by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Gene Epstein of Barron’s devotes his latest “Economic Beat” column to analysis of the nonpartisan Congressional Budget Office’s latest long-term budget outlook.
Federal debt held by the public as a share of nominal gross domestic product, currently 74%, is projected to rise over the next 10 years. But it won’t be until the mid-2020s that the debt/GDP ratio really takes off.
Based on its “extended baseline” scenario, which assumes no change in laws, the CBO foresees the debt soaring above 100% by the late 2030s and rising rapidly from there. Based on its “extended alternative fiscal scenario,” which essentially consists of informed judgments on how the budgetary situation is likely to play out in the real world of politics, the agency’s projections are far more dire: The debt-to-GDP ratio would rise above 180% by the late 2030s and continue climbing from there.
Either way, in the CBO’s understated language, the “debt would be on an upward path, relative to the size of the economy, a trend that could not be sustained indefinitely.” That unsustainable upward path is fraught with risks. And while it is generally true that long-term forecasts are not worth betting on, this one is too plausible to ignore. The next dozen years will be the relative calm before the storm because the retiring baby boomers have yet to reach critical mass. This year, they will range in age from 50 to 68; 12 years from now, the range will be 62 to 80. Combine that with slow expansion of the working-age population, and the grim demographics are virtually baked in the cake.
Then add the soaring growth of “Federal spending for Social Security and the government’s major health-care programs — Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance purchased through exchanges created under the Affordable Care Act,” and federal spending should continue to swamp revenue, even after the baby boomers exit from the world’s stage.
The updated CBO report lends due weight to the recent slowdown in the growth of spending on medical care, a key reason its projections are not quite as dire as the one released last September. But the debt is still on an unsustainable course.