Benn Steil


A graphical take on geoeconomic issues, with links to the news and expert commentary.

Retirees Are America’s Same Old Problem

by Monday, April 25, 2011

In a major speech on April 13th laying out his blueprint for reducing America’s long-term debt burden, President Obama drew a sharp contrast between the outlook today and the much rosier one a decade ago. In 2000, he claimed, “we were prepared for the retirement of the Baby Boomers.” Yet whereas the national debt burden today, at around 65% of GDP and rising fast, is much higher than it was in 2000, the long-term fiscal path the nation was on was as unviable then as it is today. This is illustrated starkly by the figure on the left. The driver of the sharply rising debt curves was, and still is, retirees – and specifically two programs to care for them, Medicare and Social Security, as shown by the bars in the figure on the right. President Obama is surely right to draw attention to the challenge of funding retiree entitlements. He is on less firm ground, however, in suggesting that the last Democratic administration had a handle on this. 2000 was no Golden Age of preparedness for our Golden Years.

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Is the President’s Budget Credible?

by Monday, April 11, 2011

“We’re not going to be running up the credit card anymore,” President Obama announced in introducing his 2012 budget.  That would suggest spending less.  But what is striking about the president’s actual budget math is how reliant it is on growth assumptions, rather than actual cuts in spending.  His Office of Management and Budget estimates robust growth of 4.4% in 2013 and 4.3% in 2014.  These assumptions are, however, significantly in excess of private sector “blue chip” consensus forecasts.  Private forecasts are 1.4 percentage points lower in 2013 and 1.5 percentage points lower in 2014.  If the private forecasts are used instead of the political ones, the president’s projected deficit average for 2013 to 2021 would have to be marked up from 3.3% of GDP to 4.3%.  That means about $1.75 trillion more added to the national debt.  Since 1976, the OMB has overestimated growth in the year after the budget by a substantial 0.5%.  This compares with private forecaster upside bias of only 0.1%.  In the case of the president’s budget, however, there is reason to suspect that the bias gap will actually be much larger.  This is because when the OMB and private forecasts differ widely (defined as being greater than 1.4 percentage points), the OMB’s upside bias rises to a full 1%.  In short, the president’s budget relies on rosy growth forecasts just to set the country on a path to lower but still unsustainable deficits.

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