America’s long run fiscal problem is spending growth, not taxes | KeithHennessey.com


Now for a different perspective.  But I think you can still question the Obama as the mega spender theme.

Keith Hennesy, who worked forPresident Bush see spending in much more dire terms the my previous post.

I think this is partially that he is looking at a little longer time frame.  The long-run growth in entitlements certainly looks unsustainable here.

Also, I think his short-run graphs are influenced by the current recession to make Obama look bad.

Another point in common with the post below linked to Krugman is that the issue isn’t new entitlements.  It’s current programs.

in any case read Hennnesy for a different perspective.

Now all we need to do is add projected spending under current law for the long run.  I will draw it in white.

Whoa!  Hold on.  What happened?  The scale of the vertical axis changed, and that white long-run spending line is ridiculous.  Surely that can’t be correct?

It is correct.  If I could have you remember only one thing about economic policy, it would be this graph.  You can see that the current law spending trend is clearly unsustainable in the long run.  Under current law, total federal spending will grow steadily, reaching 40% of GDP by 2080.

The exact slope of that white spending line depends on a lot of assumptions, and there are esoteric debates about those assumptions.  Some analysts would have it reach about 36% by 2080, and others in the mid 40’s.  Those are huge differences, but everyone’s line ends up looking similar, and the basic conclusion remains unchanged – the long-term spending line slopes up dramatically.  The tax lines remain basically flat, as they have since the end of World War II.  The difference between these slopes creates an unsustainable borrowing trend that, if left unchecked, would eventually cause the U.S. economy to collapse.

The white spending line I show here was done for me by OMB staff in 2007.  Since then some spending assumptions have changed a bit, and we also have a new President.  The dip you see in the early years of the white line will be shallower than you see here, because near-term spending will be higher than we assumed in 2007.  Neither of these changes modify the basic conclusion.

For now, I will ask you to trust me that the increase in the white spending line is driven by the growth of three entitlement spending programs:  Social Security, Medicare and Medicaid.  I will show this later.

America’s long run fiscal problem is spending growth, not taxes | KeithHennessey.com.

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