December 16, 2013
You know about that recession that began six years ago following the collapse of the housing bubble? Apparently Robert Samuelson doesn’t. In a column complaining about the new budget deal, Samuelson told readers:
“Recall: The central issue is the mismatch between government’s spending promises and its willingness to tax.”
Those who noticed the recession might think the central issue is that the economy is still operating at a level of output that is close to 6 percent below its capacity according to the Congressional Budget Office. This corresponds to $1 trillion in wasted output each year, with total amount of needless waste now exceeding $5 trillion. It also corresponds to a level of employment that is roughly 8.5 million below trend. This implies lives being ruined as parent can’t properly support their kids and face foreclosure and/or eviction.
If Congress would spend more money (i.e. increase the mismatch between spending and willingness to tax) it could bring the economy back towards potential GDP. In other words, the problem is the opposite of what Samuelson asserts.
While Samuelson goes on to complain about the long-term story with the baby boomers’ retirement raising the cost of Social Security and Medicare, here also he has missed the news. Over the last five years the rate of health care cost growth has slowed sharply. The Congressional Budget Office has already lowered its projections for the cost of Medicare for 2020 by 15 percent. If the slowdown in cost growth continues then the projections will be further adjusted downward.
In other words, much of the projected long-term shortfall has already been addressed. Samuelson just missed it. In the long-term we may need some additional revenue to support an aging population, but it is difficult to believe that the public would not be willing to support higher taxes if they are needed to finance these two incredibly popular programs. However, this is a question that is still many years in the future and there is no reason that Congress needs to worry about it at a time when the country is facing a much more pressing crisis.
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