EconLog

Long-term Deficits, 2003-01-14

David Warsh points to a short essay by Stephen Cecchetti on the need for long-term fiscal discipline.

We should restrict federal government revenues to the 40-year average of 19 percent of GDP and estimated public debt 75 years from now should not rise above 50 percent of GDP. All current and future tax or spending proposals should be evaluated relative to this objective.

Brad DeLong disagrees with this solution, and so do I. As an economist, I think that policy should be decided on the basis of cost-benefit analysis, not arbitrary accounting limits. My proposal for dealing with the long-term fiscal threat is to phase out Medicare.

Discussion Question. Other things equal, why would there be higher deadweight loss if the economy used government spending rather than private-sector resources to pay for health care?