Pick up any newspaper and you’re bound to see a prominently featured story about someone somewhere losing a government benefit and enduring hardship as a result.
The New York Times is publishing a series of such stories under the rubric, “The New Poor.” Last week’s installment focused on a 22-year-old unemployed single mom from Arizona who qualified for state-run subsidized child care but was placed on a waiting list because budgetary constraints forced cutbacks in the program.
We feel for this mom whose work options are limited by the need to care for her 3-year-old daughter. We all know someone who has been left jobless, financially strapped and emotionally bereft by the recession. Yet, at the risk of sounding hard- hearted, the U.S. can’t afford to provide everyone with food, clothing and shelter, not to mention medical and child care, college tuition, a low-interest mortgage and a Social Security check until death.
As much as this single mom’s plight tugs at our heart strings, using deficit financing to provide her with government subsidized child care is dangerous to her child’s health. That child will have to shoulder the bill. That’s the pain we don’t feel or hear about; the pain that doesn’t make its way into news stories, at least not in human terms; the pain that’s no less real, just less pressing.
“The United States faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services,” Douglas Elmendorf, director of the non-partisan Congressional Budget Office, writes in a May 17 blog post.
Addressing the current tax and spending gap to make fiscal policy sustainable is “an urgent task for policy makers,” Elmendorf says.
Devout Keynesians will have none of it. They’re concerned the government is doing too little. The U.S. isn’t borrowing and spending enough, they say, as if today’s spending is a free lunch or a free ticket to prosperity.
Even when the spending stops, the interest on the debt keeps on giving. The CBO projects that under current law, net interest on the debt will reach $723 billion in 2020, up from $207 billion this year. Ten years from now, five categories -- Social Security, Medicare, Medicaid, defense and net interest -- will account for three-quarters of government spending. Four of them are on automatic pilot.
If, on the other hand, the Bush tax cuts are extended and the alternative minimum tax is indexed for inflation, interest payments on the debt would total $937 billion in 2020, according to CBO estimates. The federal debt would be 90 percent of gross domestic product, what economists Carmen Reinhart and Ken Rogoff, authors of “This Time Is Different,” found was a “threshold” for developed and emerging nations, the point at which economic growth slows appreciably.
When one considers almost half the public debt is owned by foreigners, it translates into a lot of dollars going overseas.
“Moving fiscal policy from that unsustainable path to a safe path would require significant changes in spending, revenues, or both,” Elmendorf writes.
Nothing there about growing our way out of our deficits. It’s too late for that, now that the baby boomers are knocking on the government’s door. Social Security benefits will exceed Social Security taxes in 2016, according to the Social Security Trustees 2009 annual report.
It goes downhill from there. The ratio of workers to beneficiaries has been stable at 3.2 to 3.4 since 1974. By 2030, when most of the baby-boom generation will have retired, the ratio is projected to drop to 2.2 and decline slowly after that, according to the report. At the same time, life expectancy is increasing.
And that’s not all. Increased expenditures to care for the sick and elderly mean less money invested in the future: in the plants and equipment that increase the economy’s productive potential; in new technologies that raise productivity; in the education of the next generation to compete in a global economy.
As resources are devoted toward sustaining the baby boomers in their retirement years, the U.S. can look forward to slower economic growth and higher unemployment.
It doesn’t sound like a great trade-off, at least not for the younger generation. We’ve kicked the can down the road for so long we’ve run out of road. And this time we can’t borrow to build a new one.
(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)
To contact the writer of this column: Caroline Baum in New York at email@example.com.