There is a cancer eating away at the budget from within, one that steadily drains American wealth, sends much of it overseas and only gets worse over time. It is the interest America pays on its national debt.
That is Gerald Seib, writing in today’s Wall Street Journal. My colleague, Veronique de Rugy has been making this point in charts, papers and talks for quite a while now. To help illustrate the problem, I have made a short video graphic using two of her charts:
The first chart illustrates the course of all non-interest spending over the next several decades. Note, first, that that the biggest drivers of spending growth are Medicare and Medicaid. Without growth in these two programs, our long-term budget problem actually looks quite manageable. Note, also, that spending on these programs actually crowds-out or displaces “other spending” (a category which includes everything from national defense and administration of justice to agricultural subsidies and education funding). In other words, not only do Medicare and Medicaid take over an increasingly large share of the economy, they also take over an increasingly large share of the federal budget. (As Mr. Seib notes, liberals ought to be just as concerned about this as conservatives since their most-cherished programs are likely to get squeezed).
But the story gets worse. Because we are borrowing so much to pay for these programs, our interest payments begin to climb…and climb…and climb. The second chart rescales the first to make room for these interest payments. They eventually take over most of the budget. On this path, the federal government’s spending will eat up four-fifths of our entire economy by the time my daughter reaches retirement.
So what is the moral? We must rein in the cost of debt. To do that we must rein in those programs that are the chief drivers of that debt: Medicare and Medicaid. Unless and until we get serious about entitlement reform—which, so far, has not been a feature of any of the budget negotiations in Washington—the economic cancer will continue to grow.