If the economy grew one half of a percentage point faster than forecast each year over the next two decades -- no easy feat, to be fair -- the country would have to do roughly 40 to 50 percent less deficit-cutting than it now appears, based on my reading of budget data from the economists Alan Auerbach and William Gale.
Not that I'm concerned about the deficit in a deflationary economy, but worrying about deficits seem to be an idÃ©e fixe among our political betters. Nonetheless, the thing that is critical in this article is the recognition that all of the assumptions made about budget deficits, as well as ersatz issues such as the solvency of Social Security, are based on a particular rate of GDP growth.
Most of these estimates are underestimates. The CBO, for instance, in stating their estimates of the future insolvency of the Social Security program in 29 years assume a 2% GDP growth rate and a 1.3% percent wage growth rate (i.e., taxable income). Both historical annualized growth rates and wage growth rates are much higher than that: from 1980 to 2009, annualized real GDP growth was 2.79%--and that is one of the worst periods in the last century.
This is why I keep saying there's no Social Security crisis, unless we have a decades-long sustained economic collapse. If that happens, we will have to raise the payroll tax by ~1%. If we want to raise taxes to prepare for a sky-is-falling scenario (a stupid thing to do), all have to do is remove the payroll tax cap, and even under this historically unrealistic scenario, we're still fine.
Of course, this bullshit concern will always be with us (italics mine):
The other fantasy is that if you pass some sort of plan which gets Social Security in surplus for the next 75 years according to the SSA then you get credit for "saving" Social Security and that the issue will be then off the table until the end of time. What will happen in practice is that the trustees will inevitably make minor and completely reasonable tweaks to the assumptions underlying their projections so they can once again have the trio of "nightmare," "middle ground," and "everything's awesome" scenarios, with the middle ground scenario showing problems at some point in the future. Then the pain caucus will be back to tell us just how much granny needs to starve and Wall Street will return to siphon up all the money into their gaping maws.
Can we please get back to the reality of U3 employment? Please?