Arnold Kling

The Medicare Crisis

Arnold Kling, Great Questions of Economics
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Brad DeLong points to forecasts of a government budget crisis, driven by Medicare.

Dan Crippen, head of the Congressional Budget Office, says the real issue is: How much of our children's economy are we going to take to support ourselves in retirement? Look at the world his way, and there are just two moving pieces: How much are we promising future retirees? And how big will tomorrow's economy be?

Those really are the only two moving pieces. And the easiest policy instrument for the government to tune is the retirement age.

Discussion Question. It appears from the graph that Medicare/Medicaid spending is projected to rise from about 3 percent of GDP today to close to 10 percent of GDP in 2030. What is the basis for this type of forecast, and what factors could cause errors in either direction?

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