However, public spending brings out the worst in politicians, in terms of pandering to various interest groups – at all points on the political spectrum – and the persistent inability to cut back. Cutting back, not because of a desire to hammer ‘the poor’ etc, but more because the fabled future generations will be saddled with the potentially unpayable bill.
The can is always licked down the road (see also NHS management techniques).
However, here in Western Europe, there is a view that the USA is different, and that greedy capitalists have failed to apply a welfare state type of safety net. Not so however. Virtually everything in this passage on the new bipartisan US budget deal applies to pretty much all developed economies in Europe and North America. Singapore, not so much.
Of course, last week’s agreement has some virtues. You can’t spend so much money and get nothing in return. We may be spared another government shutdown over the budget, because the agreement sets spending levels for two years. Similarly, the agreement suspends the federal debt ceiling — how much the government can borrow — through early 2019. This presumably postpones another self-destructive debate over whether the government should default on its debt, damaging its credit rating and flirting with a financial crisis.
In truth, much of the spending authorized by the agreement is desirable. Future deficits have been wildly underestimated, because projections for defense and non-defense “discretionary” spending were unrealistically low. On defense, Obama’s budgets reduced readiness, left the services too small and made it harder to counter new technological threats, most notably cyberwarfare. There was a similar squeeze on many vital domestic agencies, from the Internal Revenue Service to the National Parks.
To some extent, the new agreement represents a catch-up from this stringency. Meanwhile, so-called “entitlement” programs such as Social Security and Medicare — for which people automatically qualify — were largely untouched. They represent about 70 percent of federal spending. Together, costly entitlements and expanded discretionary spending produce enormous deficits, exceeding $1 trillion a year, as far as the eye can see.
That’s a huge gap — roughly 5 percent of our gross domestic product — to close or shrink. Most politicians are can-kickers. They want nothing to do with the necessary tax increases or spending cuts, including possible reductions in Social Security, to curb the out-of-control deficits.
Ignoring them seems to involve few economic or political costs. The extra borrowing caused by deficits hasn’t sent interest rates sky-high. Indeed, after the Great Recession, deficits helped the economy recover. Now, despite our political and social problems, foreigners still seem happy to hold U.S. Treasury securities as “safe” financial assets. In general, the public doesn’t seem aggrieved by big deficits, especially when compared with the alternatives.
How many people know that 70% of US federal government spending goes on social security and healthcare? I’m not sure exactly how the two compare, but in the UK it’s half that, 34%. The single biggest chunk is on pensions, of course. And the public, by and large, are happy with it.
We are indeed, all in the same boat. Except Singapore.