Paul Lachine

America’s Economic Stalemate

The US appears trapped in a dangerous economic stalemate, as Republicans and Democrats harden their positions ahead of the 2012 congressional and presidential elections. But that also means that there is reason to hope for renewed progress once the elections are past.

CAMBRIDGE – The United States appears trapped in a dangerous economic stalemate.  The refusal by both Republicans and Democrats to give ground on the budget is preventing the government from dealing with its massive fiscal deficit and rapidly rising national debt. Indeed, the Congressional Budget Office projects that the national debt could increase to 82% of GDP over the next ten years – more than double the debt ratio as recently as 2008.

That forecast, moreover, is based on quite optimistic assumptions of strong economic growth and low interest rates. With slower growth and more normal interest rates, the debt ratio could easily rise to more than 100% in 2021, and exceed 150% by 2030.

A major reason for the accelerating growth in government debt is America’s rapidly aging population and the resulting increase in the cost of the universal pension and health-care programs – Social Security and Medicare. Most experts believe that limiting the rise in debt will require slowing the growth of these “entitlement” programs and increasing taxes as a share of GDP.

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