Fixing a Fiscal Fiasco

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Leading up to tonight's panel discussion on the sustainability of our fiscal future, my co-panelists Ethan Pollack and Nicola Moore talked about what is a viable path.
 
We all agree the United States is not on a sustainable fiscal path. If we continue down our current policy trajectory, debt will reach 100 percent of GDP in the early 2020s, 200 percent in the 2030s, and 800 percent by 2075.
 
To give you a frame of reference, the debt has averaged at less than 40 percent of the GDP in recent decades. And the only time it ever eclipsed 100 percent was just after World War II--when deficits were credibly temporary and owed mostly to American citizens, demographics and economics were favorable, and there was a clear plan to pay it back.
 
So what do we do to avert a debt crisis?
 
Well for one, we go after the drivers. Projected Medicare, Social Security and Medicaid growth (in that order) are responsible for most of the future deficit picture. And their growth is being driven by a combination of an aging population and rapid increases in economy-wide health care costs.
 
Aging is the predominant factor of concern for the next three to four decades, but rising health care costs become the primary driver for the very long run. And the implications are huge when you consider the interaction of the two.
 
To address the economic and fiscal consequences of aging, we should be encouraging later retirement, inducing greater savings rates, and working to increase productivity growth. To some extent, we may also want to encourage more immigration and/or higher fertility rates – although these policies are more controversial and should be debated carefully.
 
To address health care growth, we need to reform both the supply and demand side of medicine. We should be encouraging the provision of more efficient and cheaper care--and less of it.
 
But these measures will not be enough!
 
No reasonable amount of economic growth or demographic or habitual change (or "privatization") can put Social Security on a sustainable path. And absent severe rationing, we have almost no hope of curbing health care costs enough to stop Medicare and Medicaid from ballooning.
 
That means hard choices. We probably can't get around cutting actual Medicare benefits, or Social Security benefits for that matter.
 
And we can't avoid raising taxes.
 
We'll also need to go after other mandatory and discretionary spending programs--even those that aren't growing at all.
 
The fact is, things are really bad. And to put them back on track, there will be real pain all around.
 
That's the reality.
 
(Image by S Sepp)
 
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