Alan Greenspan renewed his portrayal of Jiminy Cricket to President Bush's Pinocchio today, warning Congress that the current federal budget deficits are unsustainable, calling for "major deficit-reducing actions." I recall President Reagan running large budget deficits in the 1980s, and all that happened was that the economy grew like gangbusters and the Soviet Union fell.
Greenspan correctly brings up one matter in which the current time is quite unlike the 1980s: rather than being in their peak years of productivity and earning, Baby Boomers are now nearing retirement. That is certainly a concern. A positive trend that he does not refer to is that the fairly large Millennial Generation will soon be entering the workforce, but Greenspan is certainly right to note that the numbers for Social Security and Medicare in the next few years look very bad—rapidly increasing numbers of retirees, and a slow or stagnant growth in workers to support them. It's not an impossible problem, Greenspan notes, as productivity increases can do a lot, but any drag on the economy is a bad idea. And high federal spending is certainly a drag on the economy.
Greenspan's warning that the budget deficit will bring on "stagnation" may be a bit overwrought, but he is right to point out that federal spending has increased at a positively appalling pace during the Bush administration, even if one factors out the War on Terror. Domestic nonsecurity spending has increased rapidly, as exemplified by the Medicare prescription drug benefit (entitlement) the president successfully pushed through Congress.
In his presentation to Congress, Greenspan called for a new congressional spending restriction structure like the Budget Enforcement Act of 1990, and he suggested that he would prefer the deficit-reduction action to concentrate on reducing spending, but that is about as likely as, well, me ever seeing a nickel from Social Security.
Obviously, the response to Greenspan's comments will quickly become a debate over how many of Bush's tax cuts to let lapse rather than extending them, with the deficit given as the urgent reason for the change. The real drag on the economy, however, is the high percentage of GDP that is being spent on nonproductive government programs instead of on productive, private-sector investments. That will remain true until a Congress adopts a really strong and binding spending-restriction (not deficit-reduction) structure.
Which means that we can delete all but the first four words of the previous sentence and it will still be correct.