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US Candidates Ignore Looming Debt Crisis
code_rage writes "Carolyn Lockhead of The San Francisco Chronicle has written an article about one of the most important, but overlooked, political issues we are facing. Baby-boomers will soon begin retiring, which will result in a huge fiscal imbalance (deficits and debts). The article says that the present value of the anticipated debt is estimated to be between $40 trillion and $72 trillion, depending on the source. To put that in perspective, the current national debt is $7.3 trillion.""
Former Treasury Secretary Paul O'Neill commissioned a study (free PDF) that was written by Jagadeesh Gokhale and Kent Smetters. To give a sense of how serious the fiscal imbalance is, consider some of the painful measures that the study said would be necessary to balance the books:
- More than double the payroll tax, from 15.3% to 32% of wages
- Raise income taxes by two thirds
- Cut Social Security and Medicare benefits by 45%
- Eliminate all "discretionary" spending (including such constitutionally mandated government functions as the military and the judiciary)
Peter G. Peterson has written a book about the issue: "Running On Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do about It." He recently gave an interview at the Council on Foreign Relations. He prefers to express the issue in terms of cash flow, because Social Security and Medicare are "pay as you go" systems (there is essentially no trust fund). The cash flow impacts will be an estimated $783 billion in 2020, increasing to trillions later.
Peterson offers some concrete proposals in the interview, and offers some political cover to the candidates in saying "I have never thought that a political campaign is an optimum environment for serious discussion or practical proposals.
Former Treasury Secretary Paul O'Neill commissioned a study (free PDF) that was written by Jagadeesh Gokhale and Kent Smetters. To give a sense of how serious the fiscal imbalance is, consider some of the painful measures that the study said would be necessary to balance the books:
- More than double the payroll tax, from 15.3% to 32% of wages
- Raise income taxes by two thirds
- Cut Social Security and Medicare benefits by 45%
- Eliminate all "discretionary" spending (including such constitutionally mandated government functions as the military and the judiciary)
Peter G. Peterson has written a book about the issue: "Running On Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do about It." He recently gave an interview at the Council on Foreign Relations. He prefers to express the issue in terms of cash flow, because Social Security and Medicare are "pay as you go" systems (there is essentially no trust fund). The cash flow impacts will be an estimated $783 billion in 2020, increasing to trillions later.
Peterson offers some concrete proposals in the interview, and offers some political cover to the candidates in saying "I have never thought that a political campaign is an optimum environment for serious discussion or practical proposals.
The problem with this, and it is a very big problem is that there is little risk to a healthy chashflow scam and investments are by definition risky. The other problem is that the money would not be 100% under government control and congress could not use the money when other sources of revenues dry up as it uses Social Security today.
You're right. But at this point, I'd rather take the investment risk than the certainty of a cashflow system that will fail. The second reason you describe obviates the first... one of the reasons, besides basic mathemetics, is that the so-called Social Security Fund is really just more government debt.
From what I've heard, in the best of time Social Security ended up rendering about 2% interest in terms of average payouts. There is no 40-year period in the last 100 years where investments in the stock market wouldn't have beat that by a huge margin. The key is the length of time: 40 years. Certain the period from 1928 to 193x was awful, as were other times like 1987, 1990-1991, and the beginning of this decade, but over 40 years, these drops were more than offset by the subsequent economic growth.
If the government could unleash the economy with true tax reform (a la Dennis Hastert, Jerry Brown and many others), combined with a program of retirement investment becoming personal rather than just another Congressional feedbag and Ponzi scheme, I think the problem can be solved. However, these are drastic measures, and it seems like it would take someone as crazy as Ross Perot to be bold enough to actually propose them (rather than just hint around). That's one thing I really respected about him, by the way. I was really hoping President Bush would drop a huge tax reform bomb at the RNC convention, and I think it could have clinched his run for re-election. Like a friend of mine used to say: The flat tax (or whatever scheme you are talking about, like VAT, etc) won't work perfectly either, but it makes a whole lot of sense to start from there and fix that rather than add to the 20,000 pages of tax code that alreadyt exist. An additional plus is that there's a whole industry of people who could get jobs that actually produce something rather than just waste productivity dealing with an incomprehensible tax code.
True tax reform and Social Security are just like the weather, everyone talks about them but no one does anything.
You are in a maze of twisty little passages, all alike.
But most Americans don't have a clue what is going on. I saw a billboard last night that said, "Remember, it's your money" -- and it was an ad for Bush-Cheney! The administration that insisted tax cuts were the prescription for times of plenty, for times of recession, for times of peace and times of war, has now seen the unwanted side-effects: a languid recovery, and a trillion dollars added to the debt. A budget surplus, the first in modern times, converted instantly to massive deficit.
Sometimes I wonder if there isn't a way to start talking about the debt as the balance on our nation's credit card. Maybe if we put overspending into terms that the average consumer could understand, and stuck to those terms, people could finally start to get it. This country produces $11 trillion of wealth every year, and, through our government, we are $7.4 trillion in debt. Maybe if we start comparing the government to a family that's making $110,000 a year, but is $74,000 in debt, we could have a real national debate about government spending. The question is not whether "it's your money," but whether, being $74,000 in debt, it's a good idea for you to get a brand-new credit card and go rack up another $4,000 on it every year -- as Bush and the Republican Congress are now doing.
Especially when massive, unavoidable costs are just over the horizon.
Grover Norquist has declared his goal of drowning the government in a bathtub, and his way of doing it is to spend it into oblivion. The Republican Party has sold out the country by signing on with this brand of destruction. What it's going to yield is not prosperity and limited government, but anarchy and -- very possibly, in the decades to come -- the end of America as an economically powerful beacon of freedom. When our children are serfs for the wealthy who have bought up the country, when the old are baking to death because we can't afford to buy them air conditioners, when the poor and the sick die alone because we can't provide them with basic health care, when the unregulated food makes us sick and the unregulated drugs are a crapshoot, when half the country will never be able to retire and will be forced to work at McDonald's and Wal-Mart until their bodies fail, I hope people remember the name of Grover Norquist, and who it was that put his theories into practice. One percent of this country will always enjoy all the best things in life, but everyone else will be wondering what it was like before our government was drowned, and if those folks back in the '90s and '00s knew how good they had it.
The problem is, if they do not get it under balance, the dollar will plummet, and then loose value as people loose faith in it.
The trick to surviving such a crash is to choose investments that aren't tied to the value of the dollar. We're advising our clients to put everything they have into canned food and shotguns.
Do we really know who is ignoring the issues? I know that the only time I've heard more than two sentences from Kerry was his acceptance speech at the DNC, and only on CSPAN. On network news his speech was overlayed and overshadowed by Talking Heads. Beyond that time, I don't hear anything else about Kerry's proposals. The news covers polls, Swifties, fonts, and superscripts. They don't cover election issues, as far as I can tell.
I honestly can't comment on Bush's ability to get his words out. In a way, it just doesn't matter, because Bush has had nearly 4 years with a friendly Congress, so we don't need to hear what he says. We can see what he has done. We can expect more of the same, changing only the degree of aggression in pursuit, based on Congressional makeup.
I have 4 possiblities:
1: The news services are incompetent, and have forgotten how to cover hard news in favor of covering fluff.
2: The news services are interested primarily in revenue, and know that pushing emotional hot buttons is the best way to Sell More.
3: (mild tin-foil hat) The broadcasters that own the news services want to keep consolidating, and know Kerry is less likely to go along. Therefore they want Bush to win. Open coverage of issues like the National Debt hurt Bush, so they don't get covered.
4: (strong tin-foil hat) The news services are in it with the Space Aliens and the Republican Comittee, and all want Bush to win. The rest is like (3).
For any choice above, IMHO the new services are failing in their responsibility to cover the news and enlighten the population.
The living have better things to do than to continue hating the dead.
Social Security is not a personal retirement account.
It is a social safety net; It is a social pact, a new socal covenant; It is the promise of the Government that when you get old, you will not be homeless and die of hunger. It is not about rich people having more disposable income when they retire. The Rich are not supposed to get the lions share. If you think of Social Security as a safety net then, who gets paid, becomes clear. The people who paid the least get the most, and the people who paid the most get the least. This is the heart of the "New Deal" the new pact between the Government and the People.
This is a program that, at its heart, is truly Christian (not to say that it doesn't fall well into any other religion, Christian is just what I was raised). This is loving your neighbor. This is helping the poor.
Think about the debt in the same way you think about a mortgage.
Say you buy $1,000,000 house with a loan. Your salary is $50,000. You are in trouble.
Say you buy a $1,000,000 house with a loan. Your salary is $200,000. This is perfectly acceptable.
The point is, just looking at the debt amount is meaningless. You also have to see what the income is to see if you are in debt trouble.
Let's put this in the perspective of the national debt. The debt seems pretty large. However you need to look at the income. What is income? It's national GDP (gross domestic product). As our GDP goes up, so does our ability to sustain a larger debt.
This is the one thing the deficit demagogues never mention. Our GDP has gone up dramatically over the last 20 years. So when looking at a national debt, first you need to adjust for inflation. Then you need to take the proportion of the debt compared to the gdp. Do this with our current national debt, you will realize that our debt is very manageable and much less than it was during Reagan and FDR.
Here's a good graph of Debt vs GDP:
http://zfacts.com/p/318.html
So yeah, the debt is too high right now. No one disputes that. But its not the end of the world. The economy isnt going to collapse, even if our debt was double what it is now.
Walter Williams said it best: