Scary Entitlement Numbers

The Feburary 20 issue of Business Week has an editorial titled "Recognizing the Entitlement Peril" which reports some startling numbers. Anyone who pays the least attention to the news in the US knows by now that Social Security is in trouble and will be insolvent within a generation. What is less well known, because less often reported, is the financial crisis facing Medicare. Here is the most striking quote from this editorial:

Indeed, if we do nothing, the big three programs [SS, Medicare, Medicaid] are forecast to eat up nearly 20% of America's gross domestic product by 2040, roughly the share consumed by all federal spending today. In other words, without entitlement reform or huge tax increases, we would basically just be able to fund the big three after shutting down the rest of Washington (including the Pentagon).

Putting it that way makes the situation pretty clear.

It so happens that back in November I clipped a similar item from Business Week, and put it in my "For when I start a blog" folder. This one was "Spending is Out of Control" from the November 14 issue, and was written by none other than David M. Walker, Comptroller General of the U.S. ("the nation's top auditor and chief accountability officer"). Here is the most striking aspect of his article:

Less well known, the federal government's long-term liabilities and net commitments, such as those relating to Social Security and Medicare, have risen from just over $20 trillion in fiscal 2000 to more than $43 trillion in fiscal 2004, in large part because of the passage of the Medicare prescription drug bill in December, 2003. This translates into a burden of more than $150,000 per American and $350,000 per full-time worker, up from $72,000 and $165,000 in 2000, respectively. Those amounts are growing fast because of continuing deficits, our aging society's longer lifespans, slower workforce growth, and compounding interest costs.

Yikes. We each "owe" $350,000. He goes on to say:

That's why it's time to get serious about our nation's fiscal future. The federal government should provide more clarity about where we are and where we are headed from a fiscal perspective. It also should reimpose meaningful budget controls on both the tax and spending sides of the ledger and begin a long-overdue review of all major federal spending programs, tax policies, and operating practices. Believe it or not, much of the government is on autopilot and based on economic, security, workforce, and other conditions that existed in the 1950s and 1960s. It is time to rationalize and modernize the mission, programs, policies, and operations of the federal government to reflect the challenges and opportunities of the 21st century.

I agree with most of that. The issue of tax cuts and their effect on government revenues is debateable: by reducing certain taxes, you improve the economy, which generates more value and wealth, which is then a broader base that is taxed... so that is a matter of economic curves and maximization points. But certainly we should review all government spending, esp. if "much fo the government is on autopilot and based on... conditions that existed in the 1950s and 1960s."

Sadly, even doing as Walker advises will only improve the situation somewhat. Improving government effeciency and modernizing how it works for the 21st century is no doubt a good idea, a good first step. But more important would be to ask -- and properly answer -- basic philosophical questions about what the proper functions of government are, that is, ask what its proper scope should be instead of always arguing about its "size" in terms of dollars spent or people employed.