Washington might be finding a new scapegoat to explain why the federal budget deficit is ballooning. The beauty of macroeconomics is that you can manipulate every data point to craft a narrative. Economist Paul Krugman recently employed this tactic to convince the public that the inflation threat is over. A chorus of policymakers are now emulating the method to tell the American people that it is not politicians’ affinity for spending like drunken sailors causing the US deficit but rather senior citizens.
Budget Deficit Excuses
The US government kicked off the fiscal year 2024 by running a higher-than-expected budget deficit of $67 billion. It was a sign of things to come as many economists anticipate more of the same over the next 12 months, primarily as the Treasury floods the financial markets with trillions in bonds. But while congressional spending is spiraling out of control and tax revenues are pointing to a slowing economy, elected representatives and academia are looking to pass the blame to seniors.
The Joint Economic Committee recently held a hearing that assessed how aging Americans and a waning workforce are “drivers of our deficit.” Testimony delivered to lawmakers noted that the population is expected to become older over the next 30 years as fewer people have babies and mortality rates have worsened in the last decade. Because individuals not working are net negative average contributors to the government, older adults are nothing more than a drain on the system, the witnesses claimed.
Social Security, Medicare, income security, and health continue to lead federal outlays. In October, the US government spent $245 billion on these programs. The Peter G. Peterson Foundation recently projected that significant health care programs will account for larger shares of federal spending, rising 78% by 2030. Additionally, it is forecast that federal spending on health care will represent more than 10% of GDP in 2053.
Cost growth – a term to describe the increase in program or project costs over time – is anticipated to expand over the next three decades, particularly if above-trend inflation persists for the next few years. The conservative-leaning think tank noted that “it still remains that healthcare costs, adjusted for demographic changes, are projected to outpace economic growth in the federal healthcare system.”
Overall, as seniors represent more of the national population and fewer young people have families, there will inevitably be some sacrifices. One of these in the near future will be cuts to Social Security benefits. The retirement system is based on a Ponzi scheme, requiring today’s workers to cover the cost of current retirees. When it was first launched, the worker-to-retiree ratio was close to 50:1. Today, the figure is about 3:1, and projections show that it will be 1.95:1 by 2050. Observers concede that this is an unsustainable trend, meaning that many reforms are required, whether raising the eligibility age for the current generation of participants in the rat race or means testing.
Without tremendous changes to how Washington functions, the budget deficit will only trend higher. The Congressional Budget Office (CBO) says that trillion-dollar annual shortfalls are the new normal. As the national debt approaches $50 trillion and the US economy slows, paying for the red ink will cost more, which means fewer funds are transferred to programs designed for retirees.
The only way for the country to keep the entire system intact is to grow the economy to unprecedented levels and expand the population. Of course, even these proposals are not foolproof amid the ineptitude that roams throughout every corridor inside the Swamp.
First, even if growing the economy by 5% or 7% a year is accomplished, and the government enjoys more tax receipts, politicians will blow the revenue injections on more blunders and boondoggles at home and abroad. The prudent move would be paying down the national debt and cutting spending. But common sense is not so common in the nation’s capital.
Second, it might be politically unpopular for specific segments of the public, but unless there is a substantial baby boom, the only chance for a considerable increase in the population is through legal immigration. This way, a 20-year-old working adult from Mexico or Nigeria will pay into the system to ensure a 69-year-old from Arkansas or New Hampshire keeps receiving benefits and accessing programs they paid into all those years.
A Bold Strategy
A recent Bank of America report noted that those born before 1965 fuel growth because they consume more year-over-year than younger Americans. A 4.9% GDP growth rate? Thank Uncle John! Of course, this does not mean they are insulated from the ramifications of an inflationary environment and poor government decisions.
Politicians have promised too much for decades to ensure they were elected and re-elected. In the last 20 years, the government has spent trillions of dollars on foreign wars, adding to the astronomical national debt. The pandemic- and post-pandemic eras resulted in Republicans and Democrats breaking the economy, causing skyrocketing inflation, something that older Americans are more vulnerable to because they live on fixed incomes. Moreover, inflation is exacerbating the fiscal calamity gripping the nation’s capital, causing the government to spend more funds they do not have on benefits. With interest rates climbing to their highest levels in 22 years, debt servicing is now the second-largest budgetary item, and this will be the norm until a sharp recession forces the Federal Reserve to engage in another round of quantitative easing.
Looking ahead, the United States has a 50% chance of doom and 90% of gloom. So, can lawmakers place the blame on America’s seniors? That’s a bold strategy. Let’s see if it pays off.