My recent post on the government’s fiscal outlook generated several thoughtful comments.
Two readers mentioned Paul Krugman’s op-ed on Social Security in The New York Times. It is true, as Krugman points out, that Social Security is only a modest part of the fiscal problem. Using statistics from the Congressional Budget Office (CBO), federal spending on health programs and Social Security is expected to grow from 10% of GDP to 16% over the next quarter century. About 1% of that growth is due to Social Security, according to CBO; the other 5% is due to health programs.
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The long-term budget outlook for the federal government is bleak. What is surprising is that this is considered news.
The forces driving the U.S.’s long-term budget problem have been known for decades. We’ve also known for years that sometime in this decade, the outlook would begin to worsen considerably. And now it has. And no, the deteriorating fiscal situation has little to do with stimulus spending, bank or auto bailouts, or the wars in Iraq and Afghanistan.
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How can a financial crisis in a small European country have such a large effect on world markets? This is the question I recently received from an investor and a friend.
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Several years ago at a speech in New York, I warned that “a future President Clinton or McCain would face a daunting budget challenge from population aging.” My political forecast was off, but my economic and demographic forecast is unchanged.
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In recent weeks, stocks have sold off from their recent highs. It appears that the enthusiasm that drove equity markets higher since last March may have run its course.
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