Tuesday, May 04, 2004
Growth
Pay me now or pay me later, (actually, "Pay Taxes, Be Happy") suggests Dan Akst in the NY Times. He is referring to federal deficits and unfunded liabilities with Medicare and Medicaid being the biggest worries. The policy options have been discussed for some time. Higher taxes, lower benefits, "reform" (which these days is the label of choice for all sorts of fixes, many of them not so good), or some combination of these.
So, can we "grow our way" out of these deficits? U.S. economic productivity over the last half century has approximately doubled. There are the usual measurement problems but the Cox-Alm data strongly suggest that material well-offness has better than doubled in that time. This performance has been in spite of politics as unusual as the scope and size of government has grown significantly.
No one can predict the future (goes the cliche) but we do all the time. We have no choice. We cannot "know" performance over the next fifty years (the stretch of many doomsday scenarios) but given the choice of a bet on slower growth vs faster growth, I would pick the latter.
Individuals' planning is over a shorter span and this rosy scenario may have limited relevance. Yet, societies do have a longer horizon and doomsday scenarios must be put into long-term perspective. Accelerating productivity is likely as is the relaxation of economic growth "speed limits". This sort of talk occurred in the late 1990s and is now in bad repute. Yet the recent recession was mild. We are all the time too preoccupied with recent events.
