Peter G. Peterson was an American entrepreneur, investment banker and politician. He served as United States Secretary of Commerce during the Nixon administration and was Chairman of the Council on[…]
Peterson talks about the American economy.
Well it’s a lot better than a lot of people thought it was gonna be. Let’s start with that. It is rather surprising to me in some ways that it’s done this well this long, because I was taught at the University of Chicago and Northwestern that it was terribly important for countries to have savings, and to invest a lot in the future. And that had a lot to do with how well they’re doing. Well America today has the lowest savings rate it has had in many, many years. At the national level, it’s fallen dramatically from 10, 11% of the GDP as we call it down to one or two. Personal savings rates stunningly have gone from nine percent of our disposable income to a minus one percent. And we’ve become very gifted, ardent, robust consumers and borrowers, and not savers. Now the big question is . . . We’ve become huge borrowers as a country with our very large deficit. We’ve become borrowers at the consumer level with very hard debt levels and a really lousy savings level. And the big question I have about the American economy is not today . . . but it’s how long we think we can continue, because we’ve got some huge challenges that are coming. There are 78 million baby boomers, plus the size of the current generation due to begin retiring next year. We have Social Security and Medicare that are programs that are . . . where we’ve made a lot of promises but we haven’t funded them. And we’ve grossly misled the American people with such euphemisms as the Social Security Trust Fund. I argue that it’s an oxymoron, and it shouldn’t be trusted and it’s not funded because the money has already been spent. We haven’t provided for those programs. We are getting to be fancy language; but if something called a “current account deficit”, which measures our deficits abroad, which is largely a trade deficit . . . It’s now twice as high a percentage of the economy than it’s ever been in American history. And we’re borrowing, borrowing, and borrowing and becoming _______ and I think destructively dependent on the long run on Chinese money, and Japanese money, and Asian money and so forth. And which they lend us this money. But you know it’s a funny thing about borrowing. You have to pay it back some time. And as a country, we can’t continue to borrow seven percent of the economy, which is what we’re borrowing now, for very many years without looking like a very different America than we have now. So I think the economy today is in pretty good shape; but it’s getting pretty turbulent now with housing. And housing is a wonderful example. I did quite a study about 18 months ago, and I was simply astonished at the number of people who bought homes no money down. It’s called “interest only”. And then I was astonished that even though mortgage rates at the lowest level in 30 years have averaged around 9.7% or something like that, and now they’re like six, people are not taking long term fixed mortgages. About half of them are taking what are called “adjustable rate mortgages”. Well one might say, “Gee, that’s fine if we have a lot of savings that we’ve stacked away, and if we aren’t borrowing very much for other purposes.” That isn’t true. We’re borrowing more _______ income than we have in many, many years. So now we’ve had this big blowout of the so-called “subprime mortgage” market. And today I hear in the press that housing prices are falling and so forth. What did we think was going to happen? How are these loans gonna get paid back? We don’t have any savings, and we’re already heavily borrowed. So my concerns about the economy of this country are much more in the future, and much more of our culture. We have become one of the biggest savers in the world. And saving, remember, is a metaphor for the future. We’ve become the biggest consumers and borrowers in the world, which is kind of another way of saying, “I want it all. I want it now, and I don’t want to give up anything.” And a kind of “to hell with the future.” Well I’m far more concerned with America’s economic future 10, 15, 20 years from now than I am with what happens over the next six months. Well it’s interesting you should ask that question. You’ll be sorry you asked it. I am planning to take my bounty from Blackstone going public, a lot of it – and it’s quite a windfall – and set up what would turn out to be a very large foundation. And because I’ve been boring people relentlessly for the last 20, 30 years about some of these problems, I’m going to take a number of these problems that are what I call undeniable and unsustainable, and yet politically untouchable because of the political culture we now live in where it’s considered almost politically terminal to ever ask anybody to give up anything, or to pay for anything. And you know, “I want more, and more, and more, and I want it now.” And to take these issues which I think are a serious threat to America’s future, and take those issues where there’s a huge gap between what we should be doing, and what we could be doing, and what are or are not doing, and figure out how at the margin, a major foundation might be able to make a difference. For example, looking at you you’re a very young person, certainly by my standards. When I think of young people today, I think of what we’re leaving them 10, 15, 20 years from now. You remind me of that old joke from a philosophy class where the professor asks the students which is worse – ignorance or apathy. And some poor kid from back of the class says, “I don’t know and I don’t care.” Well I think it’s an interesting question. Is there an exciting way that we could get the young people of this country aware, and their parents? Because I refuse to believe that parents have suddenly become cold and indifferent to their own kids and grandkids. I think they’ve been deceived, and misinformed, and disinformed and so forth. So we have a political system today, for example, where the elderly are unbelievably well represented. The American Association for Retired Persons has 38 million dues paying members. They write more. They lobby more. They call more. And by and large, it’s not too unfair to say a lot of their programs are “We want more”, even though by any reasonable standard – as I say some of these challenges are unsustainable – we’re not going to be able to meet the promises that we’ve made. For example, in about 20 years or so . . . 25 years, I’m looking at you, your payroll taxes are scheduled to go from 15 to 30% or more, which would be a huge, huge burden on you, on the economy, on your future and so forth. So on one hand we have this culture of our ethic of “shared sacrifice” being a kind of a dirty word – not wanting to give up anything – we have political organizations who are dominant in representing one age group. And the young people who are all about the future are somehow being slipped this huge check – hidden check, I might add – for our free lunch, and nobody seems to be doing anything about it. So I would like to gather together the student and the young leaders of this country, and take a day or two and say . . . try to give you the biggest, best rundown I can in half a dozen areas of the economy and fiscally, and what the world looks like. And I want you to contemplate that – because it’s not my future. It’s yours. I’m 81years old. Lord knows I don’t need anything more – and ask you, “What are the best ways to do something about it?” And should we have an American Association of Young People and Their Parents, for example? Because until this democracy gets educated and gets informed – which is the first requirement – and then get active and motivated, not much is gonna happen on these problems unless there’s a huge crisis. Then it will be a very costly crisis when it hits. So that’s a long-winded answer how I feel about the economy. I’m much more concerned about the long-term picture than I am about the next year, or two, or threeMy parents’ generation, the greatest generation, for example, fought the most costly war in history – costly in every sense of that word. They built international institutions – Marshall Plan and so forth, which was central to the world getting restored. They had G.I. Bill of Rights for all the returning veterans . . . went to college. They rebuilt the infrastructure of this country. But they didn’t ask me to pay for it. They paid for it because they were willing to invest in the future. And that meant saving, and that meant consuming less because you can’t have it all. You can’t have it all now and have something for the future. I tell these university audiences I think a careful study of your sociologist, of your social psychologist, of your political science, of your economists, of your historians . . . and say, “What was it during those early times where more Americans than I’m afraid today had a clear sense of the future and a responsibility for it?” And what led us to this notion “I’m gonna grab what I can”? And “The government owes me this and the government owes me that.” And kind of, “To hell with other people. To hell with the future. And to tell with who and how we’re gonna pay for all of this.” Now why did that come about? What led to this boomer mentality, you know, about, “I want it all. I gotta enjoy it.” I have a dear friend who is in the ________ medical profession. He’s kind of complaining that he’s not a millionaire or a multi-millionaire, whatever. And I said, “Well you know, one way people become millionaires is they save and they invest.” But he’s got to have his small airplane that he flies on the weekends. He points out to me it’s not a jet. And I said, “Well I understand. I don’t have a jet either.” And “Oh, I need to have fun because I work so hard all week. And I need a Porsche car,” and so forth. And that is the boomer mentality that we’re kind of dealing with here. And I don’t really know what led from saving and investing into the future to consuming and borrowing now. Did America get disenchanted by the Vietnam War that tore this country apart? You’re much too young to remember it, but it truly tore us apart. Did we get torn apart by the assassinations of presidents, and presidents’ brothers, and Martin Luther King, and riots in the streets? As I said, I was working on this problem in Chicago. It was a terrifying sight to see, and that somehow the bonds that unite us and heal us lead to the current situation. I’m not sure. But I’ve never seen a time when there was so much bitterness and partisanship, and paralysis as we have today in our government. I mean nothing. We went through important areas where the Republican leadership and the Democratic leadership are united for a much larger cause, namely the nation’s interest. We’ve had very little of that recently. So I’m _______. I don’t know what all the reasons are. I just know there’s been a really major shift. I think if I may, just to insult your medium, it’s entirely possible that television has had its impact. For example, I used to watch my children. ________ wasn’t television. And they’d turn on the TV and pound it into their heads. Here’s this toy they had to have. This is the dress they gotta have. And we’ve developed a kind of indulgent, instant gratification, consumption largess that has become part of our culture. And I don’t know all the reasons for it, but certainly the presence of such an effective medium . . . and television is probably one of the reasons for it. Recorded On: 7/26/07