Government deficit spending has accelerated dramatically in recent years. Both fiscal and monetary policy have used access to the debt markets as the main engine of efforts to revive economic growth. Spending cuts and other offsets were avoided resulting in a string of annual deficits in excess of $1 trillion. The Administration’s proposed 2012 budget envisions additional deficits of $1.6 trillion this year and $1.1 trillion next year. Meaningless reductions in the deficit are projected toward the end of the ten year plan.
By design nothing in the budget addresses the entitlement issue. Virtually all of the proposals to rein in the deficit focus on discretionary spending. While some reduction in discretionary spending will surely be made, the growth of the deficit cannot be cured without addressing entitlements. The growth of entitlements dwarfs discretionary spending including defense, its largest component. Mandated increases in Medicare, Medicaid, and Social Security benefits are projected to reach $3.5 trillion by 2021, approximately the entire amount of government spending in 2010. To this future bill must be added the cost of the new health care law.
A new level of understanding seems to be emerging in the Congress. Not only in the House, where Republicans are attempting to reduce discretionary spending, but also in the Senate, where a bipartisan effort to convert the recommendations of the Debt Commission into a legislative program, serious efforts to address the issue seem to be growing. The outcome is critical not only for our country’s financial security, but for the soundness of the entitlement programs themselves. Without a solid, well grounded and near term solution, the galloping liabilities threaten to consume most of the country’s resources. Understanding of the problem must now morph into leadership and political courage.