April 21, 2016
It’s too bad the NYT doesn’t have a policy of fact-checking their columnists. (I realize, it might make it harder to get columnists, but it would make their columns more informative.) Ross Douthat’s confused piece on “The Democrats After Sanders” definitely would have benefited from more attachment to reality.
In the second paragraph Douthat tells us about the constraints on the budget since we are likely to face “the prospect of structural deficits for as long as baby boomers are taking Medicare.” Actually, the baby boomers use of Medicare has relatively little to do with budget deficits. Medicare is projected to rise as a share of GDP from roughly 3.6 percent today to 5.5 percent in two decades (Figure II.D1). The costs are then projected to rise gradually to 6.0 percent of GDP by 2080.
In other words, there is no reduction in costs after the baby boomers are all dead. The rise in costs is not due to baby boomers, but rather the fact that people are projected to live longer (the cruel things we do to our kids). Also, the excessive cost of health care in the United States is a big factor raising the cost of the program.
But this confusion is symptomatic of Douthat’s analysis. He argues that young people would be unlikely to want to pay the taxes to support a large welfare state once they are older and have higher incomes. Of course a big part of the issue is what happens to workers before tax income. If progressive Democrats are pursuing policies that lead to broadly shared wage growth, in other words workers get their share of productivity growth in wage growth, then workers can pay higher taxes and still enjoy much higher after-tax income.
For example, the Social Security Trustees Report projects that on average real wages will grow by 50 percent over the next three decades. If most workers share in these increases, then they may not be bothered much by a 1–2 percentage point increase in the Social Security tax. They would still have more than 45 percent in after-tax income than they do today.
While Mr. Douthat might want people to be concerned only about their taxes, economic theory would say that people care about their after-tax income. For after-tax income the extent to which workers can benefit from sharing productivity growth will matter far more than modest increases in tax rates.
It is also worth pointing out Douthat’s confusion about the impact of deficits. As long as the economy is well below its full employment level of output, deficits will not matter except to the politicians and columnists who like to yell about them. If the economy actually is up against its resource constraints and is reaching full employment, then deficits do matter. This is actually a much simpler story than Douthat seems to recognize.
Of course, if the economy is near full employment, we will have more tax revenue and be paying out less money for unemployment benefits and other transfer programs. This will go far towards eliminating any deficits, as was the case in the high employment years of the late 1990s.
Comments