Whoever wins the upcoming presidential election, whichever party takes control of the House of Representatives and Senate, our elected officials will face a formidable task.
Obviously, they will face the immediate social and economic effects of the ongoing pandemic. They also will confront an economic outlook that requires enacting policies that go beyond currying votes for the next election.
Events related to the pandemic produced one of the sharpest downturns in U.S. economic history. Output has and will continue to bounce back. But even though the current quarter’s growth rate will look impressive, the actual level of output will remain well below where it was nine months ago.
With output remaining well below its full-employment or potential level, the labor market will not rebound. Job growth always lags output growth coming out of a downturn. Moreover, many companies have discovered how to produce their goods with fewer employees by using new technologies. Once the pandemic has passed, these structural changes will depress job growth.
So while real gross domestic product growth may look like it’s recovering ground, don’t expect to see immediate job growth across the economy. The headlines reflect this: The Shell oil company is cutting 9,000 jobs, Disney’s slashing 28,000 from its payrolls, and Allstate is shedding 3,800 jobs. And this list is far from complete.
This all means Congress needs to refocus its efforts on providing additional relief to the economy. Dithering until the election results are finalized will not help millions without jobs and small businesses unable to pay their bills.
The fallout from the pandemic will capture policymakers’ attention in the immediate future. Even so, they must begin to deal with longer-term issues as well.
In late September, the Congressional Budget Office released its revised long-term budget outlook. Such long-term projections — from now until 2050 — are subject to much uncertainty. Even so, the CBO’s estimates give us an idea how current and past policies are likely to affect our economic future.
One attention-grabbing part of the CBO’s forecast is the prediction that the federal government’s budget deficit will increase to nearly a permanent level of 13% of GDP by 2050. It is understandably high now due to government’s response to the pandemic. But after receding to about 5% of GDP by 2030, it is expected to nearly triple by 2050. Along with the surging deficit, the debt of the federal government is projected to rise, from about 100% of GDP next year to 195% in 30 years.
The long-term surge in the deficit stems largely from increased spending on social welfare programs that provide a safety net to the elderly — Social Security and Medicare. Spending on these two programs alone amounted to about 11% of GDP in 2019. By 2050, they will rise to 17% of GDP.
Unless Congress dramatically alters these programs, which they will not, these increases are locked in due to demographics. Growth in the population ages 20-64 is estimated to increase at an annual rate of only 0.2% over the next 30 years. In contrast, the population ages 64 and over will rise at a 1.4% rate. We’re getting older, and those current and future recipients of the government’s assistance are becoming a larger portion of the population.
Policymakers will need to make unpopular decisions. To ensure that Social Security and Medicare will continue to provide a safety net for millions, someone must foot the bill. Even if significant cost savings could be found, we and those we elect must face up to the fact that taxes must be raised.
Kicking the tax can down the road must stop. Partisan bickering and policy stalemate must give way to informed discussion, debate and action. Only the health of our collective economic future depends on it.
Rik Hafer is a professor of economics and director of the Center for Economics and the Environment in the Hammond Institute for Free Enterprise at Lindenwood University in St. Charles. He can be reached at firstname.lastname@example.org.
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