02/21/2011 02:14 pm ET Updated May 25, 2011

Fiscal Follies: How Long Can We Procrastinate?

There's no shortage of evidence that humans procrastinate when faced with unpleasant experiences. Most of us know this personally. We've put in all-nighters in college or done our taxes on April 15 -- or this year, April 18. Procrastination is a common enough failing, but it's the one thing we really can't afford when it comes to the federal budget debate. This is a problem that gets more fearsome and tougher to solve the longer we put it off.

Yet procrastination is what we're getting. Or worse, procrastination posing as bold action. President Obama's budget request offered both spending cuts and tax increases to reduce our deficits by about $1 trillion, but offered little on the long-term problems of Medicare, Medicaid and Social Security. The House Republicans are celebrating their vote in favor of cutting $60 billion in federal spending this year, but given that (a) the deficit is expected to be $1.6 trillion and (b) there's little chance the Senate and President Obama will go along, it may not amount to much.

Meanwhile, the risks of inaction just get higher. Consider this:

  • The bond market could de-friend us. For lo these many years, the United States has been able to spend more than it takes in because investors worldwide have been happy to keep lending to us by buying our Treasury bonds. Given the economic mess in Europe and how dicey things can be in the developing world, the U.S. government is still seen as a good place to park your money. But how long will that last if we can't get our act together on the budget? The scariest part is that bond crises have a nasty habit of popping up out of the blue--like the iceberg materializing in front of the Titanic. In the terse words of David Brooks, "The bond markets are with you until the second they are against you. When the psychology shifts... the shock will be grievous: national humiliation, diminished power in the world, drastic cuts and spreading pain."
  • We are being warned. Sheila Bair heads the FDIC which closes banks when they're about to go under, so she knows a thing or two about what happens when investors lose confidence. Bair is well-respected, and she's worried: "Financial markets are already sending disquieting signals," she recently wrote. She's not the only one. The big bond rating company Moody's has also made rumblings that our triple-A bond rating isn't immutable.
  • We could shell out nearly 5 trillion in interest in the next 10 years. According to the Congressional Budget Office, the country will spend about $4.8 trillion on interest payments between now and 2020. And since the CBO is required to make its projections based on current law, these figures assume that the Bush tax cuts, all of them, will expire at the end of the two-year extension period. Almost no one thinks that will actually happen.
  • In a decade, Medicare costs will top $1 trillion a year. All the budget wonks say health care is the undertow that could drown the budget -- and the U.S. economy along with it. In 2010, the country spent $528 billion on Medicare and $280 billion on Medicaid. Together, that's more than we spent on defense. But with rising health care costs and an aging population, those numbers are set to zoom skyward. By 2020, they will almost double to $1 trillion for Medicare and $458 billion for Medicaid. These numbers are truly fearsome, and no matter what you think of the Obama health plan, at least it included some cuts and cost containment provisions for Medicare. Repeal it without replacing those, and the costs for Medicare will be even higher.
  • 2011 is the time to start. It's encouraging that there are specific proposals on the table and that the political debate has finally begun. But with elections coming up in 2012--and with straw polls already dominating the news -- we don't have much time before the country goes into its quadrennial "all campaigning all the time" mode. Big national elections are generally not the best times for honest discussions about the budget, and besides everyone is distracted--candidates, journalists, and voters as well. But we still have a few months. We can't solve the budget problem in that short a time, but if we don't start, we could lose another two years while the risks continue to mount.

Cutting federal spending or raising taxes won't be pleasant. Local governments will not get money they're used to getting, and companies and non-profits nationwide will lose government contracts and grants that have, in some cases, been keeping them afloat. There will be layoffs of government workers. The chorus of disapproval greeting President Obama and the Republicans now that they've started to get specific on spending cuts shows just how painful and controversial this will be. As for raising taxes, even the smallest uptick is bound to get millions of Americans upset.

But there's simply no way to do this without cutting spending and raising taxes. If we start now, at least we get to decide what to do when. If we wait until the country is up against a bond market crisis or other financial emergency, we'll have to slash in every direction and raise taxes in one fell swoop. Surely we're a sensible enough nation to avoid that.

So now you can take your pick of advice from two great sources: There's Lewis Carroll who wrote "'The time has come' the Walrus said, 'to talk of many things.'" That's true enough here. Or if you're a boomer, maybe you'd rather go with "The time to hesitate is through" from Jim Morrison and the Doors. Either way, the message is the same. This time, this year, we simply have to reduce the red ink.