Rising discussion about federal budget deficits, and President Obama’s inherently conflicting emphasis on investments to produce jobs while simultaneously reducing deficit spending in his State of the Union address last night, underscore a political and economic tension that is not likely to abate for years. Too many entrenched trends are colliding at the same time. The chief trends, in fact, form a virtual economic tsunami that would confound any administration.
For starters, the nation’s aging population is already fueling a decline in the ratio of workers to retirees. That trend will worsen dramatically as the long predicted ripples of the onrushing wave of baby boomer retirements swells entitlement costs.
Those costs will be compounded by the hangover from the Great Recession. Tax revenues, depressed since it started at the end of 2007, plummeted in the financial meltdown at the end of 2008. The deficit-inducing fall-off in tax revenue will continue to conflict with deficit-reduction, even in a modest recovery, as governments’ safety-net costs remain high for unemployment benefits, health care and social aid.
That conflicting cross-current won’t fade until a full economic and job recovery is underway. And that can’t happen for another several years — the structural time it will take to build consumer confidence and spending to levels that generate sharply higher demand and new hiring.
To make matters worse, the economy will be further hammered by the increasingly rapid shift of the global economy’s manufacturing jobs to China and other cheap-labor countries. That will make it ever tougher to patch together new jobs for the presently unemployed 15.5 million Americans, which is double the number of unemployed when the recession started in December 2007 –and at just over 10 percent, is also double the rate of joblessness then.