Economic doom?

I really don’t feel like writing about all the bad economic news, yet feel obligated to not ignore the issue here.  Just read Peter Boone and Simon Johnson’s excellent piece in TNR.  Some highlights:

The overriding problem that most wealthy nations face is they have promised far more in public sector spending than they are currently willing to pay for in taxes. In the United States, the federal government spends 1.7 times its total revenues, leaving the country with a 9-10 percent 2011 GDP budget deficit, and little route to a solution if, as the Republicans demand, no further revenues are raised. It remains unclear how anyone decided that the federal government must not collect revenues exceeding 18 percent of GDP, irrespective of what happens as the society ages, but influential Republicans are pushing for a constitutional amendment that would set this limit in stone. Even tax reforms that would raise revenues, while lowering distortions, are apparently out of the question.

Responsible fiscal policy requires that we gradually reduce budget deficits and prevent the current risk of a deleterious spike in public debt levels. But talk of “death panels” has scared all politicians from discussing the obvious—health care costs for the United States are not under control (for the private sector as well as for the public sector); within 20 years, it is clear to every observer that this will be a main source of fiscal crisis if nothing is done.

There’s also plenty about the European debt crisis.  I’ve focused on the domestic problems,  but this is, undoubtedly, and inter-related global crisis.  Short version: not good!

About Steve Greene
Professor of Political Science at NC State

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