Lecture Thirty Three

The Future of the Social Insurance State; Current

Policy
(Economics 100b; Spring 1996)
Professor of Economics J. Bradford DeLong
601 Evans, University of California at Berkeley
Berkeley, CA 94720
(510) 643-4027 phone (510) 642-6615 fax
delong@econ.berkeley.edu
http://www.j-bradford-delong.net

April 29, 1996

Administration
Long and Very Long Run Deficit Projections
The Current Macro Situation

Administration
Next Wednesday--final substantive lecture on economic policy today
Next Friday--go over practice final
Final for those with conflicts: May 8, 2-5 PM. I'll announce place and exact time on May
6

Long and Very Long Run Deficit Projections

In 1995, federal spending on Medicare plus Medicaid amounted to 3.8 percent of GDP.
 In 2005, we project that federal spending on Medicaid and Medicare will rise to
6.0 percent of GDP.
 And by 2015 the projection is that--under current laws and procedures--Medicare
and Medicaid spending will be up to 7.5 percent of GDP.

In 1995, federal spending on Social Security amounted to 4.7 percent of GDP.

 By 2005 it will be little greater: 4.8 percent of GDP

 But by 2015 it will be 6.2 percent of GDP, and rising as a share of GDP thereafter
as the baby-boom generation retires.

Thus today the big entitlement programs consume some 8.5 percent of GDP; by 2015--
when you are in your peak earning years--these programs would, if current laws remain
unchanged, amount to 13.7 percent of GDP.
Suppose we wiped out all non-military discretionary programs: that would save only
some 3.0 percent of GDP's worth of federal spending in 2015.

Suppose we wiped out all other entitlement programs: that would only save some 3.1
percent of GDP's worth of federal spending in 2015.

Unless we grow faster (in population or in productivity), we have a big problem.

Current federal spending (excluding offsetting receipts): 22.9 percent of GDP

The Current Macro Situation

Unemployment at 5.5 percent

Inflation at 2.5 percent
Real wage growth slow
Income distribution not improving
Debt/GDP ratio constant