Those of us who know that long-run fiscal imbalances are likely to end in disaster – high inflation, deep recession, financial crisis, or all three – scratch our heads in bemusement at the priorities of George W. Bush and his administration. The Social Security “crisis” that he wants to spend his political capital on “resolving” ranks no higher than third among America’s fiscal problems in urgency and seriousness – and at a time when these problems have grown into a profound threat to global economic stability.
America’s gravest fiscal problem is the short- and medium-run deficit between tax revenues and spending. This deficit is entirely of Bush’s own creation, having enacted – and now seeking to extend – tax cuts that are not cuts at all, because they merely shift the burden of fiscal consolidation onto future generations.
The second most serious problem is the looming long-term explosion in the costs of America’s health care programs. This is also partly Bush’s doing, or, rather, not doing, as his first-term policy on health spending was to do virtually nothing to encourage efficiency and cost containment. Instead, he enacted a Medicare drug benefit that promises to spend enormous amounts of money for surprisingly little in the way of better health care.
Surely a more competent administration would be worried about addressing these more severe and urgent fiscal problems. Let’s pretend that the United States had such a government. What would it do?