By J. D. Alt
In his 12/8 Washington Post column, Ezra Klein says, “Projected deficits are driven by two factors: health-care-costs and old people.” He goes on to suggest, quite logically it seems, that in order to pay for all the health-care services elderly American’s are going to require, tax rates will to have to be raised so high they’ll begin “doing real damage to the economy”, or deficits will “grow to the point that they cause a fiscal crisis.”
What’s odd about this is that it sounds to me like a huge, growth-industry opportunity: lots of customers (old people) needing lots of services and facilities (nursing-care, hospital beds, heart monitors, breathing tubes, etc.) I could well imagine that if we truly embraced the need to provide all these services and facilities, it might grow our GDP by four or five percent. Just taking really good care of old people—feeding them, reading to them, taking them for walks, massaging their feet, helping them grow tomatoes—could likely lower the national unemployment rate by three or four percentage points.
I suppose what Ezra is concerned about is the fact that all these old people don’t have enough money to pay for these services and facilities. It’s true that maybe one out of ten has managed to save enough dollars to buy what they’re going to need, but ninety percent or more simply couldn’t quite manage their lives in a way to set aside that kind of money. Life just doesn’t seems to work out that way. So we have this potentially huge pool of health and elderly-care consumers who are powerless to consume because they have no dollars. And we have this potentially very large pool of health and elderly-care providers who haven’t even been hired yet by the health and elderly-care industries because their potential customers are broke.
This strikes me as a very illogical and dysfunctional situation—sort of like not being able to get out of the rain because you’re too wet.
There’s an easy fix, of course, but unfortunately it’s impossible: The sovereign central bank could simply print the dollars necessary to buy the services and facilities—and then distribute those dollars to the pool of potential consumers (old folks.) The health and elderly-care industry would take off like a rocket; health and elderly-care providers would all have 9 to 5 jobs; car sales would go up; wheel-chair accessible miniature golf centers would flourish. To prevent all this new money and consumer spending from generating inflation, the sovereign government could impose a new carbon tax that would help slow global warming, while draining some percentage of the new dollars back out of the economy in a controlled way.
As I said, however, this is impossible. The sovereign central bank cannot simply print the dollars. That would be—what? A free lunch…. And free lunches are not something that can logically exist in the known universe. (See Dan Kervick here.) Besides, we all know that dollars do not come from the central bank, but rather they come from the private sector economy which somehow produces dollars by creating jobs. It is, in fact, because the private sector produces our dollars that the federal government is forced to levy taxes or sell treasury bonds in order to obtain dollars from the private sector. But there’s only so many dollars in the private sector at any given time, so if the federal government collects too many in taxes, or borrows too many by selling bonds—as it will need to do to pay for the baby-boomer’s health-care— then there won’t be enough dollars left in the private sector for the entrepreneurs to create jobs with. And this is why Ezra calls this whole situation a “nightmare scenario.”
What I’m wondering though is this: Is it possible that the logic Ezra is describing really is just a nightmare? One of those dreams you have that seem so real you actually whimper in your sleep, or jerk your arm up to avoid some monstrous bite, knocking the bedside lamp off its table, waking you up—and you roll over and look around and realize, wow, I was really just dreaming!
Wouldn’t it be great if we could all wake up?