Elderly populations mean more government spending

At the peak of concerns over public debt and deficits in 2010, President Barack Obama created a bipartisan commission charged with putting American fiscal policy on a sound footing. Crucial to this was containing growing spending on health care and pensions as America’s population aged. By 2020 the resultant “Simpson-Bowles” plan aimed to bring America’s debt-to-gdp ratio down to about 66%. Gloomy officials at the Congressional Budget Office (cbo) wrote up an “alternative fiscal scenario” that showed a “clear threat” of a fiscal crisis if corrective actions were not taken. In it, the debt would rise to 95% of gdp in 2022.

The actual figure for this year will be about 98%. That nobody worries much about it any more shows how far economists have rethought the limits on government borrowing in an era of low interest rates. Over the past decade they and many politicians have come to see the panic over debt and deficits of the early 2010s as a mistake. The director of the cbo at the time later admitted that rushing to reduce borrowing was “the biggest error” of the economic cycle. Worrying about public debt is now deeply unfashionable.