CBO's Chief: Apres Moi Le Deluge?

Both the New York Times and the Wall Street Journal have interesting write-ups about the political battle Fed Chairman Ben Bernanke is fighting in Washington. But even if Bernanke can maintain his institution's independence, the popular anger at the sundry bailouts of the financial services and auto industries won't ebb anytime soon - not with unemployment now hovering above 10% nationally. And the stock market's `bubbleicious' resurgence notwithstanding, the real economy remains a mess. How much of a mess? Take your cue from Congressional Budget Office director, Douglas Elmendorf.

Last week he gave a talk at the annual fall research conference of the Association for Public Policy Analysis and Management that made Malthus a comparatively upbeat read. He freely referenced previous reports June and August reports he delivered to Congress. Few people actually read those tomes. They should. Here are a few nuggets:

• The federal debt is already large relative to GDP by historical standards. In fact, it will equal about 60 percent of GDP by the end of this fiscal year. That's the highest it's been since the early 1950s. "As a result, further large deficits and increases in the debt will raise serious economic risks."

• If Bush-era tax cuts were to be extended and the alternative minimum tax exemption gets indexed to inflation - assuming no other policy changes - the CBO estimates that the deficit would exceed 6 percent of GDP by 2019 while debt would constitute nearly 90 percent of GDP.

• Because we're getting old as a population, federal spending on Social Security, Medicare, and Medicaid will become a much bigger burden relative to GDP. Consider that during the 1980s, federal spending on those programs stayed close to 7 percent of GDP; by 2019, it's projected to reach clsoe to 12 percent of GDP.

And that's just the 10 year budget outlook. It gets grimmer beyond that.

Using a scenario extrapolating current policy regarding tax changes and federal spending (aside from Social Security, Medicare, and Medicaid), he notes that debt will keep climbing sharply relative to GDP. Here's why:

"The imbalance between spending and revenues widens in part because of the aging of the population. As the baby boomers retire during the next two decades, the number of beneficiaries of Social Security, Medicare, and Medicaid will increase significantly. The imbalance between spending and revenues also widens because, under current law, spending per beneficiary in the Medicare and Medicaid programs will probably continue to increase more rapidly than total spending and income in the economy (and thus more rapidly than the tax base that supports that spending)."

The ace kicker: minor tinkering won't be enough to fix the economy's deeper problems because, he says, current fiscal policy is on "an unsustainable path."

"The country faces a fundamental disconnect between the services the people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services. That fundamental disconnect will have to be addressed in some way if the budget is to be placed on a sustainable course."

Somewhere in Texas, George W. Bush is taking in the sun, thrilled beyond belief that he doesn't need to clean up this mess. In Washington, Barack Obama's hair is already showing gray spots.