The Skeptical Optimist Is Not a Happy One

How can that be?

Skeptical Optimist Steve Conover thinks the deficit is coming down too fast. He wants the deficit to stay at about 65% of GDP, where it is now. He’s mad at himself for calculating the “tax/spend crossover date,” the date when federal spending will consistently start being the same as or less than federal receipts, because most of his readers have been thinking that getting there would be a good idea (he doesn’t think it is). Currently it’s March 8, 2009, which is consistent with BizzyBlog’s post last week projecting that the budget for fiscal 2009 will show a slight reported surplus (while still siphoning off the Social Security surplus). Conover’s crossover estimate is smack dab in the middle of fiscal 2009.

You’re right, Steve. From your perspective, you’ve created a monster. But I don’t agree with you for a number of reasons:

• Your approach virtually mandates additional federal spending, no matter how useful it is. Yes, I know that you want to target it towards defense and homeland security, which is noble. But if you think Congress is going to look at the opportunity to spend more money and that their first reaction will be “Good, let’s spend it on defense and homeland security,” you don’t know Jack (Murtha), or Harry (Reid), or Duke (ex-congressman Cunningham), or BizzyBlog’s alltime favorite, Waste Ted (Stevens).

• More important, you’re overlooking the significance of the demographic time bombs known as Social Security and Medicare. If the government had to financially report as a private company does, it would have to carry as a liability the actuarial present value of accumulated retirement-related benefits. That number is in the tens of billions of dollars.

• To draw a parallel, if Spain, where the average female has way, way less than 2 children during her child-bearing years, had exactly the same per capita economy, the same economic growth, the same deficit as a percentage of GDP, and the same Social Security and Medicare systems as we do (our comparable children per female is just over 2), would you also tell Spain that its deficit is too low, and that it has as little to worry about as you think we do? I don’t think so. The level of future entitlement commitments per future worker matters, a lot, and simply has to be considered.

Once the deficit, including those little “trifles” known as Social Security’s and Medicare’s actuarial liabilities, comes down to your target of 65% of GDP, we can talk again. That will be a while.