The August 1 agreement calls for nearly $1 trillion of cuts in government spending over the coming ten years, but almost none of this saving (only $21 billion) is to take effect before 2013, and the remainder is scheduled to build slowly. The twelve-member congressional panel that the agreement created is to report by December, specifying a further $1.5 trillion in combined spending cuts and tax increases over this period. And if Congress rejects the panel’s proposal, then—at least according to the provisions of the agreement as enacted—additional cuts (but no tax increases) of this magnitude will take place in a mechanical way. Most recently, President Obama has advanced a set of proposals that would preempt the congressional panel’s actions, but they appear to have little prospect of passage. Either way, the potential for further depressing an economy that is already weak, or at least retarding a precarious expansion that may well not display much vigor in any case, is clear.
But continuing on the current trajectory is not an acceptable option either. Former vice president Dick Cheney to the contrary, budget deficits do matter. Although government spending in excess of revenues is helpful when people are out of work and business is underproducing—additional spending, by the government or by recipients of tax cuts or government benefits, creates needed demand for many products—continued deficits once the economy regains full employment do harm. The borrowing that the government needs to do to fund its shortfall absorbs the savings that in a fully employed economy would otherwise go into investments in new factories, new equipment, new office buildings, new research and new houses. Firms seeking to invest, therefore, either do less, in which case the economy’s productivity suffers, or invest anyway but finance it by borrowing from abroad. Either way, the economy’s ability to provide jobs with rising wages, and therefore an improvement over time in Americans’ average standard of living, is impaired.
THE MORE fundamental issue, however, is not simply a generic budget imbalance. There is a reason this problem has become so politically intractable. Although participants in today’s debate rarely acknowledge it—indeed, much of the discussion seems deliberately couched in abstract budget language in order to avoid mentioning the subject—the issue at stake is the livelihood and care of America’s retired elderly.
By now most Americans are aware that the largest parts of the federal government’s spending go to defense and “entitlements.” In the fiscal year that just ended, defense and entitlement programs together accounted for 81 percent of all government spending apart from interest payments on the national debt. The budget for defense (including for this purpose veterans’ and military-retirement benefits) was $829 billion. All nonmilitary entitlements combined added up to nearly $1.9 trillion. Most Americans also have their own views on the value of a larger versus smaller defense establishment. With the U.S. military now scheduled to withdraw at least in part from both Iraq and Afghanistan over the coming few years, some reduction in defense spending is already in the government’s planning. Leon Panetta, President Obama’s new defense secretary, has publicly argued that significant further cuts would harm U.S. national security, and most Republicans in Congress are sympathetic to this point of view. It is easy to understand why the debate over what to do about the government’s outsized deficit and rising debt has therefore centered on entitlements.
But simply referring to “entitlements” is an obfuscation—and one that prevents the public discussion from addressing what is really at issue. The U.S. government has many entitlement programs—ranging from food stamps to foster care to farm supports to retirement benefits for the government’s own civilian employees—but two of these programs together account for nearly two-thirds of the total entitlements budget: Social Security (last year $726 billion) and Medicare ($555 billion). Adding in more than $80 billion of Medicaid spending that pays for nursing-home stays by patients aged sixty-five or older brings the share of the entitlements budget now devoted to the support and care of America’s elderly population to nearly 72 percent.
Worse yet, for three familiar reasons this share will rise over time. Most importantly, the post–World War II baby-boom generation has now begun to become eligible for Social Security and Medicare. This process will continue for another decade and a half. Second, like the populations of other high-income countries, Americans are living longer. The life expectancy for a sixty-five-year-old American man is now another seventeen years; for an American woman, another twenty. Third, ongoing improvements in medical technology turn out, on average, to be cost increasing. While some innovations, like laparoscopic surgery and antidepressant medications, save money compared to prior forms of treatment, most new drugs, internal scanning devices and other such improvements deliver better-quality care and even save lives, but do so at significant added cost. The combined result of these three ongoing forces is that, under Social Security’s and Medicare’s current configurations, the share of the entitlements budget that provides income and medical care for America’s elderly population will rise from today’s 72 percent to 77 percent ten years from now.
None of this is news. But the fact that we have known about these forces for decades yet have done little to address them shows how fundamental are the economic and moral choices at issue. It is now nearly thirty years since the 1983 Greenspan Commission restructured the financing of Social Security to put that program on a firmer footing for what then seemed the foreseeable future. It is no criticism to observe that a change in policy adequately addressed a major national problem for “only” two generations. But those two generations have now largely passed by, and the country has taken no further significant action. Now the question of income support for the retired elderly is on the table again. The issue of medical care for this population is on the table too, right where it has always been. Today’s acerbic political rhetoric notwithstanding, the impediment is not Washington infighting or the search for partisan advantage or the lack of public understanding—although each of those amplifiers is present, and each does make the challenge more daunting. The real point is that this problem is hard to begin with.
IN THE past the American political system has had a pretty good record of coming to grips with major challenges, if not right away then at least in more or less adequate time. Investment in what the early Federalists and Whigs called “internal improvements” (at first on canals and turnpikes, later on railroads) to open up the new country’s interior for economic development; expansion across a huge continent (inspired by the ideology of Manifest Destiny); regulating, on a national scale, an increasingly nationwide economy; constructing a new monetary system to escape the systematic instability of an international gold standard combined with note-issuing banks; alleviating the human misery created by the Great Depression and at the same time arresting the cumulative economic collapse even if not effectively restoring full employment; full-scale military mobilization in response to the Japanese attack on America and Germany’s seizure of most of Europe; mobilization of a different kind to meet the military as well as scientific threat of the Cold War; programs sufficient to make the retired elderly the segment of the U.S. population with the lowest incidence of poverty when it previously had the highest; and the rescue of the nation’s banking system from what would surely have been collapse on a scale not seen since the Great Depression: in every case the debate was intense, usually partisan, often acrimonious and sometimes bitterly personal. But in every case the country made its way to a satisfactory resolution and then moved on. Only once in the nation’s history—the mid-nineteenth-century slavery crisis—did the American political apparatus fail to deliver a solution to a challenge of national scope and first-magnitude importance.
A parallel lesson from this lengthy experience, however, is that this country’s unusual system of governance imposes a need for accommodation and agreement, or at least willingness not to let disagreement stop the government’s basic machinery, well beyond what parliamentary systems require. The familiar “checks and balances” built into the Constitution of the United States preclude the president—or, for that matter, the Congress—from acting in the way most democracies’ prime ministers, backed by their parliamentary majorities, can and regularly do. The U.S. president’s proposals mean nothing without a majority vote of both houses of Congress, a vote the chief executive has no guarantee of getting. Congressional votes, unless they reach a two-thirds majority in each house separately, likewise mean nothing without the president’s approval. The opportunity for stalemate is endemic.
In principle, the Senate could effectively nullify a presidential election by refusing to approve an incoming president’s nominees for any or even all of the three thousand or so cabinet- and subcabinet-level appointments that any new chief executive needs to make in order to staff his or her administration. In principle, either house of Congress could halt any or all government functions simply by not appropriating the requisite funds. The Constitution does not specify a route out of this kind of impasse. The framers apparently expected the country’s elected officials to negotiate their way. Not so this time around—or at least not yet.Image: Pullquote: What if this time the political stalemate we now see also blocks policies that would restore the growth of incomes and living standards?Essay Types: Essay