The basic economic facts of the last three decades are smashing down around us like a ton of bricks. The bulk of the gains from economic growth have gone to the richest 10 percent and especially the richest 1 percent. The bottom 90 percent of the population has seen little benefit from three decades in which output per worker hour nearly doubled.
So how does Bloomberg News deal with this situation? It warns us of “generational war.” It tells us that Social Security and Medicare benefits for seniors will be pitted against “investment in children, education, infrastructure and other programs.”
In this context it is important to remember that it is only possible to pit seniors against children if higher taxes on the wealthy or on Wall Street are ruled out of consideration, as Bloomberg News seems to have done. It is also necessary to rule out major cuts in the defense budget, which Bloomberg News also seems to have done. If military spending were lowered to its pre-September 11th share of GDP, we would save more than $2.5 trillion over the next decade.
To pit the young against the old it is also necessary to rule out large cuts in government payments to the pharmaceutical industry. The government is projected to spend close to $1.5 trillion on prescription drugs in the next decade that would sell for around $150 billion in a free market without government granted patent monopolies. It is also necessary to rule out freer trade in medical services that would allow people in the United States to take advantage of the more efficient health care systems elsewhere in the world. If we paid the same amount per person for our health care as did people in any other wealthy country we would be looking at huge budget surpluses in the long-term, not deficits.
It is also necessary to rule out stimulative measures, like a more expansionary Fed policy and a lower valued dollar that would make U.S. goods more competitive in the world economy. These measures would have the effect of increasing employment, improving income distribution, and also alleviating the budget deficit that the Bloomberg News folks and their selected sources are so worried about.
In other words, if Bloomberg News only allows people into the debate who exclude any other possible option to address the budget shortfall other than cutting programs for the elderly or cutting programs that benefit children (apart from a brief comment from Representative Jan Schakowsky, who suggested taxing the rich) then it is possible to make the current budget situation into a generational war. However, this is political engineering on the part of Bloomberg News, it does not reflect the reality of the situation. And it hides the most obvious conflict in the economy today, the policies that have promoted the massive upward redistribution of the last three decades.