America’s Fiscal Policy is Not in Crisis

Peter Orszag:

Healthcare is America’s real problem, by Peter Orszag, Commentary, FT: Healthcare costs are the core long-term fiscal challenge facing the US... This is why the recent deceleration of these costs is so encouraging...

The good news is that recent developments in health costs are better than many appreciate. Cost growth has slowed dramatically...

Last year, the Congressional Budget Office estimated that the gap between revenue and expenditure in the next 75 years would amount to 8.7 per cent of GDP. Since then, enacted revenue increases and an improved underlying budget outlook have reduced the gap to perhaps 7.5 per cent.

Achieving the lower health-cost growth would knock another 2.5 per cent of GDP off, bringing the long-term fiscal hole down to 5 per cent of GDP – a greater impact than any policy change currently being debated in Washington. ...

Martin Wolf:

America’s fiscal policy is not in crisis: ...The federal government is not on the verge of bankruptcy. If anything, the tightening has been too much and too fast. The fiscal position is also not the most urgent economic challenge. It is far more important to promote recovery. The challenges in the longer term are to raise revenue while curbing the cost of health. Meanwhile, people, just calm down.

By the way, where were the deficit hawks during the Bush years? Here's what Martin Wolf means by "If anything, the tightening has been too much and too fast":

[via Kevin Drum]

The deficit hawks don't want you to know this, but our biggest problem right now is not the deficit, it's jobs.