A recent Congressional Budget Office report – “The 2015 Long-Term Budget Outlook” – reminds us that the federal government is slowly becoming an agency for taking care of the elderly. Almost everything else is being crowded out. We ignored that during the Obama presidency, and now it seems that the fledgling presidential campaign may do likewise. Hillary Clinton and other Democrats plug fairer economic growth. Jeb Bush and other Republicans are more forthcoming (they talk about raising Social Security’s eligibility age) but concentrate their rhetoric on creating faster economic growth.
Government’s central reality has gone missing. There’s a bipartisan triumph of political expedience over professed beliefs. Liberals shrink many domestic programs, because they won’t acknowledge that unchecked spending on the elderly is partially financed by curbing other activities – from food stamps to highway repairs. Conservatives weaken defense, because they won’t concede that, even with cuts to domestic spending (including the elderly), an adequate military cannot be financed without additional taxes.
The irony is that – on paper at least – presidents and other political leaders can regulate the size and role of government through laws and budgets, but their control over the economy is (at most) indirect and incomplete. So what do they do? They make promises on the economy that they cannot easily keep, while dodging unpopular budget decisions that might actually improve government’s performance. Both parties tell supporters what they want to hear.
What encourages the deception is the glacial speed of change. Over long stretches, government is being remade, but in any one year, the shift is tiny and virtually invisible. Look at what has happened since 1990 – and what lies ahead.
In 1990, federal spending equaled about 21 percent of the economy, gross domestic product (GDP). Social Security and major health programs (mainly Medicare and Medicaid) represented a little less than one-third of all spending. The rest was defense, domestic “discretionary” programs (homeland security, environment regulation, law enforcement and the like) and nonelderly “entitlements” (unemployment insurance, welfare).
In 2015, the federal government is still spending 21 percent of GDP, but now Social Security and major health programs consume about half the budget, according to the CBO report. Most health spending goes to the elderly.
As the CBO makes clear, an aging population and high health costs will perpetuate this trend for years. Under current law, Social Security and health programs will account for two-thirds of today’s budget levels (measured by GDP) by 2040, estimates the CBO. What’s left for the rest? Not much. The remaining amounts are “the lowest … relative to the size of the economy since the 1930s,” says the CBO.
Either the rest of government will shrink dramatically – or Congress will expand government spending sharply. That, of course, would require higher taxes or bigger deficits.
But budget deficits are not the problem. They are simply the consequences of the problem, which is that the combination of an aging society and expensive health care threatens many vital government functions. Whatever the economic costs of endless deficits – a controversial subject – the political effects seem straightforward. The young are being forced to subsidize the old through higher taxes and reduced public services. Some essential public services, starting with defense, are being sacrificed to avoid antagonizing the elderly.
The proper response is to spread the pain. Some benefits for the elderly should be cut through higher eligibility ages, lower payments and higher Medicare premiums. Some unneeded government programs (say, farm subsidies) should be ended. And some taxes should be raised.
But it’s hard to develop a consensus if the nation’s leaders won’t discuss the choices candidly. The Obama years testify to the futility of that approach.
Judging from the evidence so far, the presidential campaign won’t much improve matters.