Belgium $16,423 Japan 14,049 United States 12,433 Italy 12,145 Ireland 10,580 Sweden 9,541 Netherlands 9,368 Canada 8,597 Norway 5,498 United Kingdom 4,635 France 4,426 Finland 2,798 Germany 977
However, a growing number of economists are expressing concern that
two problems lie down the road for the U.S. One is that, if we continue
running deficits that outstrip our economic growth, the U.S. government
will eventually be forced to address problems of solvency. The second is
that the retirement of the Baby Boomers, beginning in 2010 or so, will
create demands on the Social Security system that, combined with the debt,
will create a financial crisis. Let's examine both potential problems.
First, the financial solvency of the U.S. government. It is entirely possible for a government to run growing deficits each year and remain financially sound. That is because the economy is growing too, and with it the tax base. As long as the total debt remains at, say, 30 percent of the GDP each year, then there are no problems. Unlike people, who have to pay their debts before they retire, the government has no retirement date, and will presumably be around indefinitely. It can therefore perpetually run deficits while paying off old ones.
A problem rises, however, if deficits grow faster than the economy. In 1980, the debt was 34 percent of the GDP. Excessively large deficits have raised the debt to 70 percent in 1996. If we continue down this road forever, the solvency of the U.S. government will become a major issue -- although that point is still a long way off.
The second problem is the retirement of the Baby Boomers. Contrary to popular opinion, your deductions for Social Security do not go into a government account with your name on it, to be released to you when you retire. The funds you pay go directly to retirees living today (with a small percentage going to government bonds to finance other government programs). Thus, current payers support current retirees. This system is financially sound over the long term as long as the birthrate grows or even remains stable. But the birthrate dropped after the Baby Boom of the 50s and 60s. That means that when the Baby Boomers start retiring about the year 2010, a relatively large number of retirees are going to depend on the Social Security payments of a relatively small number of workers. Of course, this will be insufficient, and a tax bailout will be necessary to keep Social Security afloat. Such a bailout will be impossible, however, if the government has run up huge debts in the meantime.
The bottom line: deficits aren't hurting us now, but we need to start balancing the budget soon.
Return to Overview
1 Paul Krugman, Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations (New York: W.W. Norton & Company, 1994), p. 159.
2 Michael Wolff, Peter Rutten, Albert Bayers III and the World Rank Research Team, Where We Stand (New York: Bantam Books, 1992), p. 27.