Fiscally Impossible?

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$222 Trillion Unfunded Liabilities

The expert here is Prof. Lawrence Kotlikoff of Boston University. His most recent report says that total unfunded liabilities went from $211 trillion a year ago to $222 trillion this year.
 
The biggest source of future red ink will be Medicare. In second place is Social Security.

How can the government pay off these obligations? It can't. The possibility does not exist. The government needs a spare $222 trillion to invest in private companies. This investment must make a return of at least 5% to provide the money needed to pay meet the government's obligations. There is no $222 trillion available, and no capital markets large enough to absorb $222 trillion.

Conclusion: the U.S. government will default. 

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Sacred Cows

How to Eliminate Social Security and Medicare

Ralph Raico writes:

How to Eliminate Social Security and Medicare Expenditures under the Social Security and Medicare programs account for approximately one-third of total federal government spending. It is obvious that any major reduction in government spending requires major reductions in spending for these programs. Unfortunately, Social Security and Medicare are generally regarded as sacred and thus virtually untouchable, with the result that few if any proposals have been made that would greatly reduce the spending they entail... This program will undoubtedly seem much too slow for some supporters of individual rights and freedom. Nevertheless, I believe that it is in fact the most rapid means of achieving its ultimate goal that does not entail a revolutionary overthrow of what have come to be established rights in the law, however wrongheaded the law has been in establishing those rights in the first place. Proceeding in this way is an essential aspect of liberalism in its classical sense. Fundamentally, rights to entitlements of any kind, that must be paid for involuntarily by other people, are no more legitimate than the alleged property rights of slave owners in their slaves. Yet to avoid civil war, liberalism would have urged a policy of compensated emancipation rather than one of violent emancipation. Today, in fundamentally similar circumstances, liberalism must limit as far as possible the disturbance that would otherwise be caused by the elimination of illegitimate, perverted rights... If we want to protect the value of individual human life, particularly in old age, when it is most vulnerable, we must reverse direction and start dismantling Social Security and Medicare, two potentially deadly collectivist institutions. We must restore to the individual the responsibility and the power to determine his own future through forethought and saving. The individual must have his own individual property with the freedom to use it for his own well-being, as he sees fit. Government officials must be barred from the process. source

Budget Deficit and Financial Crisis

The president says he understands the urgency of our fiscal crisis, but his policies are the equivalent of steering the economy toward an iceberg.

President Barack Obama took office promising to lead from the center and solve big problems. He has exerted enormous political energy attempting to reform the nation's health-care system. But the biggest economic problem facing the nation is not health care. It's the deficit. Recently, the White House signaled that it will get serious about reducing the deficit next year—after it locks into place massive new health-care entitlements. This is a recipe for disaster, as it will create a new appetite for increased spending and yet another powerful interest group to oppose deficit-reduction measures.

Our fiscal situation has deteriorated rapidly in just the past few years. The federal government ran a 2009 deficit of $1.4 trillion—the highest since World War II—as spending reached nearly 25% of GDP and total revenues fell below 15% of GDP. Shortfalls like these have not been seen in more than 50 years.

Going forward, there is no relief in sight, as spending far outpaces revenues and the federal budget is projected to be in enormous deficit every year. Our national debt is projected to stand at $17.1 trillion 10 years from now, or over $50,000 per American. By 2019, according to the Congressional Budget Office's (CBO) analysis of the president's budget, the budget deficit will still be roughly $1 trillion, even though the economic situation will have improved and revenues will be above historical norms.

The planned deficits will have destructive consequences for both fairness and economic growth. They will force upon our children and grandchildren the bill for our overconsumption. Federal deficits will crowd out domestic investment in physical capital, human capital, and technologies that increase potential GDP and the standard of living. Financing deficits could crowd out exports and harm our international competitiveness, as we can already see happening with the large borrowing we are doing from competitors like China...

In short, any combination of what is moving through Congress is economically dangerous and invites the rapid acceleration of a debt crisis. It is a dramatic statement to financial markets that the federal government does not understand that it must get its fiscal house in order.

What to do? The best option would be for the president to halt Congress's rush to fiscal suicide, and refocus on slowing the dangerous growth in Social Security, Medicare and Medicaid. He should call on Congress to pass a comprehensive reform of our income and payroll tax systems that would generate revenue sufficient to fund its spending desires in a pro-growth and fair fashion.

Reducing entitlement spending and closing tax loopholes to create a fairer tax system with more balanced revenues is politically difficult and requires sacrifice. But we will avert a potentially devastating credit crisis, increase national savings, drive productivity and wage growth, and enhance our international competitiveness.

read the WSJ essay

Health Care Reform and the Budget Deficit

In the Mid-Session Review of the 2010 Budget issued last August, the Administration estimated that we were on a path that would result in a cumulative deficit over the ten-year budget window from 2010 to 2019 of $9 trillion...

Finally, by far the lion’s share of the projected cumulative deficit is due to policy actions taken in the last Administration. Economists Alan Auerbach and William Gale find that policies from the last eight years that we failed to pay for, including cutting taxes, introducing a new entitlement program for prescription drug benefits, and fighting two wars, are contributing approximately $700 billion per year to the budget deficit. Before those actions were taken, we had been on track to run large budget surpluses over the coming decade.

read the entire paper

Four Arguments Against Socialism

The first argument against any socialist program, however, is the moral one — that it’s wrong to take what doesn’t belong to you. Moreover, the immorality of an act cannot be converted into something good or moral simply because the state is doing it on your behalf...

A second argument against any socialist program is that it just doesn’t work. Let me repeat that for emphasis: Socialism doesn’t work, not even when American politicians and bureaucrats are running it. It inevitably produces crises, which are then used as the excuse for more government intervention. Moreover, it is inordinately expensive, as Americans have discovered with Medicare, much to their dismay.

A third argument against any socialist program is that it destroys the independence, fortitude, strength, and moral fiber of the people. How can a people be strong and independent when they have become frightened, dependent wards of the government?...

A fourth argument against socialism is that it turns into a war in which everyone is doing his best to get into everyone else’s pocketbook, while doing everything he can to protect his own pocketbook from being plundered. As Frédéric Bastiat put it so well, under socialism the government becomes a great fiction by which everyone is trying to live at the expense of everyone else. How can a society survive when everyone is warring against everyone else?

read the essay

Cartoon: Social Security and Medicare

Cartoon: Social Security and Medicare