THE VALETUDINARIANS ARE ALWAYS WITH US (via Mike Daley):

Economists warn of nation's coming fiscal meltdown, call for hard choices (Matt Crenson, 10/28/06, The Associated Press)

David Walker sure talks like he's running for office.

"This is about the future of our country, our kids and grandkids," the comptroller general of the United States warns a packed hall at Austin's historic Driskill Hotel. "We the people have to rise up to make sure things get changed."

But Walker doesn't want, or need, your vote this November. He already has a job as head of the Government Accountability Office, an investigative arm of Congress that audits and evaluates the performance of the federal government. [...]

Walker has committed to touring the nation through the 2008 elections, talking about the "demographic tsunami" that will come when the baby-boom generation begins retiring and the recklessness of borrowing money from foreign lenders to pay for the operation of the U.S. government. [...]

The federal government actually produced a surplus for a few years during the 1990s, thanks to a booming economy and fiscal restraint imposed by laws that were passed early in the decade. And though the federal debt has grown in dollar terms since 2001, it hasn't grown dramatically relative to the size of the economy.

But that's about to change, thanks to the country's three big entitlement programs — Social Security, Medicaid and especially Medicare. Medicaid and Medicare have grown progressively more expensive as the cost of health care has dramatically outpaced inflation over the past 30 years, a trend that is expected to continue for at least another decade or two.

And with the first baby boomers becoming eligible for Social Security in 2008 and for Medicare in 2011, the expenses of those two programs are about to increase dramatically.

Medicare already costs four times as much as it did in 1970, measured as a percentage of the nation's gross domestic product. It currently comprises 13 percent of federal spending; by 2030, the Congressional Budget Office projects it will consume nearly a quarter of the budget.

Economists Jagadeesh Gokhale of the American Enterprise Institute and Kent Smetters of the University of Pennsylvania calculate that by 2030, Medicare will be about $5 trillion in the hole, measured in 2004 dollars. By 2080, the fiscal imbalance will have risen to $25 trillion. And when you project the gap out to an infinite time horizon, it reaches $60 trillion. [...]

Social Security is a much less serious problem. The program currently pays for itself with a 12.4 percent payroll tax, and even produces a surplus that the government raids every year to pay other bills. But Social Security will begin to run deficits during the next century, and ultimately would need an infusion of $8 trillion if the government planned to keep its promises to every beneficiary.

Calculations by Boston University economist Lawrence Kotlikoff indicate that closing those gaps — $8 trillion for Social Security, many times that for Medicare — and paying off the existing deficit would require either an immediate doubling of personal and corporate income taxes, a two-thirds cut in Social Security and Medicare benefits, or some combination of the two.

America's GDP hit $1 trillion in around 1970, when national debt had fallen to about 40% of GDP (from a post--WWII high of about 125%). Today, after GDP has increased by 14 times that we have a debt of about 60% of GDP. If GDP increases by 14 times today's $14 trillion by 2080 and we grant them their projections of $68 trillion in SS and Medicare debt, it'll only be about a third of GDP (note that today's household net worth--which doesn't even count people as assets--already stands at over $53 trillion). Forgive us for not worrying much.

Posted by Orrin Judd at October 29, 2006 9:29 AM