The unfunded liabilities of the U.S. government grew in one year by $11 trillion. So says Prof. Lawrence Kotlikoff of Boston University. He is using figures provided by the Congressional Budget Office.
He makes a good point. Republicans and Democrats in Congress a year ago could not figure ways to cut $210 billion a year for a decade. Meanwhile, the real debt grew by $11 trillion.
We live in a fantasy world. Someday, the fantasy will end.
The fiscal gap is getting worse each year. What is this?
The fiscal gap is the present value difference between projected future spending and revenue. It captures all government liabilities, whether they are official obligations to service Treasury bonds or unofficial commitments, such as paying for food stamps or buying drones.
Understand, this is the present value of the gap. It’s not that, over the next 75 years, there will be $11 trillion more debt. It is that the present value of the entire gap is $11 trillion. We need $11 trillion today, invested in high-return capital in the private sector, to meet future obligations.
It gets worse.
The U.S. fiscal gap, calculated (by us) using the Congressional Budget Office’s realistic long-term budget forecast — the Alternative Fiscal Scenario — is now $222 trillion. Last year, it was $211 trillion. The $11 trillion difference — this year’s true federal deficit — is 10 times larger than the official deficit and roughly as large as the entire stock of official debt in public hands.
This has been accelerating for years.
This fantastic and dangerous growth in the fiscal gap is not new. In 2003 and 2004, the economists Alan Auerbach> and William Gale extended the CBO’s short-term forecast and measured fiscal gaps of $60 trillion and $86 trillion, respectively. In 2007, the first year the CBO produced the Alternative Fiscal Scenario, the gap, by our reckoning, stood at $175 trillion. By 2009, when the CBO began reporting the AFS annually, the gap was $184 trillion. In 2010, it was $202 trillion, followed by $211 trillion in 2011 and $222 trillion in 2012.
There is no awareness of this. Kotlikoff is the only economist to discuss this. His findings are not disputed, merely ignored.
Congress will not stop this. Members are unaware of it.
The numbers are simply inconceivable. Therefore, no one takes them seriously.
When fully retired, 78 million baby boomers will collect, on average, more than 85 percent of per-capita gross domestic product ($40,000 in today’s dollars) in Social Security, Medicare and Medicaid benefits. Each passing year brings these outlays one year closer, which raises their present value.
What can be done? Nothing reasonable. Taxes can be raised by 64%. But revenues will not follow tax hikes. That’s basic Laffer curve reality.
Alternatively, the government can cut Medicare and Social Security by 40%. Not gonna happen.
Then what will happen? Simple. Congress will kick the can down the road.
Voters, unaware of any of this, will not prepare.
There is going to be a Great Default.
The day of reckoning is coming. Be prepared.