Over at the liberal site Talking Points Memo, Brian Beutler has a post up that asks, "Are we really drowning in red ink?" He goes on to argue that our debt isn't unprecedented by historic levels when measured as a percentage of the overall economy, suggesting that all the fears of a debt crisis are overblown. Of course, the real problem we face isn't the current deficits caused by the economic downturn, but the long-term debt from the growth of the major entitlement programs.
When the economy slows, it boosts deficits in two ways. First, it means that revenues sink. Second, it means higher spending, not only on stimulus, but on so-called "automatic stabalizers" such as unemployment benefits. Yet while this helps explain our problems over the past few years, as the Congressional Budget Office has warned, the real debt problems won't occur until after the economy improves:
As the economy recovers and the policies adopted to counteract the recession and the financial turmoil phase out, budget deficits will probably decline markedly in the next few years. But over the long term, the budget outlook is daunting. The retirement of the baby-boom generation portends a significant and sustained increase in the share of the population receiving benefits from Social Security, Medicare, and Medicaid. Moreover, per capita spending for health care is likely to continue rising faster than spending per person on other goods and services for many years (although the magnitude of that gap is very uncertain). Without significant changes in government policy, those factors will boost federal outlays sharply relative to GDP in coming decades under any plausible assumptions about future trends in the economy, demographics,and health care costs.
Beutler has a throwaway reference to rising health care costs at the end of his post, but also says "by historical standards the debt and deficit numbers aren't nearly as startling as some would have you believe."
This seems like a largely irrelevant point. During World War II our debt wasn't a problem because our creditors knew that at some point the war would end and we'd have a plan to pay them back. Yet now, we're facing much bigger longer-term problems and have not agreed on a plan to deal with them. Today's deficits may not be historically "startling," but tomorrow's will be unless we make some major changes.