The Time for Fiscal Truth is Now

A new study shows that the public is capable of facing facts about the nation's fiscal problems – which is a good thing, because they're probably going to have to take a big bite of a reality sandwich in the coming week.

The Changing Expectations study, conducted by Viewpoint Learning as part of the Facing Up to the Nation's Finances initiative (which includes Public Agenda) covers a lot of territory, but this is probably the key paragraph:

"What we found, in dialogue after dialogue across the country, is that the main obstacle to building public support for the difficult choices we face is not public opposition to tax increases or program cuts, nor is it public lack of interest. The main obstacle is a deeply felt and pervasive mistrust of government."

The unique Facing Up partnership is focused on the long-term problems facing federal finances: the combination of an enormous national debt, changing demographics and out-of-control health care costs that will eventually eat up the federal budget unless something is done. But I don't know that anyone thought the short-term situation would deteriorate as badly as it has over the last couple of weeks. Consider these facts:

• Because of the troubled economy, the Congressional Budget Office now projects a $400 billion deficit next year, and continued deficits for the next 10 years. And for the first time, the CBO projects deficits even if President Bush's tax cuts are allowed to expire in 2010.
• This weekend the Bush administration asked Congress to authorize $700 billion over two years to bail out Wall Street by buying up bad mortgage debt. Those mortgage assets are worth something when the government resells them, so if we're lucky the total price tag will be less than that – but some experts warn it could be more. Congress may well add more money to help homeowners, as well as banks.
• This is on top of the earlier government bailouts of mortgage giants Fannie Mae and Freddie Mac and insurance company AIG. The mortgage bailout is at least another $25 billion, and maybe a lot more, while AIG will be $85 billion. And if these bailouts go worse than expected, they could push the total bailout bill to $1 trillion.
• As part of the bailout, the Bush administration is asking that the national debt limit, the total amount the government is allowed to borrow, be raised to a staggering $11.3 trillion. Our national debt is already past $9.6 trillion, and the government will be borrowing to cover these bailouts.

Just to put some of these numbers in perspective, $700 billion is roughly what the government spent on national defense and Medicaid combined in 2006, and more than double what we spent on Medicare.

Congress will want to act on the plan before it goes on recess this Friday. At this point it looks like there's bipartisan support for action but there's also going to be ferocious debate over the details of a bailout plan, as there should be. And where this much money is at stake, our leaders have to be candid with the public. This is not merely going to shape what happens in the financial markets over the next few months. This is going to shape the course of the next presidential administration and the country for years to come. Whoever the next president is, he's going to find his ability to get things done is limited by our financial problems.

What better moment for candor, both from our current leaders and our presidential candidates? The fact that the public is capable of coping with harsh financial facts should be comforting to our leaders. And the fact that the public considers trust to be a prerequisite for action means that honesty isn't just the best policy, it's the only policy that can work.