. “The hair-on-fire brigade wants to start gutting social programs before we really know what’s going on,” says Biden adviser Bernstein.
All these encouraging developments don’t mean Simpson and Bowles are wrong. Although the deficit is currently shrinking, the same CBO forecast says it will begin to soar in 2023, for the same reasons Peterson identified a quarter century ago: The population is aging and health-care costs are rising. If that trend continues unchecked, Medicare will eventually eat up the budget. It’s no exaggeration to say that fixing medical inflation would solve the long-term debt problem. The trouble is that nobody is quite sure how to do this, or even if it’s possible. This is why Simpson, Bowles, and their allies are so adamant about acting now. “I thought this was our magic moment,” Bowles laments.
That moment now looks as if it may pass as just one more disappointing chapter in the long quest to straighten out the country’s finances. The fate of the grand bargain will likely be determined over the next six to eight weeks, as sequestration hits and funding for the government runs out on March 27. If Congress muddles through with still more short-term fixes, the chance for major reform may vanish for years. Washington will move on to immigration, gun control, and the next election. Simpson-Bowles will be forgotten. If, however, the economy stalls, health-care inflation picks up again, or any number of other scenarios unfold, the plan may be resurrected—or as Simpson once put it, the “cadaver will rise from the crypt.”
“Nobody knows when, but at some point the markets will force us to deal with this,” says Bowles. “And when they do, there’s just not that many other solutions.” In that event, Simpson and Bowles will win Washington’s standard consolation prize—having failed to fix the problem, they’ll at least be able to say they were right.