No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Fourteen: Decision-making in Democracy: Public Choice 348 Other than a brief period budget surplus in the late 1990s—driven by a combination of reduced spending and high tax receipts from surging stock sales (see “Did the U.S. have a Budget Surpluse” example for caveats)—the U.S. has consistently spent more than it took in from revenue. When you spend more than you make, whether you are an individual or a government, you are going to have big problems. Our current U.S. fiscal situation is a really big problem! And the problem is only going to get worse—much worse—if we don’t change our spending trends on so-called entitlement spending (Medicare, Medicaid, and Social Security). As you can see in Figure 14.9 , as baby-boomers retire the demands on these programs are scheduled to explode! We have simply promised more than we can pay back. Clearly an obvious truth is this: what cannot be paid back, will not be paid back. So what are we going to do? Well, the good news is that from Figure 14.7 , you can see that we have reduced a debt burden of this magnitude before (post WWII)—and we can do it again. But spending must go down and/or revenue must go up to do this. The future DID THE U.S. HAVE A BUDGET SURPLUS IN THE 1990S? No—even this claim is fraudulent. A “surplus” was credited by using receipts for social security (which will be used to pay future retirees) for current spending. You can see this by looking at our national debt during this period—and it continued rising every year (which means we really weren’t running a surplus!). If you claim a surplus for these years, it is only by increasing the deficits in the out years when those social security claims will come due—but the money was already spent. The “publicly held” category of debt went down, but that was offset by debt held by government agencies . 4 2030 1980 1970 1990 2000 2010 2020 2040 2050 2060 2070 2080 25% Projected Tax Revenue What Drives Our Debt (Government Spending as Share of Economy) Medicare Medicaid & Other Health Social Security 20% 15% 10% 0% 5% Figure 14.9, Projected Growth in Entitlement Spending. Congressman Paul Ryan prepared this chart from CBO data to illustrate the projected growth in entitlement spending. By 2050, assuming no change in entitlement spending, entitlements will consume our entire tax revenue. No defense, no paying interest on debt, no NASA, and no Pell Grants! Clearly an obvious truth is this: what cannot be paid back, will not be paid back.