Is the Washington spending deficit crisis slated to get worse?
''Within a few weeks congressional Republicans and Democrats will again square off over how much the U.S. government should tax and spend, possibly for years to come if a 'Grand Bargain' is ever reached. But looming over this debate is a stark reality that many politicians and their constituents are unaware of. U.S. economic growth figures to slow dramatically over the next 20 years or so, generating far less money to achieve the Republican goal of a balanced budget or the Democratic aim of continued social spending.
Since World War II, America has been the envy of the world, boasting average annual economic growth of more than 3.5% for most of that period, despite periodic recessions, huge global defense obligations, and corrosive inflation from the late 1960s to the early 1980s. But two secular trends threaten to end this Golden Age of economic growth, slicing the postwar rate by about half -- below current Wall Street consensus estimates -- for the next two decades. Growth depends on both increases in the size of working-age populations and gains in their productivity, or output per worker hour. More people cranking out more goods and services means more growth. Unfortunately, each measure shows signs of dramatically slowing.
This new slow-growth era could have broad repercussions that will affect not only the pugilists in Washington but businesses and investors. Weaker growth will make it harder for companies to improve earnings, fatten dividends, or garner better stock returns. It also threatens to fan social inequality and class tensions and limit the ability of government to fund various entitlement programs like Medicare and Social Security. Tax revenues also are likely to fall short of projected levels.''