Robert Samuelson used his column today to write speeches for President Obama and Governor Romney which are supposed to be giving us what both of them should be telling the public. (Aren't columnists cute when they do this?) In the case of President Obama the focus is on the need to increase taxes on middle income people and cut benefits:
"'Fellow Americans. For years, your leaders — including me — have misled you. Your government has made more promises than it can keep, even if the economy returns to full employment. Your taxes are going up, and your public services are going down. ...
"As you know, the great driver here is the retirement of baby boomers. Between 2011 and 2025, the number of retirees on Social Security will grow by nearly 50 percent to 66 million people; Medicare experiences a similar rise. The resulting spending surge perpetuates huge budget deficits. The Congressional Budget Office estimates that present policies would result in cumulative deficits of $10 trillion from 2013 to 2022. In 2022, the annual deficit is $1.4 trillion, or 5.5 percent of the economy, our gross domestic product. I have no credible plan to control Medicare and Social Security spending."
Actually, if the unemployment rate fell back to 4.5 percent in 2022 (the pre-recession level), rather than the 5.3 percent level assumed by the Congressional Budget Office, the budget deficit would be close to a level that was consistent with a stable debt to GDP ratio, meaning that it could be sustained indefinitely. Presumably the public would not be too bothered by measures that would get the economy back to full employment (e.g. a more expansionary monetary policy from the Federal Reserve Board).
Of course, the major source for the projected rise in spending is the explosion of health care costs in the private sector. The focus of the truth telling speech promised by Samuelson should therefore be the need to fix the health care system, not more pain from the middle class. If the United States paid the same amount per person for health care as any other wealthy country we would be looking at large budget surpluses, not deficits.
While Samuelson wants to scare people with the projected rise in the number of retirees, it is worth pointing out that productivity is projected to rise by almost 40 percent between 2011 and 2025. This means that if workers actually received their share of productivity growth, then they would be enjoying substantially higher living standards in 2025, even if it were necessary to pay somewhat higher taxes to sustain Social Security and Medicare. For most workers the upward redistribution of income presents a far larger threat to their living standards than any demographic issues.