Stop using the future as an excuse for inaction on the US economy
Long-term fiscal projections should be seen mainly as especially boring science fiction
International Monetary Fund managing director Christine Lagarde called on the United States to “hurry up with putting in place a medium-term road map to restore long-run fiscal sustainability”. Photograph: Reuters/Jose Luis Magana
“Lighten up,” urged the fund. “Enjoy life! Seize the day!”
Okay, fund officials didn’t use quite those words, but they came close, with an article in IMF Survey magazine titled “Ease Off Spending Cuts to Boost US Recovery”. In its more formal statement, the fund argued that the sequester and other forms of fiscal contraction will cut this year’s US growth rate by almost half, undermining what might otherwise have been a fairly vigorous recovery. And these spending cuts are both unwise and unnecessary.
Unfortunately, the fund apparently couldn’t bring itself to break completely with the austerity talk that is regarded as a badge of seriousness in the policy world. Even while urging us to run bigger deficits for the time being, Christine Lagarde, the fund’s head, called on us to “hurry up with putting in place a medium-term road map to restore long-run fiscal sustainability”.
So here’s my question: Why, exactly, do we need to hurry up? Is it urgent that we agree now on how we’ll deal with fiscal issues of the 2020s, the 2030s and beyond?
No, it isn’t. And in practice, focusing on “long-run fiscal sustainability” – which usually ends up being mainly about “entitlement reform,” aka cuts to social security and other programmes – isn’t a way of being responsible. On the contrary, it’s an excuse, a way to avoid dealing with the severe economic problems we face right now.
What’s the problem with focusing on the long run? Part of the answer – although arguably the least important part – is that the distant future is highly uncertain (surprise!) and that long-run fiscal projections should be seen mainly as an especially boring genre of science fiction. In particular, projections of huge future deficits are to a large extent based on the assumption that health care costs will continue to rise substantially faster than national income - yet the growth in health costs has slowed dramatically in the last few years, and the long-run picture is already looking much less dire than it did not long ago.
Now, uncertainty by itself isn’t always a reason for inaction. In the case of climate change, for example, uncertainty about the impact of greenhouse gases on global temperatures actually strengthens the case for action, to head off the risk of catastrophe.