What the Future Could Hold
In Sunday's New York Times, Gregory Mankiw, a Harvard economics professor and former chair of the Council of Economic Advisors (CEA) under President George W. Bush, had an interesting op-ed. Mankiw's piece shows an illustrative presidential speech that would be delivered in 2026 if we fail to correct our fiscal course. At that time, bond markets would demand immediate fiscal adjustments given such high debt levels.
In the speech, the hypothetical President explains:
"For many years, our nation’s government has lived beyond its means. We have promised ourselves both low taxes and a generous social safety net. But we have not faced the hard reality of budget arithmetic. The seeds of this crisis were planted long ago, by previous generations. Our parents and grandparents had noble aims. They saw poverty among the elderly and created Social Security. They saw sickness and created Medicare and Medicaid. They saw Americans struggle to afford health insurance and embraced health care reform with subsidies for middle-class families."
Diving into our fiscal problems:
"But this expansion in government did not come cheap. Government spending has taken up an increasing share of our national income. Today, most of the large baby-boom generation is retired. They are no longer working and paying taxes, but they are eligible for the many government benefits we offer the elderly
If we had chosen to tax ourselves to pay for this spending, our current problems could have been avoided. But no one likes paying taxes. Taxes not only take money out of our pockets, but they also distort incentives and reduce economic growth. So, instead, we borrowed increasing amounts to pay for these programs."
The president closes by lamenting:
"What I wouldn’t give for a chance to go back and change the past. But what is done is done. Americans have faced hardship and adversity before, and we have triumphed. Working together, we can make the sacrifices it takes so our children and grandchildren will enjoy a more prosperous future."
This speech is a grim reminder of what our future holds if we do not fix our current fiscal path. Let's hope Dr. Mankiw's article is another push on our policymakers to start discussing solutions to our long-term challenges now.