Paul Krugman thinks that, when it comes to the country’s fiscal problems—$16 ½ trillion in debt, four consecutive $1 trillion deficits, etc.—America should kick the can down the road. “It’s the responsible thing to do,” he says. Our creditors aren’t exactly beating down the doors, interest rates are low (so borrowing is cheap), and besides, government spending is helping prop up the sluggish economy. Cut spending and the fragile recovery might fizzle.
“Slashing government spending destroys jobs,” writes Krugman, “and causes the economy to shrink.” Fair enough. But as Krugman himself admits, “we will eventually need some combination of revenue increases and spending cuts to rein in the growth of U.S. government debt.” So Krugman’s fundamental point isn’t about whether or not spending needs to be cut—it does—but about the timing of those cuts: “nothing terrible will happen if we don’t fix everything this year.”
Krugman is right that, “nothing terrible will happen if we don’t fix everything this year,” but then, no one said it would. Speaker of the House John Boehner has called for balancing the budget within ten years. That means the debt continues to grow for at least a decade. Even Congressman Paul Ryan’s budget—which Krugman called “draconian”—didn’t try to fix everything in one year. Or even ten, for that matter. It called for continued—albeit shrinking—deficits at least through 2022. Presumably when Krugman says he wants to kick the can, he means “farther than Paul Ryan.”
Here’s the part Krugman leaves out, a part which makes all the difference: he assumes that there will be more favorable conditions for addressing the long term fiscal crisis at sometime in the future. This is a problematic assumption.
Set aside for a moment the sheer size of the debt ($16.5 trillion) and the fact that it continues to grow rapidly thanks to unprecedented deficits. Set aside the fact that the President’s own budget assumes debt service costs to exceed $550 billion annually by the end of his second term. Set aside the fact that artificially low interest rates discourage savings and encourage spending—both of which aggravate our long-term problem. Set aside any assumptions you might have about the economic drag created by higher taxes, more federal regulation, or Obamacare. Set aside all these common (conservative) objections and there remains one massive, compelling, immovable obstacle to prosperity through can-kicking.
As Jonathan V. Last describes in his fantastic new book, What to Expect When No One’s Expecting: America’s Coming Demographic Disaster, the birthrate in America is collapsing. It is now below replacement level, which means that, while America’s population will continue to grow for some years, in the coming decades, it will begin to contract.
The reasons for America’s declining birthrate are not as straightforward as you might think. Some obvious causes—e.g. the pill and abortion—contribute to, but don’t explain, America’s falling birth rate. Geographic mobility, more education, historically low infant mortality, falling marriage rate—all these contribute, too. What concerns us here is the fact that twenty or thirty years from now, America’s ability to dig itself out of our fiscal mess may well be dramatically reduced.
As Krugman knows, the primary drivers of our long-term debt crisis are entitlement programs—specifically, Medicare, Medicaid, and Social Security. As the Baby Boomers retire, the number of American’s drawing on these programs will radically increase and so will the costs of these programs. More retirees to care for is one thing, but a declining birth-rate means that there will be fewer and fewer young people—who work and pay taxes—to pay for these ballooning costs.
Unlike past fluctuations in population—due to war or disease, for example—in a population contraction due to sub-replacement level birthrates, the population will contract “from the bottom up,” meaning the first age cohorts to vanish will be the youngest; not because they died, but because they were never born. As this happens, the tax base will shrink just as the costs of caring for the elderly are exploding.
Krugman’s suggestion that we kick the can down the road assumes that our future economy will perform more or less like the economy America had during the middle third of the 20th century when our welfare programs were designed. Krugman’s advice is akin to telling a homeowner that, based on his current income, he can afford a second mortgage while ignoring (or simply missing) the fact that he’s about to take a significant pay cut.
There is no swift solution to America’s fiscal crisis. It has taken decades to create and will take decades to repair. A long-term, gradual fix makes the most sense and would be the least disruptive, both socially and economically. But the window for beginning such a gradual fix is closing, and more rapidly than many Americans seem to think. Krugman is right that we can’t fix the problem this year; but he’s wrong if he thinks we can afford to kick the can much longer.
Stephen P. White is a fellow in the Catholic Studies Program in Washington, DC and coordinator of the Tertio Millennio Seminar on the Free Society. The views expressed here are his own.