The recent debate to prevent a government shutdown reminds us that partisan politics have always been, and will likely always be, part of Washington. While it is certainly good a shutdown was averted, the $38 billion in cuts that were part of the deal barely dent our nation's growing debt. Now, the $14 trillion question is whether President Barack Obama, House Speaker John Boehner and Senate Majority Leader Harry Reid can reach another agreement -- this time to reduce our debt and improve our fiscal responsibility.
We certainly hope they can. However, time for an agreement is fleeting. In fact, the evidence suggests the U.S. is becoming less fiscally responsible.
Over the last six months, as part of our graduate programs at Stanford University, and in conjunction with former U.S. Comptroller General David Walker (a longtime critic of unsustainable entitlement spending) and the Comeback America Initiative, we developed a Sovereign Fiscal Responsibility Index (PDF) that assesses fiscal responsibility across most Organization for Economic Cooperation and Development and so-called BRIC countries (Brazil, Russia, India and China).
Combining the three major components of fiscal responsibility -- current debt levels, the projected future debt path and fiscal governance -- this index predicts the U.S. could face a fiscal crisis in the next two to three years if spending and tax revenues continue at current levels.
Right now the U.S. debt is like a freight train running downhill. The agreement to prevent a shutdown was like putting a shopping cart in the way. We still need to pull the brakes to keep our country out of a fiscal abyss.
Our index shows that the U.S. ranks 28th overall out of 34 countries, in the same territory as the so-called PIIGS of Europe -- Portugal, Iceland, Ireland, Greece and Spain -- countries that are already facing fiscal hardship, some from years of irresponsible behavior. Australia and New Zealand, more on them later, sit at the top of the list. Surprisingly though, the top 10 is filled with developing market countries such as China, Chile, Estonia and Brazil. (read more)
