National Economy over the Next Decade Essay

Beyond 2007, the pace of economic growth will probably slow somewhat. The main reason is that the labor force is projected to grow less quickly as members of the baby-boom generation begin to retire and as the scheduled expiration of various tax provisions in 2011 discourages work by raising marginal tax rates. Real GDP is projected to grow at an average annual rate of 3. 1 percent between 2008 and 2011 and at 2. 6 percent between 2012 and 2016. The rate of inflation is assumed to average 2. 2 percent after 2007; and the unemployment rate, 5. 2 percent. Interest rates on three-month and 10-year Treasury securities are projected to average 4. 4 percent and 5. 2 percent, respectively (Marron 6). Over the longer term, the aging of the U. S. population combined with rapidly rising health care costs will put significant strains on the federal budget, which begin to be evident within the projection period. When the first members of the baby-boom generation reach age 62 in 2008, they will become eligible for Social Security benefits. As a result, the annual rate of growth of Social Security spending is expected to increase from about 4. 8 percent in 2008 to 6. 5 percent in 2016. In addition, because the cost of health care is likely to continue rising rapidly, the annual rate of growth of Medicare spending is projected to increase from 7. 4 percent in 2008 to about 8. 9 percent in 2016. (Medicare spending is anticipated to rise by 17 percent this year and 14 percent in 2007 as the new prescription drug program gets under way. ) Rapid growth is also projected for Medicaid spending—an average of 8. 3 percent annually from 2008 to 2016. According to Congressional Budget Office, Social Security, Medicare, and Medicaid together will account for 56 percent of all federal spending by the end of the projection period (up from 43 percent in 2006). Measured as a share of the economy, spending for the three programs will equal 10. 8 percent of GDP in 2016, up from 8. 7 percent this year. In addition, no evidence suggests that the growth of health care costs, which have risen faster than GDP over the past four decades, is likely to slow significantly in the future. As a result, spending for Social Security, Medicare, and Medicaid will exert pressures on the budget that economic growth alone is unlikely to alleviate. A substantial reduction in the growth of spending and perhaps a sizable increase in taxes as a share of the economy will be necessary for fiscal stability to be at all likely in the coming decades. References: Baker, Gerard. U. S. economy may be headed for a big crash. The Times of London. August 23, 2006. 23 Aug 2006. Barrell, Ray et al. World Economy Forecast. National Institute Economic Review. 28th July, 2006. No. 197. Baumohl, Bernard. Mid-Year U. S. Economic Forecasts For 2006 and 2007. Wharton School Publishing. June 15, 2006. 23 Aug 2006.