Getting to the Root of a Horror Story

Dean Baker
The Oregonian, October 31, 2008

See article on original website

Today, on Halloween, Portland's Fox Tower will be featuring a scary movie on the economy. The documentary is called "IOUSA," and it's been promoted as a wake-up call brought to us by modern-day Paul Reveres. We're told that an unbearable $54 trillion budget deficit will be passed on to our children and grandchildren. But "IOUSA" blames "pork barrel spending" for the problem while ignoring the real cause of budget deficits, which is the high and rising private-sector health care costs in the United States.

First, let's put that $54 trillion in context. It's a big number, but the United States has a big economy. In fact, $54 trillion comes to about 6 percent of future income. We've spent relatively larger sums before. For example, Cold War military spending following World II grew by more than 8 percentage points of GDP -- gross domestic product -- from its initial postwar levels. So 6 percent is manageable if the public believes the spending is for something worthwhile.

Second, the film implies that our children and grandchildren will have lower standards of living than we do. Unless we have a catastrophic war or an environmental disaster, that won't happen. All economic forecasts show that incomes will grow on average, as they always have. The only question is how rapidly incomes will grow -- how much better off our children will be -- not if they will be better off.

Our children and grandchildren will see a decline in living standards only if inequality continues to grow. "IOUSA," however, never mentions inequality.

But "IOUSA" is most misleading by not pointing to the real cause of the future horror story it projects. The main cause is not irresponsible members of Congress and their pork barrel spending, although that's surely a problem. Nor is it the aging of the baby boom generation, even though the growing percentage of the population receiving Social Security and Medicare will be a burden.

The real cause of the "IOUSA" budget horror story is the U.S. health care system. We Americans pay almost twice as much per person as citizens of Germany or Canada or any other wealthy country, yet we actually have worse health care outcomes than people in those countries. The scary budget projections in "IOUSA" assume that the gap between the cost of health care in the United States and everywhere else in the world continues to grow.

It projects that in 30 years we'll be spending more than four times as much per person on health care as people in other wealthy countries. Since half of health care costs in the United States are paid by the government through Medicare, Medicaid and other government programs, if health care costs follow this path, then the government will face very large deficits.

Of course, if we do end up paying four times as much as other advanced countries for a health care system inferior to theirs, then we'll have an incredible problem keeping our economy competitive. But if "IOUSA" would have discussed the country's problems in an honest way, it would have told the American people about the urgency of fixing our health care system.

Unfortunately, the movie's promoters decided to conceal the country's real problems and instead are trying to scare people about budget deficits. Their goal appears to be to attack the social programs that make life better for ordinary Americans.

"IOUSA" ignores real problems such as growing inequality and a private profit health care system that's dysfunctional. Instead it exaggerates and frightens people with misleading statistics. But we need real solutions to real problems, not false solutions for false problems this Halloween and beyond.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.