Follow this authorMegan McArdle's opinions
FollowThe Social Security Trust Fund will be exhausted in 2034 and, in theory, the statute requires that benefits be cut by about 25 percent to balance the books. In practice, Congress will be under fierce pressure to prevent such cuts. But because CBO projections are based on “current law,” 116 percent is far too optimistic. We should add at least 1 percent of GDP to the number in 2034, and another 1 percent every year thereafter.
This is not all. Medicare’s trust fund will be exhausted three years sooner, in 2031, and although the CBO likewise assumes that hospital payments will be cut, we shouldn’t bet on that happening. Better make it an extra 1.5 percent of GDP that we’ll need to find, somewhere.
And, of course, there’s an even more heroic assumption underlying all these numbers: that we won’t experience another crisis that we’ll want to spend a bunch of borrowed money on. As the 2008-2009 financial crisis and the pandemic revealed, this is hardly a safe bet.
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These numbers are not yet unmanageable; America has faced worse. In 1945, the deficit was 21 percent of GDP, and the national debt held by the public topped 100 percent. By 1957, the budget was in surplus, and the debt-to-GDP ratio had been cut in half. And we don’t need to get all the way to surplus; if we could get our budget deficit down to, say, 1 percent of GDP, inflation and economic growth would gradually erode the debt to something manageable.
But this will be harder for us than it was for our forebears in the mid-20th century. They were a young and growing country, while we are an aging one, with a lot of expensive obligations to our seniors. They enjoyed expanding opportunities for trade and investment in a world that was recovering from war; we face increasing protectionist pressures — both at home and abroad.
Most important, they were serious and we are not.
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In the years following the financial crisis, economists and pundits debated whether the government was spending too much borrowed money, or too little. The proponents of more stimulus argued that the austerity caucus had mired the economy well below its capacity, inflicting needless suffering on the under- and unemployed. We should run deficits, they argued, while money is cheap, and then pay them down when the economy improves.
They had a point; unemployment is one of the worst things that can happen to people in modern society, and the damage often endures long after they’ve found new jobs. Preventing unemployment, or at least shortening it, makes people way better off and, theoretically, it can permanently increase the economy’s productive capacity.
The austerity-mongers’ best counterargument was that we weren’t spending the money in theory, or in 1945, when........