whether we make the short-term deficit smaller or larger we still need to tackle a serious longer term problem. And we would still need to tackle that problem even if the recession hadn’t happened. It’s a real problem. And a big one. But the shape of the problem is very simple and it looks like this:
1. The public sector has assumed responsibility for financing the health care of old people.
2. The cost of health care relative to the rest of the economy is rising.
3. The proportion of old people relative to the rest of the population is rising.
This trend bodes ill for our fiscal future. And thinking about solving it is enough to make one’s head hurt.
I didn't even bother to change the title for this post since Yglesias is exactly right. The factors he cites are those most critical to unraveling our long run fiscal problems.
Note, if you will, that #3 is physically impossible to change in the short run. The other two, not so much. Expect any solution to this problem to affect items #1 & #2 disproportionately.