Tuesday, April 19, 2011

Public finance requirements

Source: The Economst

If you are wondering why S&P is thinking negative thoughts about the U.S. federal debt, note that the U.S. public financing requirements are up there with those of Greece, Portugal and Ireland, all of which are in real financial trouble. Unlike Japan, our debt is not held primarily by our own citizens (and the Japanese save a lot and patriotically support their government).

We need to cut the deficit of the federal government. We should do so by growing the economy, raising tax revenues and cutting government expenditures. Ending the U.S. participation in Iraq and Afghanistan should be part of the solution. We should not cut back more than necessary on the government expenditures that will more than pay for themselves in the growth that they generate. Belt tightening means giving up on things we want but don't need.

Health care is a problem. A key is reducing the growth of health care costs by focusing on preventive services and improved efficiency in the delivery of care. I don't think it matters much if we increase taxes to pay for health care or increase out-of-pocket expenses for patients, as long as we do set up a system in which people who need care can not obtain it.

Social Security also needs to be fixed. I suppose that as people are living longer and are healthier in old age, raising the retirement age makes sense. (I worked until the age of 72,) A more progressive Social Security taxation might also make sense, since I think the wealthy might well help out the poor in their old age.

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