The Fiscal Singularity is Near
The Congressional Budget Office just released its latest so-called Long Term Budget Outlook. From the summary:
this report focuses largely on the next 25 years. However, because considerable interest exists in the longer-term outlook, figures showing projections through 2080 and associated data are available in Appendix A of the report
The whole report is important, but I think the sentence quoted above is what is most significant. In the past, the report has focused on the outlook to 2080, where the main issue becomes “bending the cost curve” for health care spending. Now, the CBO seems to have drawn the same conclusion that I would, which is that we do not have the luxury of worrying about the outlook from 2035 to 2080. Instead, we are on a path to have a crisis by 2035.
In addition, I read the CBO as highly skeptical that Congress means it when it comes to holding down Medicare spending. The CBO’s “alternative scenario” reflects that skepticism.
Anyway, I am sure that there is much more to the report. I recommend reading as much of it as you can find the time for. I will probably delve into it more myself over the holiday weekend. Have a nice 4th, as it were.
Jul 1 2010 at 5:50am
i believe congress just voted for the ‘doc fix’. that would be an expense that was deliberately left out of obamacare in order to lower the apparent cost. it is clear that the govt is NOT serious about holding down medicare spending.
you may wish to read alesina’s apr-10 paper on fiscal adjustment for some comments about the association between fiscal crises and fiscal reform.
Jul 1 2010 at 7:47am
The most important part of the report I have yet read for predicting what will be done is on page 20. Quoting:
“Another conclusion of CBO’s analysis was that generations born after about 2015 would be worse off if action to stabilize the debt-to-GDP ratio was delayed from 2015 to 2025. People born before 1990, however, would be better off if action was delayed, largely because they would partly or wholly avoid the policy changes needed to stabilize the debt (leaving aside the negative effects of a possible fiscal crisis or of reduced flexibility for the government to respond to economic challenges, as described below).”
Summary: Except for 18-20 year olds, voters are personally better off by putting off doing anything until 2025, as opposed to doing something by 2015 (or, presumably, even earlier). Considering where we sit today as a result of past voting, I’d suggest there is considerable voter will to continue putting off doing anything painful today.
This is further complicated by the polariziation of solutions into the 2 camps of “solution-by-revenue-increases” and “solution-by-spending-cuts”, aka “bigger goverement” or “smaller government”, which further conflates fiscal solutions with questions of liberty and the extent of goverment power.
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