Debt, Deficits, and Demographics Why We Can Afford the Social Contract

Debt, Deficits, and Demographics

Why We Can Afford the Social Contract
  • By Dean Baker, Center for Economic and Policy Research
November 19, 2012

For much of the last three decades, policy debates in the United States have been dominated by a quixotic concern about deficits, debt, and demographics. This concern has distracted policy from fundamental economic issues that have much more direct bearing on economic well-being, most notably the growth (and bursting) of the housing bubble in the last decade. While large deficits can have a negative impact on economic growth, this impact has been hugely misrepresented in public debates.

In fact, contrary to what political figures often assert, it is almost impossible to envision a scenario in which deficits and debt prevent future generations from on average enjoying higher standards of living than we do today. Many households have seen a decline in living standards in recent years, but this has been due to increasing inequality, not a decline in the nation’s productive capacities. The trend towards increasing inequality poses a far greater threat to the living standards of future generations than the potential negative impact of deficits. Unfortunately, discussions of the debt and deficit often distract from discussions of the factors affecting the distribution of income.

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