Over
at David Stockman’s Contra Corner, the former Reagan budget
director recalls the time when the national debt was $1 a
paltry $1 trillion. The year was 1981.
He writes:
In the great fiscal scheme of things, October 22, 1981
seems like only yesterday. That’s the day the US public debt
crossed the $1 trillion mark for the first time. It had taken the
nation 74,984 days to get there
(205 years). What prompts this reflection is that just a few
days ago the national debt breached the $18 trillion
mark; and the last trillion was added in
hardly 365 days….So in the fall of 1981 it was not merely the
symbolic ignominy of crossing the trillion dollar national
debt threshold for the first time that weighed on the White House.
It was actually driven by fear that acquiescence in giant,
permanent deficits would lead to economic ruin.And by the standards of the past, where even
Lyndon Johnson’s infamous “guns and butter” deficit of
1968 had only amounted to 2.5% of GDP, the outlook was
indeed dire. As I put it at the time, the nation faced 6%
of GDP deficits “as far as the eye can see”.”
Times have changed. In 2014, the debt reached $17.9 trillion, or
over 100 percent of Gross Domestic Product, and will continue to
grow. The good news is that we know what to do to shrink the debt
to GDP ratio. Economists have shown that the best way to put our fiscal house in
order is to adopt fiscal adjustment packages mainly consisting of
spending cuts. We also know that the spending cuts that work the
best are the ones that target entitlement programs (e.g., Social
Security, Medicare, and Medicaid). However, you don’t need
economists to tell you that. A simple look at federal spending
patterns reveals that entitlements are the drivers of the
government’s current and future debt.
The following chart shows per capita
discretionary, mandatory, and net interest spending as a share of
total per capita federal spending since 1962 (this is in real 2014
dollars). Rising government spending has largely been fueled by
increases in mandatory spending, which includes the major
entitlement programs.
As the chart shows, inflation-adjusted mandatory spending per
capita skyrocketed from $1,124 in fiscal year 1962 to $6,634 today.
Although the initial rise was sparked by the creation of Medicare
and Medicaid under the administration of Lyndon Johnson, successive
Democratic and Republican administrations pursued policies that
fueled the growth in mandatory spending. And while mandatory
spending per capita has dropped from its peak of $7,391 in fiscal
year 2009 the decrease is only temporary. The aging of the baby
boomer generation will worsen the ratio of
people collecting benefits to people working
to pay for those benefits.
The good news, as I said, is that
we know what should be done. The bad news is that neither party has
the gumption to do it. Republicans, who have contributed handsomely
to the explosion of entitlement spending, have become the party of
Medicare. Even reform plans such as the one put forward by
Rep. Paul Ryan (R-Wis.) wouldn’t go into effect for a
decade after passage. And since there is no way to prevent future
Congresses from reneging on previously enacted reforms, one should
place little faith in a plan that relies on policymakers holding
the line in the long run.
But the need to tackle the federal government’s
unsustainable system of entitlement programs isn’t just about
dollars and cents. Indeed, the runaway federal entitlement state we
have now is the inevitable outcome of the government assuming
responsibility for the provision of healthcare and disability and
retirement income security. Thus, our goal should be to extricate
the federal government from involvement in such concerns rather
“reforming” programs that should not exist in the first place.
Unfortunately, that’s a discussion and debate that nobody on
Capitol Hill has the guts to initiate.
The GOP’s approach to Obamacare is a perfect example. When
pressed on the specifics of abolishing Obamacare, Republicans often
proceed to list all of the stuff in the law they are committed to
keeping. Democrats are as unreliable when it comes to reforming
entitlement spending but at least they are honest about the fact
that they’re committed to maintaining (or even expanding) the
untenable status quo.
Does it matter that neither party is willing to do
anything about mandatory spending that will eventually swallow the
government and, possibly, the whole economy? Of course it does. But
here is where I’ve got some hope in millennials and younger
Americans in general. The generations raised on
Amazon Prime, Uber, Reddit, The Hunger Games, and
Divergent ultimately won’t stand in line for sub-par
government healthcare. Will they really accept the massive transfer
of wealth from them to relatively well-off seniors? I doubt it.
Call me a dreamer but I expect the generations that are the biggest
beneficiaries of permissionless innovation to start
putting pressure on politicians to come up with ways to get them
out of this nightmare fiscal scenario and demand serious reforms of
these entitlement programs. We will see.
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