Messes, Foreign and Domestic

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When I first began to read about politics, in the late 1980s, I read a number of books that had been written in the late 1970s and early 1980s that were extremely pessimistic.  In a nutshell, they argued that we were running unsustainable deficits, and that eventually the government was going to was going to have to face the music that unsustainable spending was...well, unsustainable.

As my personal economic situation improved along with the country's, in the mid-90s, I began to feel more optimistic. Conservative pundits had been preaching doom for fifteen years, and yet things continued to improve - despite the compelling gut-level logic, as the Dow soared past 10k, the evidence seemed to indicate that things weren't so bad, after all.

Since then, most of my thinking about the deficit has revolved around a few core concepts:

  1. It's not that big a deal because the economy is growing; if we're borrowing about as fast as the economy grows, that's not really a practical issue.
  2. It's not that big a deal because the demographic time bomb that is Social Security isn't going to really explode (i.e., become insolvent) until ~2037.  In the year 2000, that was nearly 40 years off - and we'd had previous deadlines we'd managed to move by tweaking things.  In 1960, who could've begun to predict the economy in 2000?  Clearly there's no sense worrying too much about something so far away.  However, given that 2035 is when I would personally be eligible for Social Security, I did resolve not to base my retirement plans on its availability.
A few things have happened to change this thinking:

  1. The economy stopped growing.  For the first time in fifty years, from 2007 - 2010, GDP growth has been essentially flat, and it's looking like 2011 isn't going to be much of an improvement.  This graph is instructive.
  2. The slowed economy has caused a lot more people to enter forced retirement early.  Additionally the payroll tax holiday of 2010 reduced how much was being paid in.  That has significantly pulled in when Social Security begins to draw from the treasury instead of paying into it - from ~2037 ten years ago
  3. The Federal government is spending a lot more money now than they were ten years ago.  In 2000, we spent $1.8T, from an economy making $10T (GDP).  In 2010, we spent $3.5T from an economy making $14.7T.  We went from spending 18% of our GDP to spending 24%.
We are not yet completely doomed.  Right now we're adding about 1/15th of GDP to our standing debt every year.  There is some reason to be mildly optimistic this will drop a bit in the next few years (as we wind up wars and neglect to deploy new TARPs), but our long-term commitments have only gone up in the past few years.

In the midst of this, though, there is a crisis in Europe.  Europe will not survive this crisis in anywhere near its current form - and what happens there has both lessons for us, and direct effects upon us.

I intend this to be the first of a many-part series on what's going on in the world, and what the next decade will look like. The next piece will give my views on the short-term future for Europe, and perhaps something of what that will mean for us.

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This page contains a single entry by Brett Thomas published on November 25, 2011 4:20 AM.

First Circuit Reiterates Recording Police Isn't A Crime was the previous entry in this blog.

The End of the Euro is the next entry in this blog.

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