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Monday, February 26, 2007
The Fiscal Gap: Terrible
The fiscal gap is an awful way to measure and think about the budget's long-term fiscal imbalance.
I don't know why, but GAO likes it. They gave a rundown of what the fiscal gap is in a report released on Friday.
The fiscal gap is the amount of spending reduction or tax increases needed to keep debt as a share of gross domestic product (GDP) at or below today's ratio. Another way to say this is that the fiscal gap is the amount of change needed to prevent the kind of debt explosion implicit in figure 3.
Is that clear? Essentially, it's the money that GAO thinks we'll have to pony up to fulfill the federal government's obligations in current law.
GAO then goes on to say how much the fiscal gap is.
For GAO's "baseline extended simulation, closing the fiscal gap would require cuts or tax increases equal to 3.6 percent of the entire economy each year over the next 75 years, or a total of $26 trillion in present value terms.
That seems scary- $26 trillion is a lot of money that we'll essentially be getting nothing for. I mean, it's only to maintain current levels of services.
But there's one key and unmentioned technical objection: it assumes that we can't make government more efficient, that there's no way to get a bigger bang for our buck.
Pretty pessimistic, isn't it? Especially when the rest of the industrialized world gets its health care much more efficiently than we do, and when the main cause of the fiscal gap is rising health care prices.
For the life of me I can't figure out why this simple fact is excluded from the report. Are these scare-tactics a cynical attempt to cut government programs unnecessarily? Probably not. I think it's more that they just don't care to frame budget issues in anything but basic terms (spending must go up, revenues must go down, etc.), but it does make you wonder.
Posted by Matt Lewis
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