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Presentation by the Honorable David M. Walker: 
Comptroller General of the United States: 

America's Fiscal Future: A Call for Citizen Involvement: 

The Flory Public Policy Lecture: 
McPherson College: 
McPherson, Kansas: 
March 11, 2007: 

United States Government Accountability Office: 


Thank you, President Hovis, for that kind introduction. 

I am honored to deliver this year's Flory Lecture. As you know, this 
lecture is named for Dr. Raymond Flory, who was a fixture on this 
campus for more than 50 years and a big believer in public service. I 
had dinner earlier with Rowena Flory and several other Flory family 
members, and I'm delighted they were able to join us this evening. 

I'm here at McPherson College for two key reasons. First, Ron Hovis and 
I are friends and go back a long way. I think I first met Ron when we 
were both on the American Benefits Council Board. 

The second reason I'm here is because of Elmer Staats. Elmer was my 
predecessor once removed as Comptroller General of the United States 
and head of the Government Accountability Office (GAO). He's widely 
regarded as a model public servant, and he's also become a good friend. 

His professional ability and personal integrity earned him the 
confidence of four U.S. Presidents--Truman, Eisenhower, Kennedy, and 
Johnson. Elmer served in high-level government posts for nearly four 
decades, both at GAO and the old Bureau of the Budget, which is now 
OMB. After retiring from government, Elmer ran the Harry S. Truman 
Scholarship Fund. And, in fact, at nearly 93, Elmer is still a 
remarkable man. 

Elmer graduated from McPherson College back in 1935. When I told him 
I'd be giving this year's Flory Lecture, Elmer spoke fondly of his 
years here and he asked me to convey his best regards. 

Elmer is largely responsible for a major modernization of the GAO. 
Under Elmer's direction, GAO moved from financial auditing into program 
evaluation, which looks at whether government programs are meeting 
their objectives and the needs of society. GAO also began to issue the 
so-called "Yellow Book," which represents generally accepted government 
auditing standards. Finally, Elmer encouraged GAO to build ties to the 
international auditing community. In fact, he's the reason the United 
States joined the International Organization of Supreme Audit 
Institutions (INTOSAI). 

Tonight, I'm going to talk about a number of emerging challenges facing 
the United States. Many of these are complex issues that were 
unimaginable only a generation or two ago. I'm also going to talk about 
the difficult public policy choices that must be made to secure our 
nation's future. 

In many respects, the unusually prosperous and perhaps more predictable 
way of life that came after the Second World War has drawn to a close. 
I think it's useful to reflect on how much things have changed in 
recent decades and how much things continue to change. 

Most of the students here tonight probably have no first-hand memory of 
the Cold War. Your knowledge of the Berlin Airlift, the Cuban Missile 
Crisis, and even the Vietnam War probably comes from history books or 
the History Channel. 

Your world has been defined by more recent development, such as the 
invention of the microcomputer and the spread of the AIDS virus. One of 
the challenges before us is to maintain a government that is effective 
and relevant to your generation and to future generations. 

I'm going to start with possibly the most profound trend facing 
America, and that's demographics. To put it simply: Our population is 
aging and living longer. At the same time, our population is becoming 
far more diverse. Walk into elementary schools in many major U.S. 
cities and you'll see students who come from homes that speak every 
conceivable language, from Spanish to Vietnamese to Arabic. 

Despite increased immigration, U.S. workforce growth is expected to 
slow dramatically during the next 50 years. Like most industrialized 
nations, the United States will have fewer full-time workers paying 
taxes and contributing to federal social insurance programs. At the 
same time, growing numbers of retirees will be claiming their Social 
Security, Medicare, and Medicaid benefits. Many of these retirees will 
live far longer than their parents and grandparents. Today, there about 
55,000 Americans who are 100 years old or older. By 2050, as many as a 
million Americans may have reached this milestone. In a nutshell, the 
retirement of the baby boomers, and I'm one of them, is going to put 
unprecedented demands on both our public and private pension and health 
care systems. 

The problem is that in the coming decades, there simply aren't going to 
be enough full-time workers to promote strong economic growth or to 
sustain existing entitlement programs. Yes, Social Security has a 
problem, but our Medicare and health care challenges are multiple times 

At the same time, American companies are cutting back the retirement 
benefits they're offering to workers. This means if we hope to live 
well during our "golden years," all of us are going to have to plan 
better, save more, invest more wisely, and resist the temptation to 
spend those funds before we retire. 

Beyond demographics, the United States confronts a range of other 
challenges. Globalization is at the top of that list. Markets, 
technologies, and businesses in various countries and in various parts 
of the world are increasingly linked, and communication across 
continents and oceans is now instantaneous. This new reality was made 
clear by the recent decline in the Chinese stock market, which had 
immediate ripple effects on financial markets from Tokyo to London to 
New York. 

Clearly, U.S. consumers have reaped many benefits from globalization. 
From clothing to computers, you and I can buy a range of foreign-made 
goods that are cheaper than ever. But there's a catch. In many cases, 
lower prices have been accompanied by a loss of U.S. manufacturing 

Globalization is also having an impact in areas like the environment 
and public health. The truth is that air and water pollution don't stop 
at the border. And with today's international air travel, infectious 
diseases can spread from one continent to another literally overnight. 
This is one reason that public health experts are so concerned these 
days about avian flu. 

With the end of the Cold War, we face new security threats, including 
transnational terrorist networks and rogue nations armed with weapons 
of mass destruction. September 11 brought this reality home in a 
painful way. Stronger multinational partnerships will be essential to 
counter these diverse and diffuse threats. 

Other opportunities and challenges come from technology. In the past 
100 years, but especially the last 25 years, spectacular advances in 
technology have transformed everything from how we do business to how 
we communicate to how we treat and cure diseases. Our society has moved 
from the industrial age to the information age, where specialized 
knowledge and skills are the keys to success. Unfortunately, the United 
States--which gave the world Benjamin Franklin, Thomas Edison, and Bill 
Gates--isn't even in the top 20 developed nations today on high school 
math and science test scores. 

In many respects, our quality of life has never been better. We're 
living longer, we're better educated, and we're more likely to own our 
own homes. But as many of you already know from your own families, we 
also face a range of quality-of-life concerns. These include poor 
public schools, gridlocked city streets, inadequate health care 
coverage, and the stresses of caring for aging parents and possibly our 
own children at the same time. 

Our very prosperity is also placing greater demands on our physical 
infrastructure. Billions of dollars will be needed to modernize 
everything from highways and airports to water and sewage systems. The 
demands for such new investment will increasingly compete with other 
national priorities. 

Our Worsening Finances: 

Perhaps the most urgent challenge is our nation's worsening financial 
condition and growing long-term fiscal imbalance. Largely due to the 
aging of the baby boomers and rising health care costs, America faces 
decades of red ink. The facts on this aren't in question. Given our 
worsening financial outlook, the government's recent spending sprees 
and deep tax cuts are nothing less than a body blow to overall fiscal 

Despite what some say, deficits do matter--especially if they're large 
and structural in nature. As a CPA and the federal official who signs 
off on the audit of the government's consolidated financial statements, 
I'm here to tell you that our nation's financial condition is worse 
than advertised. 

The truth is our country faces not one but four interrelated deficits. 
Together, these deficits have serious implications for our future role 
in the world, our future standard of living, and even our future 
domestic tranquillity and national security. 

The first is the federal budget deficit. Thanks to a combination of out-
of-control federal spending and several major tax cuts, federal budget 
deficits have returned with a vengeance. Depending on which accounting 
method you use, the federal deficit last year ranged from $248 billion 
to $450 billion. 

While these annual deficit numbers get a lot of press coverage, it's 
the federal government's mounting liabilities and unfunded commitments 
that pose the real threats. I'm talking about things like unfunded 
Social Security and Medicare benefits. In the last six years, the 
estimated cost of these accumulating burdens has soared from about $20 
trillion to about $50 trillion. 

Fifty trillion dollars translates into an IOU of about $440,000 for 
every American household. Keep in mind that the median household income 
in this country is less than $50,000 a year. For the typical family, 
it's like having a mortgage that's 9 times their annual income. And 
that mortgage doesn't even come with a house! This burden is outpacing 
the net worth of most Americans and the growth rate of our economy. 

The second deficit is our savings deficit. The savings rate among U.S. 
consumers has been falling for some time. In 2005, for the first time 
since 1933, the annual personal savings rate in this country reached 
negative territory. The savings deficit was even greater in 2006. We've 
returned to savings levels not seen since the depths of the Great 
Depression. In fact, America has among the lowest overall savings rates 
of any major industrialized nation. 

Clearly, many Americans, like their federal government, are living 
beyond their means. This trend is particularly alarming in an aging 
society like ours. Obviously, those people who save more will live 
better in retirement. And given the problems plaguing our public and 
private retirement systems, personal investments will be even more 
critical to your retirement planning. 

So if we aren't saving here at home, who's been underwriting our recent 
national spending spree? The answer is foreign investors. And that 
brings me to America's third deficit: our balance-of-payments deficit. 
America is simply spending more than it's producing. In 2006, our trade 
deficit hit a record $763 billion. Not surprisingly, the value of the 
dollar has sunk. As some of you may have learned firsthand, overseas 
trips and some imports are getting pricy. 

While our own savings rates have plummeted, overseas savings rates have 
not. Overseas money has been pouring into the United States. Thanks to 
the high savings rates in China, Japan, Korea, the OPEC nations, and 
elsewhere, it's been relatively cheap for Americans to borrow. But 
there's a catch, and it's a big one. Increasingly, we're eating our 
seed corn and mortgaging our future. Furthermore, some of our leading 
lenders may not share our long-term national interests. Imagine what 
would happen to interest rates if some of these investors suddenly cut 
back on their appetite for U.S. Treasury notes. 

Finally, there's America's leadership deficit, which is probably the 
most serious and sobering of all. At both ends of Pennsylvania Avenue 
and on both sides of the political aisle, we need leaders who will face 
the facts, speak the truth, work together, and make tough choices. We 
also need leadership from our state capitols and city halls, from 
businesses, colleges and universities, charities, think tanks, the 
military, and the media. So far, there have been too few calls for 
fundamental change and shared sacrifice. 

Long-range simulations from my agency, the U.S. Government 
Accountability Office, are chilling. If we continue as we have, 
policymakers will eventually have to raise taxes significantly or slash 
government services the American people depend on and take for granted. 
Just pick a program --student loans, the interstate highway system, 
national parks, federal law enforcement, and even our armed forces. 

A Way Forward: 

By now, you're probably wondering how we can turn things around. By 
nature, I'm an optimist and a person of action. I don't believe in 
simply stating a problem. I also think it's important to state a 
possible way forward. 

In my view, the first order of business should be to state the facts 
and speak the truth to the American people. For starters, Washington 
needs to improve transparency in its financial reporting and budgeting 
practices. As the federal official who signs the audit report on the 
government's financial statements, I'm here to tell you our 
government's financial condition is worse than advertised. 

Current federal financial reporting and budgeting provides policymakers 
and the public with an incomplete and even a misleading picture. A lot 
of press coverage focuses on year-to-year deficit numbers. And as I 
mentioned earlier, no matter which number you pick, our current and 
projected deficit levels are both big and bad. 

But current 10-year budget projections fail to take into account the 
huge costs associated with the impending retirement of the baby 
boomers. Similarly, these projections ignore the huge revenue losses 
that will result if all recent tax cuts become permanent. And this is 
my key point: It's only when we take a long-term view that it becomes 
clear how serious a challenge we really face. 

We aren't going to close our fiscal gap through strong economic growth, 
massive spending cuts, or huge tax increases. The gap is simply too 
great, and the math and the politics don't work. 

We've all heard the rhetoric. We'll be just fine if we can just get rid 
of congressional earmarks, foreign aid, or NASA missions back to the 
moon and on to Mars. Similar arguments are being made for eliminating 
the 2001 and 2003 tax cuts. But candidly, these actions won't get the 
job done. In fact, even shutting down the entire Department of Defense 
wouldn't come close to closing our long-range fiscal gap. 

It's essential that we impose meaningful budget controls on both the 
tax and the spending sides of the ledger. These controls should apply 
to both discretionary and mandatory spending. Additional reforms are 
needed in connection with congressional earmarks, emergency 
appropriations, and supplemental spending. 

Members of Congress need more explicit information on the long-term 
costs of spending and tax bills--before they vote on them. The Medicare 
prescription drug benefit passed in 2003 is one of the most expensive 
government entitlement programs of all time. It's also a glaring 
example of what's wrong with the current legislative system. The 
Medicare prescription drug bill came with an $8 trillion price tag, but 
that fact wasn't disclosed until after the bill was passed and signed 
into law. 

We also need to reconsider the current scope and structure of the 
federal government. Today, most federal spending and tax preferences 
are on autopilot and reflect conditions that existed before most of you 
were born. I'm talking about conditions dating back to when Harry 
Truman, Dwight Eisenhower, and John Kennedy were in the White House. 

Once federal programs or agencies are created, the tendency is to fund 
them in perpetuity, regardless of changing needs and circumstances. 
This is what I mean when I say our government is on autopilot. 
Washington rarely seems to question the wisdom of its existing 
commitments. We simply add new programs and initiatives on top of the 
old ones. As President Ronald Reagan once quipped, a government program 
is "the nearest thing to eternal life we'll ever see on this earth." 
This is a key reason our government has grown so large and is so 

American families regularly clean out their closets and attics. Surplus 
items are either sold at yard sales or given to charity. Unfortunately, 
when it comes to federal programs and policies, our government has 
never undertaken an equivalent spring cleaning. 

We need nothing less than a top-to-bottom review of federal programs 
and policies. Congress and the President need to decide which of these 
activities remain priorities, which should be overhauled, and which 
have simply outlived their usefulness. 

Entitlement reform is especially urgent. Unless we reform Social 
Security, Medicare, and Medicaid, these programs will eventually crowd 
out all other federal spending, including defense. Based on historical 
federal tax levels, by 2040 our government could be doing little more 
than sending out Social Security checks and paying interest on our 
massive national debt. 

GAO has been doing its best to bring attention to the problem. In 2005, 
we published an unprecedented report that asks more than 200 probing 
questions about mandatory and discretionary spending, federal 
regulations, tax policy, and agency operations. The report is called 
"21st Century Challenges: Reexamining the Base of the Federal 
Government," and it's available free on our Web site. Last November, 
GAO sent a letter to congressional leaders suggesting 36 areas for 
closer oversight. And last month, we issued our summary report on key 
questions related to Iraq oversight. We also issued our new list of 
government areas at high risk of waste, fraud, abuse, and 

Fortunately, concern is growing. Members of Congress on both sides of 
the aisle have started asking some pointed questions about where we are 
and where we're headed. Even the Administration now acknowledges that 
deficits matter. In recent statements, the President has pledged not 
just to balance the budget but also to start tackling our large and 
growing unfunded entitlement promises. 

To get things moving, a capable and credible bipartisan commission 
could address Social Security, tax policy, health care, budget reforms, 
and other key areas. Such a commission would be well positioned to send 
the President and Congress a balanced package of reforms that could 
lead to legislation. I'm not talking about reinventing the wheel. 
Instead, the commission could draw on the work of earlier commissions, 
existing groups, and prominent individuals. At a minimum, the 
commission's efforts would spur more informed debate going into the 
2008 election cycle. 

The commission could be created statutorily. Last year, Senator George 
Voinovich and Congressman Frank Wolf introduced legislation. More 
recently, several members, including Senators Pete Dominici and Diane 
Feinstein, and Senators Kent Conrad and Judd Gregg, have announced 
their own commission proposals. 

Alternatively, such a commission could be independent of the political 
process. It could be sponsored by leading foundations and composed of 
preeminent players whose recommendations couldn't be ignored. The 
recent efforts of Jim Baker and Lee Hamilton on the Iraq Study Group 
come to mind in this regard. 

Citizen education and public engagement are also essential. The 
American people need to become more informed and involved when it comes 
to the problems facing our country. They also need to become more vocal 
in demanding change. Younger Americans like you need to speak up 
because you and your children will ultimately pay the price and bear 
the burden if today's leaders fail to act. 

The good news is younger Americans turned out in large numbers for 
November's midterm election. From Iraq to immigration, from ethical 
lapses to fiscal irresponsibility, the public's dissatisfaction with 
the status quo was abundantly clear. But looking toward 2008, it's 
essential that the public and the press hold candidates accountable for 
their position on our large and growing fiscal challenge. 

This is why I've been speaking out publicly about our nation's 
worsening financial condition and long-term fiscal outlook. Beginning 
in the fall of 2005, I started going on the road with representatives 
of the Concord Coalition, the Brookings Institution, and the Heritage 
Foundation as part of a "Fiscal Wake-up Tour." So far, we've held town- 
hall meetings at colleges and universities and other public venues in 
19 cities. The Wake-Up Tour has gotten a considerable amount of press 
coverage, including a 60 Minutes piece that aired on March 4. 

On several occasions, we've by joined by members of Congress, 
governors, and mayors. For example, former Senator John Glenn and 
current OMB Director Rob Portman spoke at the forum at Ohio State. At 
every stop, we've made it a point to lay out the facts in a 
professional, nonpartisan, and nonideological manner. We've also 
stressed the moral and ethical dimensions of the challenge, including 
the unfair intergenerational aspect of our current path. 

During the tour, I've found that the American people are hungry for two 
things: truth and leadership. The folks on Main Street are tired of 
spin. They just want some straight talk about what's going on. They 
also want public officials who will lead change and are willing to 
partner with others to solve problems. 

On this score, it doesn't matter whether you're a Democrat, a 
Republican, or an Independent. The problems I've been describing aren't 
partisan in nature, and the solutions won't be either. We need ideas 
and proposals that will appeal to the "sensible center" rather than the 
"ideological extremes" on the left and the right. 

In my view, successful leadership today requires several attributes, 
including courage, integrity, and creativity. We need leaders with the 
courage to speak the truth and do the right things, even if it isn't 
easy or popular. We need leaders who have the integrity to lead by 
example and practice what they preach. Leaders who do what's right 
rather than what's merely permissible under the law. We also need 
leaders who are creative people, individuals who can see new ways to 
solve old problems and who can help show others the way forward. 

A commitment to stewardship is also essential. Successful leaders also 
need to take a long-term view. We've had a tradition in this country of 
trying to leave things not just better off but better positioned for 
future generations. The people who built this magnificent institution 
understood that. It's called stewardship. More leaders today need to 
realize that we can't just live for the day. We also need to prepare 
for a better tomorrow. 

A Call to Public Service: 

Transforming government isn't something that will happen overnight. 
Elected, appointed, and career officials will need to work together 
closely for a sustained period of time--perhaps a generation or longer. 
Public officials will need to reach across institutional lines and 
partner with other government agencies, businesses, professional 
organizations, and nonprofit groups. And politicians will need to focus 
more on what's right for our country rather than what's right for their 
party. It's going to take patience, persistence, perseverance, and even 
pain before we prevail in transforming government. But prevail we must. 

But successful government transformation isn't possible without a first-
rate federal workforce. I know many of you here this evening are 
students. As you weigh your career options, I hope you'll consider the 
example of Elmer Staats. In my view, every American should devote at 
least two years of his or her life to public service. 

As someone who has divided his career between government and the 
private sector, I can tell you that my experience at federal agencies 
has been challenging, enlightening, and rewarding. Before coming to GAO 
in 1998, I was a senior executive in several private sector firms, 
including Arthur Andersen before its fall. I also served as a trustee 
of Social Security and Medicare, as an Assistant Secretary of Labor, 
and as head of the Pension Benefit Guaranty Corporation. My public 
sector experience has given me a chance to help many people, some of 
whom I've gotten to know, others whom I'll never have a chance to meet. 

Opting for public service is an honorable choice. Public service is a 
chance to make people's lives better and their futures brighter. Public 
service is a calling where individuals and organizations can help build 
a better nation and a better world. 

Public service can take several forms: military or civilian government 
service, faith-based or other charitable organizations, or in community 
and other public interest groups. Lots of jobs in various sectors, from 
nursing to teaching to social work, also provide wonderful 
opportunities to serve others. 

One person clearly can make a difference in today's world. My favorite 
20th century president, Theodore Roosevelt, is proof of that. TR, as 
he's often called, was someone with character, conscience, and 
conviction. In fact, TR is the only American to have won both the 
Congressional Medal of Honor and the Nobel Peace Prize. 

TR firmly believed that it was every American's responsibility to be 
active in our civic life. Democracy is hard work but it's work worth 
doing. And that's really at the heart of my message tonight. How 
America looks in the future is largely up to us. It's you and I who are 
ultimately responsible for what does or does not happen in Washington. 

Please don't misunderstand my message this morning. Like most 
Americans, I'm an optimist by nature, and things are far from hopeless. 
Yes, it's going to take some tough choices on a range of important 
issues. But anything is possible in America, and a few thoughtful 
reforms phased in over time can do a lot to put us on a prudent path. 
It's also essential that all of us understand the need to make some 
modest sacrifices today to help ensure a better tomorrow. 

The real difficulty is convincing elected officials and the public that 
the time to act is now. If we wait until a crisis hits, we'll have few 
options, and they'll be far harsher and more disruptive. 

Other countries have addressed similar challenges, including Australia 
and New Zealand. Like the United States, they have aging populations. 
Unlike the United States, these two countries have stepped up to the 
plate and dealt with some of their serious long-term challenges. Among 
other steps, they've reformed their overburdened public pension and 
health care systems. The efforts by policymakers in Australia and New 
Zealand show it's politically possible to make difficult decisions that 
require short-term pain in the interest of long-term gain. 

In the case of the United States, effective leadership--the kind that 
leads to meaningful and lasting change--has to be bipartisan and broad- 
based. Leadership can't just come from Capitol Hill or the White House. 
Leadership also needs to come from Main Street. It's time for the three 
most powerful words in our Constitution--"We the people"--to come 
alive. As I said earlier, the American people are going to have to 
become better informed and involved as we head toward the 2008 
elections. And the next President, whoever he or she may be, and 
whichever party he or she represents, should be prepared to use the 
bully pulpit of the Oval Office to push needed reforms. If these things 
happen, we have a real chance to turn things around and to help ensure 
that we will be better off and better positioned for the future. 

In closing, I've been studying the life of George Washington, 
particularly his two terms as President. What's often overlooked is 
that Washington was a big believer in fiscal discipline and 
stewardship. In his farewell address in 1796, Washington spoke to the 
issue of public debt. He urged the new nation to avoid "ungenerously 
throwing upon posterity the burden which we ourselves ought to bear." 
It's remarkable how some words are timeless. 

Today, as in Washington's time, it's essential that we face up to our 
responsibilities and make tough choices. The continued well-being of 
America depends on our doing just that. I am confident that we can, we 
must, and we will ultimately rise to meet our many challenges. We just 
need to do so sooner rather than later. I promise to do my part. Today, 
all that I ask is that each of you does yours. 

Finally, let me remind you that in this great land of opportunity 
anything is possible. In America, persons with a good education, a 
positive attitude, a strong work ethic, and solid moral and ethical 
values have unlimited potential. Your education at McPherson College 
will give you a strong start. The rest is up to you!  

As TR said, "fighting for the right (cause) is the noblest sport the 
world affords." So pick your cause, and do your best to make a real and 
lasting difference. 

I appreciate your attention this evening, and I'd be happy to take any 
questions you might have. 

On the Web: 

Web site: [Hyperlink,]: 


Paul Anderson, Managing Director, Public Affairs,, 
(202) 512-4800, U.S. Government Accountability Office, 441 G Street NW, 
Room 7149, Washington, D.C. 20548: 


This is a work of the U.S. government and is not subject to copyright 
protection in the United States. The published product may be 
reproduced and distributed in its entirety without further permission 
from GAO. However, because this work may contain copyrighted images or 
other material, permission from the copyright holder may be necessary 
if you wish to reproduce this material separately.