I thought I’d follow up on my post about spending $2.8 trillion. There were two comments to that post. The first is Joe’s,
So you would rather lose the war in Iraq than suffer the hardship of a budget deficit that’s 2% of GDP?
The second was by yetanotherjohn,
Well given the many thought provoking and workable solutions the democratic minority put forward to solve problems like social security, its obvious that all these problems will be solved within a month of a democratic congress being elected.
I think FDR did a lot of things wrong that are still harming this country (the threat to pack the supreme court which led to the changed view of the constitution that let congress involve itself in anything no matter how tenuous the connection to trade between the states is right at the top). But I don’t blame FDR for running a huge deficit before December 7th to build up the US defense or after December 7th to win the war.
The problem I see here is that one party shows it is willing to win the war and neither party shows it is willing to control spending. As a realist, I won’t abandon the republicans because they aren’t acting purely and perfectly as conservatives. I will be looking for a president in 2008 who would count noses on the conservative coalition in congress and recognize that a presidential veto can be upheld to control spending.
Both of these comments seem to be motivated by the part of my post that favors having one part of the government controlled by one party, and another controlled by the other party–i.e. Gridlock. If the Republicans lose control of the Senate and/or the House of Representatives then perhaps spending would be brought back into line with historical norms. Maybe.
Now Joe’s reply looks pretty good. It is also short sighted and ill-informed. Sure right now the deficit is projected to be between say 2-3% of GDP. Not bad at all compared to previous deficits, and especially deficits during war time. So where does it go wrong?
The deficit, if nothing is done, will not remain at 2-3% of GDP. If one were to look at the budget for 2007 the estimated deficits as a share of GDP are going to decline down to 1.2% of GDP by 2011. But even this doesn’t give us all the informtion to realize why this problem of spending and the reluctance to control it is a serious problem.
Social Security and more importantly Medicare are going to start to expand…and expand by enormous amounts as the Baby Boomers start to retire. Here is an article by Craig Hakkio and Elisha Wiseman on the fiscal problems these two programs pose for the U.S. Buried way down on page 28 of the article we find that the Social Security Trustees have estimated this shortfall to be $35.6 trillion for the next 75 years and $79 trillion if we use an infinite horizon. This means that to address this problem taxes would have to increase right now by 5.7% of GDP (or 8.3% of GDP for the $79 trillion). Waiting would simply mean larger tax increases in the future. Historically, government receipts in the U.S. have been about 18% of GDP. Thus, this problem could increase that percentage by one third to one half.
Now yetanotherjohn’s respons also looks reasonable, but I argue it too is ill-informed. This current president is responsible for at least a signicant portion of the the short fall discussed above. You see, Haikko and Wiseman breakdown the $35.6 trillion into Social Security, Medicare HI (Hospital Insurance) and Medicare SMI (Supplemental Medical Insurance). The breakdown is thus,
- Social Security $5.7 trillion,
- Medicare HI $8.8 trillion,
- Medicare SMI $21.1 trillion.
President Bush’s Prescription Drug program falls under Medicare SMI and is one of the reasons why it is so large.
Conservatives (the Republican party) have already had a chance to control spending, even in a minor way as I noted in my initial post and have failed miserably. Not only have they failed to control non-defense spending by holding the growth rate in spending constant, but have helpd the President expand government transfer programs to such and extent that we are facing even larger tax increases in the future. Given the cowardice of may politicians in regards to raising taxes, we can rest assured that not much will be done about this problem in the next decade or so and the tax increases I mentioned above will do nothing but get larger and larger (e.g. waiting until 2021 would mean a tax increase that is 7.5% of GDP).
As I noted to Joe in comments to the previous post. We don’t have to worry about losing the war on terror to the terrorists and hence our way of life. We seem to be doing more than an adequate job at enacting policies that are putting our way of life in serious jeopardy.
