US 'faces future of chronic deficits'

I'm assuming this is worst case scenario, but still not very comforting.

 

With Canada all but legalizing it, I would think we'll have a surplus of chronic in the near future.

 

Well done...

 

I'll bet anything that the writer of this article confused "debt" and "deficit." No effin' way we have $44T deficits unless runaway inflation makes a trillion dollars worth alot less than it is now.

 

Any way you slice it, it's still a big ol' piece of depressing pie.

 

Budget Surpluses?

 

Well, the writer of this article was very confused. I bet he didn't read the paper.

I did.

Basically, this $44T is what the author's call the "Fiscal Imbalance." Here is the definition: FI "equals current federal debt held by the public, plus the present value of all future federal non-interest spending minus the present value of all future federal receipts."

In effect, the $44T is a 75-year present value calculation, assuming that today's current policies -- taxes, social safety net outlays, and other governemental spending -- is EXACTLY the same for the next 75 years.

(Actually, they argue that an even better way to discount these future outlays is to assume they are perpetuities).

By the way,

--current account deficits this year, or next year, or the next FIVE years, are a very small sliver of this calculation.

--balancing the budget today..or next year...or for the next five years is fundamentally IRRELEVANT to this calculation.

--paying off ALL the existing national debt is only MARGINALLY relevant to the this calculation.

No, none of these things are really all that significant.

What is?

The huge, and unfunded, future liabilities of Social Security, Medicare, and Medicaid. Not today's, or next year's, but the obligations of 20, 30, and 50 years down the road.

Today's current account deficits, in the context of these future obligations, pale to insignificance.

Solutions? They are dismal:

To fully eliminate existing FI, "an additional 16.6 percent of annual payrolls would have to be taxed away forever beginning today. Alternatively, income tax revenues would have to be hiked permanently by another two thirds beginning immediately. Yet another alternative would be to permanently eliminate all future federal discretionary outlays."

All emphasis is theirs.

Anyway this is a shocking study. As currently constituted, and prospectively funded, Social Security, Medicare, and Medicaid are simply unsustainable.

 

http://www.powerlineblog.com/archives/003501.php

 

Colin -- thanks for that link.

This is the paragraph that stood out from powerlineblog:

"One more thing: the just-enacted tax cut of $350 billion represents approximately .008 of the $44 trillion shortfall projected by Gokhale and Smetters. So if liberals think that entitlement reform can be avoided by negating the small tax cuts now in prospect, they are sadly misguided."

As I said, in the context of the Fiscal Imbalance measurement these authors propose, this is extraordinarily insignificant.

The argument these authors make for the personal medical and Social Security accounts is subtle, but important. Social Security, for example, is pay as you go right now. If we switch to personal accounts, the government is still obligated to pay current retirees, but now has less money to do it because the personal account holders own the money they have set aside, instead of having that money transferred to current recipients. Hence, government has to borrow to make up that shortfall, so deficits increase.

But, they conclude, "the government's true long-term fiscal imbalance actually declines because the increase in debt is less than the reduction in value of future Social Security benefits."

The implication?

"The traditional focus on the debt held by the public, therefore, creates a bias in decision-making against current reforms that could reduce the government's fiscal imbalance."

 

All of these studies are based on unrealistically low GDP growth rates.

Well, they were unrealistic before Bush became president, anyway. Seriously, tho, when you're talking 75 years out, bumping up the growth rates by .5% makes a big difference.

This is a scam by the securities industry. They're trying to get rid of public pensions and make everything private. Maybe that's a good idea, that's a debate for another thread. But the way they sell the idea is by using historically unrealistic growth rates.

On the one hand, I'm attracted to the idea of semi-privatizing Social Security. OTOH, whenever a group tries to sell its policy with a lie, I'm skeptical.

This won't be a problem if we keep electing Democrats who realize that the best way to economic growth is by getting money into the hands of consumers, and then let the market do its magic. It'll be a problem if we keep electing Republicans who wrongly think that the best way to grow the economy is to piss on the working man's head.

Or, if you prefer, trickle down economics.

 

A Treasury Dept. report is a scam by the securities industry?

 

Whaaa??

Did you READ this paper??

They admit that the Fiscal Imbalance measure is highly sensitive to small changes in underlying assumptions. The assumptions are clearly spelled out. Then they run the numbers. The numbers are there to see.

The low GDP rate is 1.2%; the high is 2.2%.

The is a publicly available academic paper, not some "scam" by the securities industry.

It is what it is. Read it for that.

Two issues.

First, the fact that these numbers are HIGHLY sensitive to small incremental changes in underlying assumptions is actually an argument FOR their FI metric.

Second, higher GDP rates might actually INCREASE the level of the Fiscal Imbalance because medical costs would therefore increase more relative to the underlying economy.

The authors also point out that they need to run some more combinatory scenarios that look at various possible outcomes, and create a distribution curve.

So cut the dismissive wave-of-the-hand crap.

 

Karl, I have to admit, I read the yahoo article before I wrote that, but not the FT piece. Now that I've read the FT, I'm not changing my mind. It's just like a bunch of studies that have come from right/libertarian thinktanks, and then mostly debunked by left think tanks that re-do the studies with more realistic growth rates.

But I guess it's just like a conservative to be pessimistic.

As for higher growth rates making the problem worse...one, that makes no sense. Two, where did you see that. And three, that completely undercuts one of Bush's key arguments for the late tax cut...economic growth will cause tax receipts to actually increase.

It was "commissioned" by the Treasury.

Besides, if you really want to believe with your whole heart and soul a gvt. report that nicely dovetails with the Bushies' ideological agenda, google "CIA told to lie by Bushies."

EDIT: Karl changed his post after I started this one. Sneaky devil.

Anyway, where did you see those growth rates? Because while Bush may have made you forget it, those growth rates are, historically speaking, very low. Also, are they per capita? Indexed for inflation? If the answer to either question is "no," then this study is just worthless. Compeletely worthless.

 

Yeah dave, comeon. These guys don't represent the securities industry. They represent people who want to change entitlement policy in order to give the securities industry hundreds of billions of dollars in public money. There's a difference you know. Sheesh!

Karl:

New Deal and Great Society social welfare is foundering on the rocks of 21st Century demographics, no error. This study is reasonably well founded, but it is just yet another funded by the many axe grinders in the reform debate.

Lies, damn lies, and statistics.

Their math may be good and their assumptions look reasonable -- I think the term is, "Good enough for government work." But there is a yawning gap between the authors getting the math right and my swallowing their policy conclusions.

 

Don't read the superficial journalism about the paper. Read the paper ITSELF.

Unless of course you don't want to strain your brain. Maybe you could get salon.com to summarize it for you in one syllable words.

For the assumptions on the effects of GDP rate on the Fiscal Imbalance, see Table 5, p. 33.

GDP rates are per capita, and conclusions are derived in constant dollars.

For the rest of your questions, and your superficial dismissive turn-up-your-nose attitude, I am not going to mediate your understanding of this paper.

Download, print it, read it, and think for yourself, if you can call it that.

 

Hmmm...do I detect a post-modernist turn of mind here? You know, this is just another "opinion" and all opinions are equally good?

Whatever.

Meanwhile, don't let reasoned cogent arguments, articulated with precision and subtlety, and with mathematical and intellectual rigor, stand in the way of YOUR opinions.

Wouldn't want THAT to happen, now would we??

 

OK, I downloaded, and, well, I probably could understand if I took aLOT of time to read it, but I'm not gonna do that. I have a life. Sort of.

I stand by my original point...2.2% growth is NOT a high rate of growth. Further, while I admit I didn't read his justification for this assumption, I don't buy the notion that doubling the economic growth rate will (nearly) triple Medicare costs per person. I'd love to hear his justification for that. What is the historical trend? I don't see it.

Anyway, even with these assumptions I think are wrong, of that $44T, $36T comes from Medicare, and only $7T from Social Security. So I'm gonna call bulls*** on this being some kind of argument for privatizing Social Security.

 

Okay Karl, because you are a fellow Fire supporter, I'm going to give you the benefit of the doubt one more time.

One, I reject post-modernism in (almost) all it's forms with the possible exception of music.

Two, and stay with me here:
Postulated: Gokhale, Smetters et. al. have done a reasonably good job of projection and that their numbers are "Good enough for government work," and as a jumping off point for further discussion.

Ergo: The system needs fixing.

I'm with you all the way to here.

There are a number of different approaches that one might take towards reform of social welfare that achieve the ends of preserving the benefits for the most people possible and achieving the most social good.

Can you agree with me that those ends of social welfare reform? 'Cause if not, then we don't really have anything to discuss do we?

There are a number of possible ways to go about fixing the system. Three that have been widely bandied about (in vastly simplified form):

• Invest a significant portion of SS and or Medicare trust funds in federally managed open market accounts on the theory that over time those funds will earn more, leaving a bigger pie for all.
• Allow opt-out for individuals and groups to set up their own IRA's with some or all their witholding money and manage it themselves. (What Smetters, et. al. seem to be advocating.)
• Raise the witholding rate, add means testing, increase the retirement age or any combination thereof that balances the account.
  [/list=A]
  
  All I meant to say in the post in which you accused me of being Post-Modernist (a completely wrong-headed use of the term, but that's by the by) is that there is not a direct logical leap from Ergo: The System Needs Fixing to Solution "B" or to any other.
  
  It doesn't mean I (or anyone else) have to say: "Well these guys have their shite together as far as identifyinng the problem goes so their proposed solution must be right.
  
  In short Karl. Even if we all agree that the numbers and identification of the problem are objective. The optimal solution to the problem is always going to be the process of political choices and therefore, by definition, subjective.
  
  Smetters et. al. are simply using the (probably) rational numbers that they got in order to support their particular solution. More power to 'em. Lies, damn lies... that's modern democracy for you, and may the party with the votes and the guts to change the system win.

 

Maybe we could lower the deficit by ending corporate welfare scams like agriculture subsidies, arts subsidies, um, all the Winter Olympic Pork we received?

Yeah, that will happen as soon as we have promotion and relegation.

 

Speaking of people failing to do their assigned reading...

 

Wow, 36 trillion dollars for Medicare.

Imagine what the budget would look like if the government took responsibility for the entire health care system.

 

Imagine how much less it would cost if health care were not run as a for-profit business.