I begin with what I regard as the fundamental fact of modern economic life: the present value of the unfunded liabilities of the United States government.
The economist who has been most vocal about this is Prof. Lawrence Kotlikoff of Boston University. He releases an estimate every year. His estimate is this: somewhere in the range of $210 trillion.
Understand, this is not the future value of the unfunded liabilities of the federal government. This is the present market value of those unfunded liabilities. This is what the federal government should put aside today to invest in profitable investments that will enable these unfunded liabilities to be funded.
Comparable unfunded liabilities face every other Western government, including Japan. This is an international problem. It is a universal problem.
The response of all governments is the same: they ignore the problem.
This number — $210 trillion — is so large that it keeps anyone in Washington from discussing it publicly. It is so obvious that this problem cannot be solved that nobody bothers to discuss it. Why should anybody discuss a problem that inherently cannot be solved? So, nobody discusses it. It gets a little publicity each year in the alternative media, but it is off the table as a serious political topic in Washington.
It is the most important of all the political topics of Washington, simply because the numbers indicate the inevitability of a default. There will have to be a default. There is no maybe about it. Washington is not going to deal with this problem.
We like to say that Washington is going to kick the can. I have used that phrase. Lots of financial columnists have used this phrase. The problem is, the phrase is misleading.
The problem with the metaphor of can-kicking is this: the image does not address the fundamental element of the problem, namely, the progressive increase in the size of the can. It also does not convey the concept of a can which will at some point roll backward over the person who is attempting to kick it. We’re kicking the can up the hill, and the can keeps getting larger. But this is absent from the metaphor.
What is missing in the metaphor is the great discontinuity Kicking the can sounds like a continuous action that can go on indefinitely. It has gone on so long that virtually everybody believes, as far as his investment portfolio indicates, that the federal government can continue to kick the can indefinitely.
I prefer a different metaphor. I prefer the metaphor of the avalanche.
SNOWPACK AND AVALANCHE
What is happening is more like the snowpack in the Alps.
The snowpack gets larger and larger. The voting public should know that there is going to be an avalanche. But nobody in politics tells voters that there is going to be an avalanche. Everybody in Washington denies there is going to be an avalanche. Yet the snowpack gets larger, day after day.