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Another Look at the Budget, Part I
We are supposed to be receiving a new update from the Congressional Budget Office soon but I thought I’d just quote a few passages from a piece economist Robert Samuelson wrote in the Washington Post about three weeks ago that I’ve been meaning to share.
“I have been writing for some time – not years, but decades – that we are slowly turning the federal government into an old-age and health-care agency. The relentless rise in the costs of Social Security, Medicare and other health programs is slowly draining funds from other areas, from defense to education. Still, it’s hard for many people to grasp what’s occurring, because the year-to-year changes seem small and inconsequential.”
[In looking at a recent CBO table and projections out to 2037 for GDP, revenue and spending, understanding policies will change...]
“What is obvious is that government spending is dominated by Social Security, Medicare and other health programs. Indeed, their share of spending has grown over time. In 2000, these programs represented roughly 7 percent of GDP (4 percent for Social Security, 3.1 percent for health care). That was nearly half of all government spending, excluding interest on the federal debt. By 2017, their share was more than half of non-interest spending at more than 10 percent of GDP (4.9 percent Social Security, 5.5 percent health care).
“Looking ahead and considering the flood tide of baby-boom retirees and the high cost of health care, the CBO sees more of the same. By 2037, Social Security and federal health programs would absorb nearly 14 percent of GDP, or about one-seventh of national income.
“So the message is clear: You can’t tame the budget unless you’re willing to make changes in Social Security, Medicare and some other health programs. For years, I have urged that we gradually raise eligibility ages and trim some benefits of wealthier retirees. These steps would recognize longer life expectancies and the greater financial well-being of many older Americans. Introduced slowly, they would not have been disruptive.
“Little or nothing has been done. You might say that by inaction, Congresses and presidents – of both parties – have created a national priority: Almost all other programs should be subordinated to the needs of Social Security and health spending....
“(The figures show) the category labeled ‘discretionary spending,’ which includes defense and many other routine government functions (research, national parks, the FBI, the Coast Guard and much more), actually shows a decline in spending as a share of GDP. From 2017, so do ‘other entitlements,’ a category covering food stamps, unemployment insurance and other ‘safety net’ protections. The budget outlook is worse than these figures suggest, because they ignore that we’re already running annual deficits of about $500 billion, roughly 3 percent of GDP.
“The larger measure from this budget primer is that, under the influences of an aging society and high health-care costs, the government is quietly being redefined. All the other agencies and departments face continuous pressures to shrink or cut corners.”
I’ve been writing of this for ages in my “Week in Review” columns, but Mr. Samuelson always has a way of breaking things down for us laymen.
My point has been, though, that the real battles between the American people and Congress, pitting one interest group against another, are yet to come because the average person just can’t fathom their favorite program not only not being added to, but flat out cut in real terms.
It’s why I harp on the actual interest expense. Next time, specific figures as released by the CBO.
Wall Street History will return in two weeks.