George Bush's big-government conservatism: Can't last. Between 1998 and 2001, America's federal government ran a surplus on its accounts. The prospect now is of years, even decades, of deficits. Is that scary?
Spending on pensions pales in comparison with health care. The range of estimates is necessarily vague, since they involve assumptions about the future rate at which health-care costs will grow faster than per-head GDP each year: since 1970, the "excess-cost growth" for retired people on Medicare has been around 3%. The CBO calculates that, if future excess-cost growth of both Medicare and Medicaid was only 2.5%, then federal spending on these programmes would jump from 3.9% of GDP in 2003 to 21% in 2050.
It is clear that holding back the growth in non-entitlement (or "discretionary") programmes, such as defence and transport, will not be enough to ensure a sustainable budget in the long run. Unless entitlement programmes are cut too, or taxes raised to unprecedented levels, or both, the country is on a financially unsustainable path over the next half-century. "An ever-growing burden of federal debt held by the public", the CBO concludes, "would have a corrosive and potentially contractionary effect on the economy."
Check out what they're saying:
- no increases in spending for transport and defence
- cuts in Medicare, Medicaid and Social Security
- higher taxes
All for the forseable future, maybe for decades to come.
This is one reason why I don't think a "Pax Americana" can work, there's just no money for it. The economy needs to grow, and grow a lot, just to keep things stable, and taxes have to rise.
What do you think? Is this overly pessimistic, and is there a way out? Or is this a cold dose of reality?