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Linda Bilmes: “The $10 Trillion Hangover: Paying the Price for Eight Years of Bush”

StoryDecember 22, 2008
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In a new article in Harper’s Magazine, Linda Bilmes and Joseph Stiglitz estimate that the cost of undoing the Bush administration’s economic choices, from the wars in Iraq and Afghanistan to the collapse of the financial system, soaring debt, and new commitments to interest payments and Medicare, all add up to over $10 trillion. [includes rush transcript]

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This is a rush transcript. Copy may not be in its final form.


As we enter the final weeks of the Bush administration, we turn to a new report that calculates the economic costs of the past eight years. Linda Bilmes and Nobel economist Joseph Stiglitz have a piece in the January 2009 edition of Harper’s Magazine called “The $10 Trillion Hangover: Paying the Price for Eight Years of Bush.”

They estimate that the cost of undoing the Bush administration’s economic choices, from the wars in Iraq and Afghanistan to the collapse of the financial system, soaring debt and new commitments to interest payments and Medicare, all add up to over $10 trillion.

Stiglitz and Bilmes write, “As bad as things are, though, this is just the beginning.” They add, “The Obama Administration, facing the most serious economic crisis in at least a generation, will need to mount an expansionary fiscal policy. The problem is how much the country’s debt mountain will crimp our ability to pay for the type of change we just voted for.”

Linda Bilmes is lecturer in public finance at Harvard’s Kennedy School of Government and co-author with Joe Stiglitz of The Three Trillion Dollar War. She joins us from Boston.

Welcome to Democracy Now!, Professor Bilmes. OK, explain the $10 trillion hangover.


Hi, Amy. Nice to be on the show again.

You know, we were trying to understand the actual economic cost of the Bush administration. I think that when President Bush first was declared the winner in the 2000 election, a lot of us consoled ourselves by feeling that the much-vaunted system of checks and balances in this country would essentially protect the country from major changes. But we now know that actually there have been very considerable consequences of the past eight years, and we really wrote this article to try and look at what the economic consequences were.

I think that if you go back to 2001, when the President took office, you can remember there was a surplus, a budget surplus of about $150 billion and the congressional budget office at the time was projecting that that surplus would continue over the next several years. And since then, things have unraveled in every possible dimension that you can measure and certainly across every metric that economists measure. The budget deficit has disappeared. Our national debt has gone from about $5.5 trillion to between $10 and $15 trillion, depending on how much of the bailout you count. Inflation is higher. Unemployment is higher. Four million manufacturing jobs have been lost. Five million people have lost their health insurance. And the more you look into it, the more you see the very severe economic consequences that have been the result of errors and poor judgment during the past eight years.


And you also look at just people’s personal debt, the increase in credit card, automobile, mortgage and other forms of personal debt from around $8 trillion in 2000 to more than $14 trillion today, also, you write, looming behind the implosion of our financial system.


That’s right. There is government debt, and there is household debt, you know, such as cars and mortgages and credit card debt, and this has also skyrocketed during the past eight years. So, the result is a kind of a mountain of debt, which has been one of the main drivers of the current economic virtual meltdown that we are experiencing.


Can you go through the various debts, from the increase in the national debt, the projected debt of 2009, Fannie Mae, Freddie Mac, debt from other bailouts, debt from the war, Medicare Part D? Go right through it quickly.


Right. Well, first of all, it’s important to know that we started with a debt that was about $5.7 trillion. And that debt had been growing for some period of time. But in the time since the President took office and now, that debt has more than doubled. So, in another words, we have amassed more debt over the past eight years than we have under all the previous forty-two presidents combined.

Now, where does that debt come from? It comes from a combination of tax polices, because we have had two massive inequitable tax cuts, which of course reduced revenues, and an increase in spending. The increase in spending has gone essentially for the wars in Iraq and Afghanistan, for a very significant military buildup unrelated to Iraq and Afghanistan, and for a number of commitments that are more expensive than they needed to be. For example, Medicare Part D, the idea of providing prescription drug benefits to seniors is a good idea, but this was done in a way that was much more expensive than it needs to be, because we — unlike in the Veterans Administration, for example, we don’t allow negotiation with drug companies to keep the prices low. So when you add up these things together, I mean, they result in, essentially, a doubling of the amount of debt that we have on the books.

Now, in addition, we have taken on the debts recently of Fannie Mae and Freddie Mac. And if you follow standard accounting practices, that $5 trillion of debt for Fannie Mae and Freddie Mac should be counted as part of our debt. So we’ve essentially gone from $5 trillion in debt to $15 trillion of debt, and considering that our economy is a $14 trillion economy, you can quickly see that the ratio of debt to the economy has gone from something that looked relatively healthy to something that looks extremely unhealthy.


And veterans’ entitlements, if you could talk more about that, and then where you see — I mean, the inauguration happens on January 20th, new administration. How do they deal with all of this?


The veterans’ entitlements, because of the fact that there have been such an enormous number of veterans who have been injured and wounded in this war — you know, in previous wars the ratio of those wounded and injured to those who were killed was about three-to-one. In this war, it’s fifteen-to-one. As a result of that ratio and the hundreds of thousands who have come back with post-traumatic stress disorder, mild traumatic brain injuries, vision loss and other types of injuries, you know, there have been over 300,000 who have already sought medical care at the VA.

Now, when you actually add up the present value of the cost of providing medical care and disability compensation for veterans who have been injured or wounded in the war, I mean, that is another major entitlement program, which is not even really fully reflected in this article in Harper’s, because the overall cost of providing for our veterans will eclipse even the operating costs of the war to date, because these are costs that go on for many, many, many decades, and we’re just at the very beginning of that cost. So, in other words, one of the major costs of the Iraq war, which we outline in our book, The Three Trillion Dollar War, is that the cost of replenishing military equipment that’s been used up and the cost of providing for our veterans is a cost that continues over the next fifty years.

And sorry, Amy, what was your next question?


And one other question, on the issue of the corporate bailouts. We always say the $700 billion bailout. You say it’s well over that.


Well, you know, there are various elements of the bailout. There is the TARP, the Troubled Asset Relief Program, which has already been enacted. And there is the stimulus package, which will be enacted, which will be another $700 or $800 billion. And then there is the — essentially the takeover of the Fannie Mae, Freddie Mac debts. Now, Fannie Mae and Freddie Mac, because they’re mortgage companies — and I would say that one of the important things to understand about the responsibility of the Bush administration for the economic mess is the fact that they encouraged Fannie Mae and Freddie Mac to get into and to expand their subprime mortgage business. You know, they also, essentially, had a philosophy of lax regulation, and in which they actually blocked efforts by thirty different states to clamp down on predatory lending. All of that contributed to the fact that the government has had to take over the balance sheet of Freddie and Fannie. And that is essentially $5 trillion of debt. Now, of course, not all of those debts will go sour, and many of them will be fine. But if you add the liability on the government balance sheet that we have taken on for Fannie Mae and Freddie Mac, that’s another $5 trillion of debt.


We’re going to have to leave it there. Linda Bilmes, I want to thank you for being with us, teaches at Kennedy School of Government. Her piece with Joe Stiglitz is “The $10 Trillion Hangover: Paying the Price for Eight Years of Bush.”

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