Economic reality...

Leonhardt has a solid column in the Business section of today's NYT regarding the perils of ignoring economic reality. He points out that the impact of the all the bailout (or rescue, if you are JM) plans on the federal budget will likely be in the hundreds of billions over the next few years. This obviously doesn't help the federal budget deficit or debt load. So, what do we do to fix it?

The short answer is that the budget problems the country seemed to have a year ago are now even worse. Next year’s deficit (relative to the economy’s size) will probably be the biggest since 1992, and maybe since 1983. Taxes will have to rise or government spending will have to fall, if not both.

This significant increase in the deficit is importnat, but maybe isn't the area we should be focused on to avert the next big problem. There are a myriad of areas that could be seen as the next big issue for the feds, but it seems to me (and Leonhardt) that it starts with health care.

Despite everything, the biggest fiscal problem remains, far and away, health care. Based on the rate that medical spending has been rising, the Congressional Budget Office forecasts that Medicare and Medicaid will take up 10 percent of G.D.P. within two decades, up from about 4 percent now. In today’s terms, that would be the equivalent of adding at least $900 billion to the deficit every single year, in perpetuity. It makes the cost of the bailouts look like a rounding error.

When it comes to health care, we have a situation that is blatantly unsustainable. With the right choices, we can prevent that. But so far, we instead seem to be hoping that the situation will magically resolve itself, which is a recipe for big problems and perhaps even a crisis.

Let’s see. That doesn’t sound familiar, does it?

Also in today's Business section, is an article on the effect of the credit crunch on states and municipalities, which is an area of personal interest that you just don't normally see much coverage of in the NYT. The ability of less than perfectly rated municipalities, states and school districts to raise short term revenue is a huge deal, as a few failures to make payroll and a lot of stuff stops getting done. Who will bailout the government? Uh... the government?