According to the New York Times, Peter G. Peterson plans to spend $1 billion to alert the American people to the debt crisis this country is facing:
Unfortunately, since Mr. Peterson has endorsed John McCain, there can be little doubt that his solution is the wrong solution.
The solution to America's debt crisis that is favored by John McCain and Peter Peterson (and hopefully not Barack Obama) is to reduce government spending so that the government will borrow less. Reducing government spending while the country is trying to borrow less would be an insanely stupid thing to do. What is actually required in order avoid economic disaster (another Great Depression) is for the federal government to start SPENDING MORE, not less.
Yes, it's true that high debt levels 'weaken' the economy in that they make the economy more vulnerable to institutional collapse when significant downturns [finally] arrive. All else equal, if governments, households, and firms were to all start borrowing less and while savings levels remained the same, then the net result would be a severe economic contraction, perhaps even a depression. The only time savings will not cause the economy great harm is when those savings are lent out to borrowers. If borrowing levels drop while savings levels remain constant, then a constant accumulation of unborrowed savings will occur, starving the economy of the spending it needs in order to employ everyone.
The practice of saving money is not a 'pure good' that an economy can never experience too much of. Whenever there is any level of unemployment, we can know with certainty that there is too much saving taking place. When there is unemployment, the very last thing we should want to see is more money removed from the economy by savers. So if our big goal is to convince Congress and households and firms to start borrowing less, what are we going to do to return some of the money back to the economy that is being removed by savers? The answer is TAX THE HELL OUT OF THE NATION'S BIGGEST SAVERS.
Doing so would take money that was removed from the economy by the economy's biggest savers and put it back in---sustaining aggregate demand---through big increases in public INVESTMENTS in infrastructure, human capital, universal health care, etc. Not only would we be able to sustain aggregate demand at a time when debt levels are being reduced, we would also be doing so in a way that increases levels of REAL ECONOMIC INVESTMENT in our economy. There really isn't a downside here. Practically speaking, raising tax rates on America's richest citizens is the only thing the government can do to maintain full employment while everyone is borrowing less.
Contrary to what many in the financial services industry are trying to say, the solution to our indebtedness problem is NOT for us to start saving more money, but is actually for us to start saving less in order that we be able to borrow less without ruining the economy. Want to reduce levels of indebtedness in our economy? Then you better want to also see a reduction in levels of saving, or else you are saying that you would like to see the economy collapse into a Second Great Depression. The right solution? TAX AND SPEND and INVEST in infrastructure, human capital, and socialized medicine.