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October 15, 2014

MEGAN MCARDLE: Don’t Care About The Deficit? Now You Should.

Unfortunately, as a new Bloomberg News article suggests, in the near future, we may not be able to afford the luxury of not caring. Congressional Budget Office projections currently show the deficit beginning to grow again in 2016, just in time for the presidential election. By 2019, it’ll be above its historical average, where it will stay until the end of the forecast window — and that historical average is itself a bit high, as it includes the post-war record deficit of the Obama administration, which ran close to 10 percent for several years.2

If the growth in health-care costs continues to moderate, that may help a bit, but mostly, the rising cost of health care is not the problem. The problem is the rising number of aging citizens who will require Social Security benefits, Medicare and, eventually, Medicaid to pay for their nursing homes. For the next decade or so, it is demographics, not compound cost growth, that will account for most of our budget problems. And you can’t fix the demographics by directing providers to charge 2.9 percent less for their senior citizens.

As the Bloomberg article points out, there’s another factor that’s going to drive deficits, one that few people are talking about in the public-policy sphere: As the Fed tightens up on monetary policy, our borrowing costs are going to rise, not just for the new debt we take on, but also for the debt we already have. As old debt matures, we’ve been borrowing at record-low interest rates, which has helped hold down the deficit. But as the Fed tightens, that party will end, and the numbers will start moving in the other direction.

I’m still waiting for Obama to deliver on those “net spending cuts” he promised in 2008.

Just don’t call him unpatriotic.