What’s Really Really Causing Long-Term Deficits

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Andrew Sullivan approvingly quotes The Washington Times’ Bruce Reidl on “What’s Really Causing the Long-Term Debt”:

So as deficits expand by 5.9 percent of the economy, nearly 90 percent of the growth will come from higher-than-average spending, and just over 10 percent from lower-than-average revenues. Virtually all of this new spending will come from surging Social Security, Medicare and Medicaid costs (driven primarily by 77 million retiring baby boomers), as well as net interest on the national debt.

Reidl is just wrong. Social Security is not the major reason for long-term deficits. Neither is the baby boom. Reidl’s right that higher Medicare and Medicaid spending will overwhelm the budget. But that’s not because of the larger baby boom generation. It’s because of America’s staggeringly high and fast-rising medical costs. There are many other developed countries with higher life expectancies than the US that manage to keep health care costs much lower. If our health care costs were comparable to those countries, our huge projected long-term deficits would be much smaller—or even disappear. You can see this clearly in the Center for Economic and Policy Research’s health care budget deficit calculator. CEPR lays out the stakes:

The CEPR Health Care Budget Deficit Calculator shows that if the U.S. can get health care costs under control, our budget deficits will not rise uncontrollably in the future. But if we fail to contain health care costs, then it will be almost impossible to prevent exploding future budget deficits.

Of course, the US Congress seems unable to pass even the modest health care cost-cutting measures contained in the Senate’s health care reform bill. So the long-term outlook isn’t great.


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