Man Bites Dog, Treasury Secretary Makes Sense

Must be the Final Days.  Lawrence Summers on Monday:

Yet as we look out beyond the next decade, deeper structural issues in our economy will play a larger and larger role in our nation’s fiscal challenges.  These challenges are profound and entrenched because they reflect structural changes that have taken place over the last several decades.

We as a country, Democrats and Republicans, have chosen to make a commitment to the elderly and to health care. 

These commitments reflect our values as a society.  We believe the elderly must be kept from living in poverty, as so many did before the enactment of Social Security.  And we believe that illness and suffering should be minimized.  These are commitments that found expression even before President Obama’s health care reform program.

They are the right values, and we have accepted that they have costs. 

The costs of these commitments are growing more rapidly than the rest of the economy, not because government is doing more but simply because of changing demographics and rising health care costs.

Consider the following: The share of health care in our GDP is now rising by about half of one percentage point per year.  Since the federal government pays for about 40 percent of health care costs, it follows that the federal government’s spending on health care is rising by about two-tenths of a percentage point per year, or by about one percentage point every five years.

In other words, if there are no policy changes and we simply maintain the programs that we have, the federal share of GDP spent on health care rises by one percentage point every five years.

What appears to be an increase in spending as a share of the economy does not reflect government bloat or inefficiency.  It simply reflects changing demographics and, on current policies, an increase in the cost of health care throughout the economy.