Posted by Kevin Drum, this chart is from the trustee’s report. Ezra Klein has a posting about it here.
The reason that this chart is so important is that it shows that SS costs don’t continue to rise forever, they increase from about 4.8% of GDP (where they are now) and level off at about 6% of GDP. We can fix that with relatively small adjustments.
Annie Lowry looks at the effect of a divided congress in this article in Slate (see also Ezra Klein here). Her conclusions: a sharp rise immediately after the election followed by slow growth after the reality of gridlock settles in. The “markets” initially believe that gridlock is good because the “markets” are in reality 22-27 year-old business school graduates who have no real historical perspective.
This paper, from George Evans via Mark Thoma (original here), shows why fiscal stimulus must be greater than a threshold level to be able to kick an economy out of stagnation. Obama’s stimulus was clearly too small.
Mark Thoma:
“Escaping from the stagnation trap requires a change in government spending or some other shock of sufficient size. If the change in government spending is large enough, the economy will return to full employment. But if the shock to government spending is below the required threshold (as the stimulus package may very well have been), the economy will remain trapped in the stagnation regime.”
A presidency heading for a fiscal train wreck
via FT.com / Comment / Opinion – A presidency heading for a fiscal train wreck.
The result will soon be the worst of all worlds: neither short-term stimulus nor medium-term fiscal sustainability. Fiscally the only light at the end of the tunnel may be that which causes the upcoming crisis. With two years of gridlock in prospect, it will fall to the next president in 2013 – whoever he or she may be – to start fixing America’s fiscal mess. Whether that is Mr Obama or not, that he may leave this challenge may become the worst of his legacy.
‘A Well Tailored Safety Net’: Social Security and Old-Age Risk-Sharing | Angry Bear.
Basically, stabilizing Social Security isn’t as hard as people want to make it seem.
Paul Krugman points out why if some people pay down their debt by spending less than their income, others must spend more than their income to prevent the world’s economy from declining. It’s a simple accounting identity: “for the world as a whole, spending = income“. If the second group doesn’t increase their spending accordingly, aggregate income drops until the identity is satisfied. Krugman’s Monday column expands on this.
Bartlett points out the differences between now and 1994 when a new Republican Congress and Bill Clinton resulted in gridlock (here):
…But today the situation is quite different. The economy is in the tank and the budget is clearly on an unsustainable path, in large part due to actions taken by Republicans when they were in power. They completely dismantled the deficit controls put in place by the elder Bush and Clinton so that they could cut taxes willy-nilly without paying for them, and in the process thoroughly decimated the government’s capacity to raise adequate revenue to fund its essential functions. Adding insult to injury, Republicans enacted a massive new entitlement program, Medicare Part D, without paying for a penny of it on top of every pork barrel project any Republican ever imagined.
The point is that gridlock under today’s circumstances will not be benign, as it was in the late 1990s, but toxic, preventing our political system from grappling with problems that demand action and will only get worse the longer it is delayed….And as I have previously warned, I am very fearful that it will be impossible to raise the debt limit, which would bring about a default and real, honest-to-God bankruptcy — something many Tea Party-types have openly called for in an insane belief that this will somehow or other impose fiscal discipline on out-of-control government spending without forcing them to vote either for spending cuts or tax increases.
The Republicans seem poised to win control of at least one house of Congress this election. Several economists I trust (Paul Krugman, Mark Thoma, and Nouriel Roubini to name three) see this as a true economic disaster, and I can’t fault their arguments. We are currently growing too slowly (here and here) to get back to normal employment in fewer than 5 years, and the only entity that can supply the stimulus needed to speed up this return — the US Government — will soon be paralyzed. Republicans are motivated by what Roubini calls “voodoo economics, the economic equivalent of creationism”. And, according to Sen. McConnell, “The single most important thing we [Republicans] want to achieve is for President Obama to be a one-term president.” To me, this means that they will intentionally drive the economy further into recession in order to discredit Obama as much as possible. As Roubini says: “The result will soon be the worst of all worlds: neither short-term stimulus nor medium-term fiscal sustainability.” We are doomed.
