Rising debt—not a crisis, but a serious problem | Brookings

Testimony by Alice M. Rivlin, Senior Fellow – Economic Studies, Center for Health Policy, before the Joint Economic Committee of the United States Congress on September 8, 2016:

…..our national debt is high in relation to the size of our economy and will likely rise faster than the economy can grow over the next several decades if budget policies are not changed. Debt held by public is about 74 percent of GDP and likely to rise to about 87 percent in ten years and to keep rising after that.

This rising debt burden is a particularly hard problem for our political system to handle because it is not a crisis. Nothing terrible will happen if we take no action this year or next. Investors here and around the world will continue to lend us all the money we need at low interest rates with touching confidence that they are buying the safest securities money can buy. Rather, the prospect of a rising debt burden is a serious problem that demands sensible management beginning now and continuing for the foreseeable future.

What makes reducing the debt burden so challenging is that we need to tackle two aspects of the debt burden at the same time. We need policies that help grow the GDP faster and slow the growth of debt simultaneously. To grow faster we need a substantial sustained increase in public and private investment aimed at accelerating the growth of productivity and incomes in ways that benefit average workers and provide opportunities for those stuck in low wage jobs. At the same time we need to adjust our tax and entitlement programs to reverse the growth in the ratio of debt to GDP. Winning broad public understanding and support of basic elements of this agenda will require the leadership of the both parties to work together, which would be difficult even in a less polarized atmosphere. The big uncertainty is whether our deeply broken political system is still up to the challenge.

…..There are three necessary elements of a long-run debt reduction plan:

  • Putting the Social Security program on sustainable track for the long run with some combination higher revenues and reductions in benefits for higher earners.
  • Gradually adjusting Medicare and Medicaid so that federal health spending is not rising faster than the economy is growing….
  • Adjusting our complex, inefficient tax system so that we raise more revenue in a more progressive and growth-friendly way and encourage the shift from fossil fuels to sustainable energy sources…..

Source: Rising debt—not a crisis, but a serious problem to be managed | Brookings Institution

Druckenmiller Sees Storm Worse Than ’08 | Bloomberg

Stan Druckenmiller, George Soros’ former partner and one of the best-performing hedge fund managers of the past three decades, warns of the real long-term threat to the US economy:

Druckenmiller, 59, said the mushrooming costs of Social Security, Medicare and Medicaid, with unfunded liabilities as high as $211 trillion, will bankrupt the nation’s youth and pose a much greater danger than the country’s $16 trillion of debt currently being debated in Congress…… unsustainable spending will eventually result in a crisis worse than the financial meltdown of 2008…

Read more at Druckenmiller Sees Storm Worse Than ’08 as Seniors Steal – Bloomberg.

The magic pudding state – The Drum Opinion (Australian Broadcasting Corporation)

Benjamin Herscovitch writes:

It seems many of us have been taken in by the conceit that the welfare state can offer never-ending free lunches. We expect governments to offer more social security payments, health care, education, etc., all the while assuming that we will not have to pay for it. It is time to let go of the delusion of a magic pudding welfare state and get our expectations for social services in line with our willingness to pay for them.

Read more at The magic pudding state – The Drum Opinion (Australian Broadcasting Corporation).

Sweden has reformed its welfare state to deliver both efficiency and equity | EUROPP

Will Tanner writes:

At face value, the Swedish welfare state is an unlikely poster child for sustainable government. In 2011-12, government spending was 53.1 per cent of GDP, paid for by taxes on the average worker of 42.7 per cent. The country’s “cradle to grave” social security system has long been used as evidence that government can and should be bigger, not smaller. Despite this, the Swedish state is showing policymakers the world over how to deliver high quality services at low cost.

Read more at Sweden has reformed its welfare state to deliver both efficiency and equity – the UK should learn from its example. | EUROPP.

2011 Financial Report Of The U.S. Government – David Merkel

Net Liabilities of the US Government (in $Trillions) Measured on an Accrual Basis

To pay down liabilities like these would require the permanent allocation of an additional 8% of GDP. Where would we find the will to do that? I suspect as a result that we will see real decreases in Medicare benefits — things that won’t be eligible for payment. Hospice care will be indicated at higher frequency when healing an old person would be costly. So just be aware that something has to change, either taxes have to rise, or Medicare benefit levels have to fall.

via 2011 Financial Report Of The U.S. Government – Seeking Alpha.