The federal government is in $16 trillion of debt, and that figure is growing like a weed. This is a serious issue that shouldn't be taken lightly.
But what's more dangerous than our mounting debt? People of authority making the problem seem worse than it is.
On Monday, former congressmen Chris Cox and Bill Archer wrote an op-ed in the Wall Street Journal, writing:
We most often hear about the alarming $15.96 trillion national debt (more than 100% of GDP), and the 2012 budget deficit of $1.1 trillion (6.97% of GDP). As dangerous as those numbers are, they do not begin to tell the story of the federal government's true liabilities.
The actual liabilities of the federal government -- including Social Security, Medicare, and federal employees' future retirement benefits -- already exceed $86.8 trillion, or 550% of GDP.
$86.8 trillion. That's a huge number. The pair continue:
Why haven't Americans heard about the titanic $86.8 trillion liability from these programs? One reason: The actual figures do not appear in black and white on any balance sheet.
I'd add at least one more reason: The figure is highly dubious and not taken seriously by any sober budget analyst.
The number comes from a simple calculation: Add up all expected future payouts for Social Security and Medicare (that's the bulk of it, anyway) from now until infinity, and subtract all expected future revenue the programs might bring in. Discount to present value, and you get $87 trillion.
The problem is that both the spending and revenue assumptions are nothing more than that -- assumptions. And assumptions based specifically on current law. So, the figures are accurate only if you assume:
- No existing law changes from now until infinity (literally, the end of time.)
- Projections about growth made 100+ years into the future are accurate.
Both are terrible assumptions.
If Congress and the president woke up tomorrow and decided that certain Social Security inputs should be tied to inflation instead of wage growth, poof!, $20.5 trillion of that "liability" disappears. If they raised the Medicare eligibility age, another several trillion is cleaved off. And if health care cost growth slows to near the rate of overall economic growth (which it already has), most of the $87 trillion liability vanishes.
It's misleading to call the $87 trillion figure a liability because no one is liable for it. Unlike debt, Social Security and Medicare aren't contractual obligations. Heritage Foundation economist JD Foster explains: "Legally, they are not liabilities ... Congress can at any time reduce or alter them. In contrast, state pension plans are contractual labor arrangements that are liabilities because they are legally enforceable."
There's good precedent for this "alter at any time" feature. Social Security was a mess 30 years ago. The program faced "insolvency in the near future," Senator Bob Dole warned in 1982. Estimates at the time showed Social Security would go bust by 1990. That never happened, because in 1983 President Reagan and Tip O'Neil shook hands on a deal to reduce benefits and raise taxes to keep the program intact. Life went on. Expect something similar to happen in the coming years.
More important, our record of budget forecasting over five-year periods is abominable, so forecasting into the 23rdcentury and beyond is just obnoxious. Twelve years ago, the biggest fear on budget experts' minds was that all government debt would be repaid by 2009, and there wouldn't be any bonds left for retirees to buy. Unfazed, the same people are now forecasting with decimal-point precision what the budget will look like in the year 2197. It's just mad.
Indeed, the American Academy Of Actuaries has taken issue with Social Security and Medicare's trustees for publishing the numbers Cox and Archer warn about, writing that the figures
provide little if any useful information about the program's long-range finances and indeed are likely to mislead anyone lacking technical expertise in the demographic, economic and actuarial aspects of the program's finances into believing that the program is in far worse financial condition than is actually indicated.
The group made a broader point about long-term forecasting, writing:
Consider the situation of actuaries or economists in the year 1928 attempting to project demographic and economic parameters 75 years into the future -- to 2003. They likely would have missed the Great Depression, World War II, the baby boom, the influx of women into the labor force, etc. Nobody, no matter how intelligent or educated, could have anticipated these very significant events.
Things change, in other words.
Here's a good example of things changing: The lynchpin of dire long-term budget forecasting is an assumption that medical costs will spiral out of control, as they did for most of the last three decades. Maybe they will, but right now, they aren't. Unforeseen by virtually everyone, medical cost growth has plunged to a 50-year low. If that's a trend rather than blip, a large portion of projected budget deficits will disappear without any changes to entitlement eligibility or taxes.
"[R]eal-world impacts will be felt when currently unfunded liabilities need to be paid," Cox and Archer write. Thankfully, they don't.
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