October 29, 2006


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

Just this weeks episode of the BDS Saga. Crenson's article is on the front page above the fold of our local liberal rag under the headline, U.S. Deficit is dire.

Posted by: erp at October 29, 2006 9:56 AM

Ho hgum. Wake me when any of these folks propose seriously cutting SPENDING rather than just increasing taxes.

Until then, they are not serious, just agitating to take more taxes from us.

Posted by: ray at October 29, 2006 10:06 AM

Just as long as the collapse gets delayed so that St.Hillary can play the Herbert Hoover role.

Posted by: Raoul Ortega at October 29, 2006 12:18 PM

This is a hit piece. It calls for a divided govt.,i.e. a Democratic Congress, since the guy in the White House is a Republican.

Question: where can the Chinese put their money? China's economy is shaky at best with their corruptions, and running out of young people to work to support the top heavy (age heavy) economy? The Japanese's economy is projected to shrink as soon as 2009 because of their birth dearth. Europe, as everyone knows, is down the drain whatever they say. The problem with the world is they don't have any place to put their money. That is why they have been financing our consumptions with their money, that is why we have a huge trade deficit, they rather have our money than the Euros, that is why if they "stopped" financing us, when the US $ devalues, they are the one left holding the bag. We pay back our "loan" with devalued greenbacks, their reserves are cut in half over night. They have more problems than we do if we "collapsed". The piece never pointed out that unless we are wiped off the map, we, as a country, do not have to pay off our debt. We will perpetually recycle our debts, just like the Donald. But the Donald's debtor is out of luck when the Donald cannot pay, on the other hand, uncle Sam can always pay, albiet with devalued greenbacks. Besides, our debts are not that outrageous, it hovers around 64-65% of GDP, the Euro's have theirs in the 70%. If the guy is non-partisan, why didn't he bring up his "dire" prediciton after Nov.7? Another MSM piece to gull the gullibles.

Posted by: ic at October 29, 2006 1:46 PM

No, both sides have their valetudinarians. The belief that debt matters is as impervious to the facts as Darwinism.

Posted by: oj at October 29, 2006 1:55 PM

I pointed out that if we keep growing the economy, we'll be ok, but the OMB or a senate committee's report said no way, we'll need cuts.

Posted by: Sandy P at October 29, 2006 3:11 PM

This article has it all--if you like poorly-drawn predictions of doom. Currently, our $8.5 trillion in debt is 65% of GDP, which the Fed estimates will be $13.3 trillion for 2006. Comptroller Walker bemoans a possible future debt of $46 trillion, decades down the road. Assuming the economy grows at a 5% nominal (or 2% after inflation) rate, the GDP would be $71 trillion in 35 years. Therefore, debt of $46 trillion would still be in line with the 65% (of GDP) ratio we maintain today. What's wrong with that outcome?

Posted by: Kurt Brouwer at October 30, 2006 4:38 AM