Data from Kevin A. Hassett in the latest National Review might make you change your mind. Hassett examines research from the Organization for Economic Cooperation and Development in which “the authors calculate fiscal gaps — the immediate and permanent changes in the governments’ financial position that are required to ensure that debts meets a certain specific target by a certain time.”
In one scenario, researchers spell out “the change required to stabilize debt at 75 percent of GDP in 26 OECD countries by 2050. Whether this target is high or low, it unquestionably represents a circumstance far superior to the current trajectory.”
Take Japan. The Japanese government needs to permanently increase revenues or reduce spending by 10.5 percent of GDP in order to put its finances on a glide path to the target debt-to-GDP ratio. The authors’ assumption that the Japanese government will implement policies to contain spending on health care and pensions is particularly relevant, given Japan’s graying population.
Some European countries, such as Sweden and Switzerland, have already taken steps to curb their deficits and have little work to do. Others, such as those in southern Europe, do not expect dramatic increases in entitlement spending, so their long-run picture is not as bleak as might be expected.
Consider, finally, the United States. It is in a different situation from that of the Europeans, but not in the way we would hope for. Our fiscal gap is the third highest, following Japan’s and New Zealans’s. As bad as things are in Europe, the chart [tied to the research] suggests that there is no European nation in worse shape than the United States over the long run. Not Spain. Not Italy. Not Greece. The crisis looks set on crossing the Atlantic after all.
