Fabius Maximus notes that, as a consequence of sharply declining revenues, the inflection point at which Social Security becomes a net drag on the federal budget rather than a source of revenue that can be spent on other things, has already arrived, years ahead of schedule:
See the trend! The year-over-year change in the surplus was -$15.3B in the first four months of 2009, and -$21.5B in the second four months. Cash in was down 15%; cash out was up 3%. The latest forecasts were for the system to go cash-flow negative in 2016 (Medicare went into the red in 2004). August looks esp ugly, as Bruce Krasting warned us at his blog on 8 September 2009.
I agree with his prescriptions, too: we need to means-test entitlements and whether we like it or not we’re going to increase taxes and reduce other government spending. Military spending is a likely but not the only candidate.
There really is no other way. Avoiding this particular budget crunch painlessly through economic growth would require two things, neither of which I believe is going to happen. First, it would require federal policies re-aligned towards growth. Elimination of or at least reform in the corporate income tax. Incentives for entrepeneurialism. Real moves towards solidifying the financial system rather than feel-good policies. Regulatory reform. Second, it would require a spike in growth to a rate that is genuinely unimagineable, the result of some breakthrough or technological revolution. As I’ve said before, I don’t believe in the prevailing narrative on the dot com boom, i.e. that it came from nowhere. I think it was the result of decades of capital investment which were largely without return for most of that period. That’s just not happening.
Hat tip: Glenn Reynolds