Why Millennials Should Care About the Deficit (But Not Too Much)

The deficit isn't sexy. There's no use pretending it should be. But it falls to public figures and writers to make unsexy issues tolerable, at minimum. So I appreciate the effort Matt Yglesias put into his article "Debt and the Millennials," which builds a succinct frame for understanding the deficit debate. I agree with just about every part of the post:

-- Since the problem is overwhelmingly one of projected future increases in spending, it's perfectly reasonable to expect that the majority of change relative to baseline will come on the spending side.

-- But since the problem is overwhelmingly one of the growing cost of longstanding commitments, rather than new commitments, it's absurd to expect the change to be entirely on the spending side.

-- What you spend on and what you tax matters more than "how much" you spend and tax. Taxing pollution and reducing expenditures on bombs has very different implications from taxing labor and reducing expenditures on school construction.

-- It's absurd to be spending large and growing sums of money preventing people from moving here while simultaneously facing a Social Security shortfall driven primarily by unexpectedly slow population growth.

-- Young people should push, at the margin, for any cuts in Social Security/Medicare spending to be implemented sooner rather than later. Proposals to let everyone born before 1955 evade any cuts forever are unreasonably punitive to the youngest generation and yet are universal dogma in DC. Complain about this!

The Millennial generation, like every generation before it, should hope to grow up in an economy that grows quickly and produces jobs with rising real wages. They should hope for a government that provides, above all, security. Security from foreign invasion or terrorist threats. Security from poverty. Security from financial bankruptcy in the case of illness.

Too much debt threatens the twin responsibilities of government -- growth and security. Rising interest rates crowd out investment, hurting growth. Reducing the deficit in an environment of rising interest rates requires emergency spending cuts that are likely to come out of domestic spending, threatening income security, or defense, threatening national security. 

But budget reform isn't just about making numbers work. It's about making numbers work for us. Tax expenditures reduce federal revenue by $1 trillion. Most of money preferences the rich. It encourages families with money to buy larger mortgages and rich employers to pick up lavish health care plans. Meanwhile, federal investments in roads, education, and R&D have fallen as a share of GDP in the last 50 years to make way for programs that preserve the wealth and health of our retired generations. We don't want to go back to the 1950s, but we can make Social Security and Medicare more progressive and use some of those savings to make these investments.

The last thing to know is that the government represents about 20 percent of the economy, which means there's another 80 percent to care about. The most important trend in the last half century has been the divergence of productivity. Some industries, such as IT, telecommunications, and manufacturing, have seen enormous productivity gains, which have reduced the price of consumer goods and media while depressing middle class wages in these industries. At the same time, a failure of productivity in medical care and education (and to a certain extent, energy) has increased the cost of health insurance and higher education. Whether or not we find $4 trillion to cut in the next ten years, the most important economic developments won't come from Washington. They're come from entrepreneurs who continue to improve our lives with software or find new ways to apply productivity lessons to these lagging industries.