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Is Our Debt Burden Really $100 Trillion? Derek Thompson November 28, 2012

The problem with budgeting 75 years into the future is that you end up with a lot of numbers that are much more meaningful to actuaries than to other living people Wanna scare somebody about America's debt on the eve of the Fiscal Cliff? I mean, really scare somebody? Here's a trick. Don't talk about the debt. Talk about "unfunded liabilities." The U.S. national debt comes out to about $16 trillion today. That's something. But it's nothing compared to the extra $87 trillion in unfunded liabilities to Social Security, Medicare, and federal pensions. Here's how that works. If you add up all of the U.S. government's promises to pay retirement and health care benefits for the next 75 years and subtract the projected tax revenue dedicated to those programs over the next 75 years, there is a gap. A $87 trillion gap -- in addition to a $16 billion hole. "Why haven't Americans heard about the titanic $86.8 trillion liability from these programs?" Chris Box and Bill Archer ask in the Wall Street Journal. The authors blame the U.S. government for using shoddy accounting and for misleading the American public on their finances. In fact, the most misleading thing about that $87 trillion is the way the figure is often used in the media. (1) That's not our debt. Our $16 trillion in debt and our $87 trillion in "unfunded liabilities" represent two very different ideas: real past promises and projected future promises. Real past promises are, well, very real. We have to pay back our debt. Failing to do it would be an illegal and disastrous default. Unfunded liabilities are future promises, and, since they're not as real, we can change them whenever we want without destroying ourselves. For example, raising the taxable income ceiling and slowing the growth of benefits could reduce the Social Security gap to zero tomorrow. And that's if there is a Social Security "gap" to begin with. Technically, it's not legal for Social Security to have "unfunded liabilities" since it can only pay as many benefits as it receives in earmarked taxes. Both it and Medicare hospital insurance are prohibited from spending money they haven't collected from specific revenue dedicated to their programs (i.e.: payroll taxes). It is impossible for either to

technically be "unfunded", since they cannot legally outspend their funding. (2) 75-year projections are scarier than they are informative. Seventy-five-year projections always sound gargantuan because, well, they're calculated over three-quarters of a century, which is an awfully long time to count anything. But here's the flip side: In 75 years, our economy will be massive. Growing slowly at a 2% annual average, our GDP would be $66 trillion in today's dollars in 2087. That's an incomprehensibly big number, too. Once you run out any number over 75 years, the mind starts to boggle. That's good for scaring people with mind-boggling numbers, but it's not so good for informing. When Republicans say unfunded liabilities come out to $520,000 per U.S. household, they're taking a figure from 2087 and dividing it over a 2012 population to exaggerate. Scary, to be sure, but not very informative. (3) Projections can change fast. An unfunded liability is a projection, and projections shift all the time for two big reasons: (1) Circumstances change and (2) laws change. Let's take circumstances first: The shortfall in Medicare and Social Security is exquisitely sensitive to just about every demographic trend you can imagine, including longevity, immigration, income growth, and birth rates. Furthermore, it assumes that seven decades of innovation will do nothing to change the rate of health care inflation, which is a brave assumption. We know next to nothing about how medical inflation will change after this decade. The fact that actuaries pretend to know the future doesn't make them oracles. It just makes them dutiful actuaries. Now, about our laws. Strictly speaking, the U.S. doesn't have an entitlement problem, or even a Medicare problem. Rather, we have a health care cost problem -- medical insurance and hospital costs and so on are getting expensive faster than our ability to pay for them. Medicare and Medicaid are part of this big expensive system. If we cut these programs without changing the system, we won't be "saving" money, so much as shifting costs to old folks, who will be forced to pay much more for their health care, or else see much worse coverage. What can we do? We can get quantitative, and we can get creative. Getting quantitative means finding the fairest ways to raise revenue and cut benefits to close the foreseeable Medicare gap. Getting creative means firing a quiver of ideas at the health care inflation monster, like exchanges and advisory boards and innovation centers and laws nudging insurers to pay for health outcomes rather than gratuitous services. Closing this liability gap -- whether it's $87 trillion or $8 trillion -- will require patience. The bad news is that none of these measures to fix our real problem (health care costs) will be easy, few of them will be initially popular, and most of them might not work. The good news is we have 75 years.

Economic Totalitarianism and the Fiscal Cliff Kurt Nimmo November 28, 2012

In an article titled We’re Heading For Economic Dictatorship, Janet Daley of the Ludwig von Mises Institute of Canada breaks down the economic totalitarianism we now face as the so-called “double-dip recession” rears its ugly head. Daley describes how economies manipulated by central banks ultimately terminate in redistributive socialism designed to loot the producers and impose a grinding austerity across the board. “In this dystopian future there would have to be permanent austerity programs,” she writes. “This would not only mean cutting government spending, which is what ‘austerity’ means now, but the real kind: genuine falls in the standard of living of most working people, caused not just by frozen wages and the collapse in the value of savings (due to repeated bouts of moneyprinting), but also by the shortages of goods that will result from lack of investment and business expansion, not to mention the absence of cheaper goods from abroad due to import controls.” Daley correctly compares what is now emerging in the West to what brought down the Soviet Union. She writes that the West will increasingly use “the social and political structures that the East employed. As the fixed pot of national wealth loses ever more value, and resources shrink, the measures to enforce ‘fair’ distribution must become more totalitarian: there will have to be confiscatory taxation on assets and property, collectivization of the production of goods, and directed labor.” It will be the “logical conclusion of what will seem like enlightened social policy in a zero-growth society where hardship will need to be minimized by rigorously enforced equality,” a false equality Democrats have enthusiastically demonstrated they are more than ready to impose. I’d add to her analysis my own observation. If the so-called right is correct and Obama is indeed a socialist, he is a socialist designed by the banksters and the ruling elite. Despite inane cheering on the

so-called left side of the rigged political spectrum, “taxing the rich” (the producers) will not be imposed in the name of social justice or as a valiant attempt to buttress the social safety net – it will be a continuation and expansion of predatory looting of wealth by the elite and just as importantly a method of social and political control of the masses. “If one understands that socialism is not a sharethe-wealth program, but is in reality a method to consolidate and control the wealth, then the seeming paradox of superrich men promoting socialism becomes no paradox at all,” writes the late Gary Allen in his nearly universally condemned book, None Dare Call It Conspiracy. “Instead it becomes the logical, even the perfect tool of power-seeking megalomaniacs. Communism, or more accurately, socialism, is not a movement of the downtrodden masses, but of the economic elite.” Under the public relations cover of facing up to the “fiscal cliff,” Republicans have signaled they are ready to further tax the remaining producers of wealth as Democrats agree to politically suicidal budget cuts to formerly untouchable “entitlements” such as Medicare and Social Security. The unanimity of Democrats and Republicans to further hobble wealth production was highlighted today when Grover Norquist, founder and president of Americans for Tax Reform, begged Republicans to maintain a “credible” separation from any tax hike as part of a deal to avoid the so-called fiscal cliff. Norquist said Republicans can’t “have their fingerprints on the murder weapon,” a declaration more pertinent than Mr. Norquist probably realizes. Political suicide, of course, is a relative term: in a nation with only one political party – a monopoly underwritten by a predatory elite that ruthlessly subdues and attacks any viable alternative — there may be suicide for individual politicians, but not the system as a whole. Only a revolution is capable of overturning this dismal state of affairs.

Is Our Debt Burden Really $100 Trillion?  

The problem with budgeting 75 years into the future is that you end up with a lot of numbers that are much more meaningful to actuaries than...

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