The folks running around yelling about deficits are confident that their serious demeanor, powerful positions, and financial backing will prevent anyone from scrutinizing the substance of their claims. Thus far their confidence has been warranted, as nearly all the voices in major news outlets have accepted their assertions at face value.
However any careful look at their claims quickly reveals that they do not hold water. The basic story in their deficit story is that we have not been saving enough to afford the retirement of the baby boom cohort. The story is that by increasing saving, we would be able to make ourselves rich enough to afford the retirement of the baby boomers. (We’ll ignore the impact of the downturn for the moment — just like the deficit hawks.)
This is not a new story. The Peter Peterson deficit hawk types have been pushing it for more than two decades, all the time using it as a rationale for cutting spending, especially on Social Security and Medicare. In this context it is worth mentioning a set of projections that the Congressional Budget Office (CBO) made back in 1996.
This was before economists recognized the uptick in productivity growth associated with computer technology that had just begun the prior year. CBO’s projections contrasted the long-term impact of maintaining a balanced budget forever with a baseline where we let our deficits grow. The balanced budget story of course showed higher GDP. By 2030 it was around 3 percent higher compared to a scenario that kept the debt to GDP ratio constant at the 1996 level, and it was around 10 percent higher than a baseline that assumed large and growing deficits.
Of course we did have the uptick in productivity growth. If we compare where we sit today with the virtuous balanced budget scenario, per capita income is considerably higher now than was projected in 1996 in the balanced budget scenario. This means that if in 1996 Peter Peterson and Co. thought that we could pay for the baby boomers if we just balanced the budget forever more, we are actually better able to pay for the retirement of the baby boomers given the track that we have actually followed.
This is the sort of thing that we would be talking about if people in the budget debates actually cared about data and evidence, but hey this is Washington. (I discuss this issue and others related to the deficit in a paper I wrote for the New America Foundation.)
This fact makes the point that the issue is not our ability to afford the retirement of the baby boomers. For the Peterson clique, it’s about destroying SS and Medicare.
Dean Baker is co-director of the Center for Economy and Policy Research. He also writes a regular blog, Beat the Press, where this post originally appeared.
Image by Donkey Hotey using a NASA photo, released under the Creative Commons license.