United States in a worse long-run position than Greece, Italy, Spain, Portugal, France, and other failing welfare states
By DANIEL J. MITCHELL
According to the Bank for International
Settlements, the United States has a terrible long-run fiscal outlook. Assuming we don’t implement genuine entitlement reform, the only countries in worse shape are
the United Kingdom and Japan.
The Organization for Economic Cooperation and Development, meanwhile,
also has a grim fiscal outlook for America . According to their numbers, the only
nations in worse shape are New Zealand and Japan.
But I’ve never been happy with these BIS and OECD numbers because they
focus on deficits, debt, and fiscal balance. Those are important indicators, of
course, but they’re best viewed as symptoms.
The underlying problem is that the burden of government spending is
too high. And what the BIS and OECD numbers are really showing is that the
public sector is going to get even bigger in coming decades, largely because of
aging populations. Unfortunately, you have to read between the lines to
understand what’s really happening.
But now I’ve stumbled across some IMF data that presents the long-run
fiscal outlook in a more logical fashion. As you can see from this graph (taken
from this publication), they show the expected rise in
age-related spending on the vertical axis and the amount of needed fiscal
adjustment on the horizontal axis.
In other words, you don’t want your nation to be in the upper-right
quadrant, but that’s exactly where you can find the United States.
Yes, Japan needs more fiscal adjustment. Yes, the burden of government
spending will expand by a larger amount in Belgium. But America combines the
worst of both worlds in a depressingly impressive fashion.
So thanks to FDR, LBJ, Nixon, Bush, Obama and others for
helping to create and expand the welfare state. They’ve managed to put the
United States in a worse long-run position than Greece, Italy, Spain, Portugal,
France, and other failing welfare states.
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