A Darker Future For Us

Finally, there's energy. Despite their recent drop, oil prices at about $65 a barrel remain well above the $29 average of 2003. Combating global warming would also raise prices. Many Americans imagine that greenhouse gases can be cut painlessly—just order companies to do it. This is a fantasy. Most anti-global-warming policies aim to "put a price on carbon"—carbon dioxide is the main greenhouse gas—through a carbon tax or a "cap and trade" program. Under cap and trade, companies would receive permits to emit greenhouse gases; firms needing more permits would buy them from firms willing to sell. Prices of carbon-based fuels would rise, forcing people to use less or making costlier noncarbon energy, such as solar, more competitive.

The truth is that neither Barack Obama nor John McCain addressed these issues candidly. Oh yes, they had proposals, but most aimed (not surprisingly) at winning votes and not clarifying choices. Although both support cap and trade, for example, neither forcefully pointed out that to succeed these plans would have to impose higher energy prices. Each had a major health-care proposal that, though claiming to control costs, promised to expand insurance coverage and seemed more likely to increase spending. And naturally, each candidate endorsed new tax cuts and spending programs that, according to independent evaluations, would raise the already swollen budget deficit. There was a "something for nothing" aspect to both campaigns.

For a seriously flagging economy, bigger deficits might be the right medicine. They're classic "pump priming." For fiscal 2009, some economists expect the deficit to approach $1 trillion, up from $455 billion (3.2 percent of GDP) in 2008. But the usefulness of deficits is purely temporary, whereas they have become a semipermanent feature of American government—there have been only five budget surpluses since 1961. The deficits are simply another indicator of the mismatch between what people want from government and are willing to pay for through taxes.

Probably no plausible rate of economic growth could satisfy all Americans' desires for private and public spending. But some outcomes would be worse than others. If we can't reduce projected Social Security and Medicare spending, we may face unprecedented tax burdens that depress economic growth even more by reducing the rewards to work and risk-taking. Estimates by the Congressional Budget Office indicate that taxes might have to rise 50 percent (more than $1 trillion annually in today's dollars) by 2030 to cover existing benefits. The alternatives are equally undesirable: draconian cuts in other government programs or massive deficits that would ultimately become unsustainable.

We have not modernized these programs to reflect changed social conditions. Eligibility ages should be raised gradually. People live longer (life expectancy was 62 in 1935 when Congress passed Social Security; now it's 78) and can work longer. Most jobs, having moved from factories and farms to offices, are less physically grueling. Many retirees have adequate savings that would allow them to rely less on Social Security and Medicare. Benefits could be scaled back for wealthier retirees. Our present system has in part created a reverse Robin Hood effect—it transfers income from the struggling young to the relaxed old.

We also need to be sensible about global warming. With today's technologies—which can change—little can be done. This is the harsh, perhaps tragic, reality. Four fifths of the world's energy comes from fossil fuels: oil (35 percent), coal (25 percent) and natural gas (20 percent). By 2030, global energy consumption may increase 55 percent from 2005 levels, says the International Energy Agency. China, India and other poor countries would represent three quarters of the increase. These countries understandably won't sacrifice economic growth—reducing their poverty—to curb energy use. In India alone, about 400 million people still lack electricity. Expensive policies to reduce U.S. emissions could be a fool's errand: costly to our prosperity but barely affecting global warming.

Just producing cleaner, high-cost energy for its own sake makes no sense. Our main emphasis should be on research and development. The greatest hope of combating global warming lies in new technologies that would eliminate greenhouse emissions and produce, at acceptable costs, the energy that rich and poor countries need for economic growth. Carbon "capture and storage" would be one; battery-powered autos would be another. We could also adopt policies desirable on other grounds—such as reducing oil imports—that might slightly cut greenhouse gases. Higher fuel taxes, for example, would prod consumers to buy the more-fuel-efficient cars that Congress has mandated. (New vehicles are supposed to average 35 miles per gallon by 2020, up from 25mpg now.)

Whatever happens, the future of American affluence will be a state of mind as much as a state of production. So much of our national identity is wrapped up in economic progress that the failure to achieve it in palpable quantities would sap Americans' self-confidence. There have been other moments when the outlook seemed grim, but enduring American strengths—a widespread work ethic and strong entrepreneurial spirit—asserted themselves and disproved the conventional wisdom. After World War II, there were widespread fears of another Great Depression or, at best, a future of meager economic growth. What actually happened was just the opposite: a great boom that involved mass suburbanization and a prodigious outpouring of consumer goods—cars, appliances, televisions. Perhaps today's anxieties will prove equally misconceived.