Who’s More Myopic?
Here’s a partial view of the range of issues that needs to be scaled in order to constrain the future size of the federal government. In what follows, A = widely appreciated by the public, N = not widely appreciated, and A-N = appreciated by a few.
- Waiting to reform will mean that the median voter will be older — and tend to vote for tax hikes rather than benefit cuts as a solution to entitlement shortfalls (A).
- Waiting to reform entitlements makes the cost of fixing them increase as a percentage of GDP — and last year, we decided to postpone Social Security reform until who knows when. Just for Social Security, each year brings an additional $600 billion in cost (official Social Security Administration estimate). Note, the economy adds only about $450 billion in additional output each year (N).
- When analyzing the merits and demerits of reforms, we do not consider their full cost because we make policies based on short-horizon fiscal measurements — the 10-year cost of prescription drugs, for example (A-N).
- Recently emerged needs for countering terrorism and international nuclear blackmail means the peace dividend has evaporated and cutting other government spending is less viable as a means of releasing resources for entitlement outlay needs (A-N).
- Private saving has declined and remains low (zero percent on personal saving) precisely because of the types of entitlements we have adopted (my finding from past research on why national saving declined in the U.S.). We’re lucky to be able for borrow capital from abroad today, but all such borrowing will have to be repaid with interest — perhaps just when we need to distribute more for retiree support (A-N).
- We just enacted a massive new and irreversible entitlement — Medicare prescription drugs — the constituency for which will grow more solid by the year (A).
Most of these issues ARE known to policymakers and federal budget practitioners within the beltway. In fact, they have been known since the early 1990s. Despite recognizing these problems, Congress has repeatedly settled into postponing action on entitlement reforms.
What does that tell you?
Those who believe that the government should come to the aid of “myopic” individuals who don’t save enough for the future, think again.
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