Book review: White House Burning

For anybody who wants to enhance their comprehension of the American deficit/debt crisis I highly recommend White House Burning by Simon Johnson and James Kwak. The authors go into great detail explaining how our government has managed to amass so much debt. I enjoyed reading it for several reasons.

First, it provides much needed context on the history of American indebtedness. The authors explain how prior to WWII and Bretton Woods Congress insisted on balancing the budget within a reasonable period of time. This is not to suggest the nation never ran deficits, but rather the government put balanced budgets near the top of their priority list. Leaving the gold standard coupled with the Dollar achieving reserve currency status changed the calculus, and priorities, for Congress. Money became cheap and the politics around money made it difficult for any elected official to credibly insist on balancing the budget.

Second, White House Burning makes a compelling case for government. The authors spend many pages giving examples of all of the great things the government does. From providing for the national defense to unemployment insurance to funding scientific research to guaranteeing loans for business and residences to providing access to health care the list is truly staggering. Reading through and truly processing all that the government does, one begins to appreciate the value it adds to our lives every single day.

Third, this book helped me conceptualize what the driving costs of our deficit really are. Namely demographic trends. The social programs our government have provided are quite successful. People are living longer. That is great. It also means that more social security checks need to be sent every month and more doctor visits are made over a lifetime. These things cost money. The cost of providing those benefits and programs rises with the frequency and volume of consumption.

Fourth, one point the authors stressed which I found very insightful/troubling/eye opening: the government could announce tomorrow that they were going to cap medicare expenditures for everybody in a way that would solve the fiscal crisis completely. But that would just shift the burden from the government onto each individual to provide for themselves. Instead of Uncle Sam going broke, each citizen would go broke or be without medical care. In other words, solving the government debt crisis does not solve the problem of obscene health care costs. Seniors are particularly unable to provide for their own healthcare at reasonable costs. No insurance company is going to take on an individual in their 90s.  Similarly, cutting social security would just shift the burden of retirement to citizens from the government. That is not to say that people should not take responsibility for funding their own retirements. It is just pointing out that eliminating social security payments and taxes may help the government’s fiscal precariousness, but it does not mean people will be more successful at saving for retirement. I found this point sobering.

Fifth, Simon Johnson and James Kwak then provide a detailed list of suggestions to tackle the deficit problem. They state from the beginning that their goal is not to produce a budget that runs a surplus and pays off debt. Rather, they hope to end up with a budget that is sustainable over time. They note that over time the economy will continue to grow and appetite for US Treasuries (the primary funding source for the debt) should remain high. By taking steps to stabilize today and slow down the growth of the debt, they argue the “fiscal crisis” will pass.

In Conclusion: White House Burning is a fascinating book. It provides intelligent discussion about the history of government debt and articulates the main drivers of debt today. The book is laden with graphs and charts and references to reports and news articles. It does not stop at describing the situation but takes the brave step of recommending changes to solve the problems. For anybody looking for a comprehensive discussion regarding the U.S. Deficit and Debt I highly recommend White House Burning.