There is a ticking bomb embedded in
America's future that is hiding in plain sight. Everyone knows about it.
Everyone acknowledges its potential to do enormous damage to our economy.
Everyone is worried that, if not defused, it will destroy the dreams and
aspirations of future generations of Americans.
And yet, we continue to act as if we
can't see the danger. We pretend that we can continue to pass the problem along
to the next administration, the next congress, the next generation of
Americans, as if they will be any different and find the courage to face the
cancer that is eating us away from within.
We refuse to address the issue of
middle class entitlements and how their growth will eventually impoverish the
nation. And every year we delay, the problems only grow worse.
Today, we live in the most affluent
nation in the world. This is largely the result of our possessing a hard
working, industrious, creative, educated middle class whose amazing productivity
is the wonder of the modern world. But certain demographic trends are emerging
- trends that no one can stop or alter - that will make it impossible for that
same middle class to maintain their standard of living not so many years from
now.
As James Capretta points out,
writing in the new policy quarterly National Affairs, the middle class entitlements of Social Security,
Medicare, and Medicaid were all predicated on a growing, prosperous work force.
If that were ever to change, the US government would find itself in the same
position that General Motors finds itself today; a company whose own health and
pension arrangements with its workforce has bankrupted it:
The dire
consequences of failing to change this arrangement are clear. According to the
Congressional Budget Office, the trajectory of spending laid out in President
Barack Obama's first budget would push the nation's debt to 82% of gross
domestic product at the end of 2019 - up from 41% at the end of 2008. (And
that's before the retirement of the Baby Boom generation hits with full force.)
Politicians of both parties routinely decry this mounting debt and urge a
thorough scrubbing of the budget. But while there is certainly much fat to trim
around the edges, the great bulk of America's debt burden will come from three
key entitlement programs: Medicare, Medicaid, and Social Security - the core of
the middle-class contract.
The trajectory of growth for these
programs has been astonishing:
For
perspective, consider that in 1970 - just a few years after Medicare's
enactment - the defense budget stood at 8.1% of the nation's economic output,
as measured by GDP. Combined spending on Social Security, Medicare, and
Medicaid, meanwhile, stood at 3.9% of GDP. But in 2019, almost a half-century
later, defense is expected to fall to about 5% of GDP, while the big three
entitlement programs will approach 12%. By 2050, they will exceed 18% of GDP -
which is about the historical average of total revenue collection each year.
The U.S. government, like GM today, will then be mainly in the business of
providing health and pension benefits, and will struggle to perform its other
basic functions - maintaining a standing army, for example - on the side.
The root of the problem is a
declining number of workers who will pay the taxes to support these
entitlements at their present level. That decline is reflected in the fertility
rates of women in the United States. We are relatively lucky in that our Total
Fertility Rate (TFR) is right at replacement level - 2.1 births per female. At
this pace, we will experience no decline in population. (Japan, with a TFR of
1.27, will actually lose 40% of its working age population by 2050.)
But compare that with the 3.5 TFR in
1955 at the height of the baby boom and you begin to grasp the enormity of the
problem. Those baby boomers are going to retire into a world where the TFR is
not 3.5 but only 2.1. Far fewer workers will be supporting far more retirees.
The bottleneck threatens to destroy the economy by having middle class
entitlements become so large a burden on government that taxes must be raised
to punishment levels to pay for them while trimming almost everything else from
the federal budget.
The reluctance to deal with this
existential threat to our future is a consequence of politics and how
constituencies for these programs have grown over time. Once one realizes that
there are no quick fixes that would be painless to the middle class, the
political problem becomes readily apparent; demagogues would seek to take
advantage of any proposals to change these entitlements in search of political
advantage. As we have seen time and time again over the years with Social
Security, efforts at reform have been shot down by fear mongering and political
gamesmanship.
What the problem cries out for is
decisive, courageous leadership. And, as Capretta writes, a new contract with
the middle class:
The
impulse to insulate the middle class from the cost consequences of their
choices - an impulse that has defined our longstanding middle-class contract -
has done great harm and stands to do far more. The remedy must be to redesign
our entitlements so that the choices the middle class makes in terms of work,
family, and health care will promote more productivity, efficiency, and wealth,
rather than the shrinking of the labor force and the growth of government.
Done
right, a new arrangement would both strengthen our fiscal outlook and improve
the economic standing of American families. The path to such a new arrangement
will not be without its costs, but it will surely yield great benefits. The new
middle-class contract would still work to mitigate risks and would still care
for the old and the needy, but it would do so in ways that encourage personal
responsibility, respect individual choice, and foster the work ethic that has
made America's middle class the backbone of an unrivaled age of prosperity and
strength.
A tall order, that. But with the
right leadership, the American people can be shown what's at stake if we
continue down the road to economic oblivion without making the alterations in
the contract so that we can protect the American dream for future generations.
Rick Moran's Bio
Rick Moran is the Chicago editor of Pajamas Media, an associate editor of American Thinker and the proprietor of the blog Rightwing Nuthouse.
Posted
10-13-2009 12:01 AM
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