You read that right: $210 trillion.
A trillion here, a trillion there: pretty soon, we’re talking big money.
Professor Lawrence Kotlikoff of Boston University testified before the Senate Budget Committee. As usual, his testimony is shocking
The U.S. has a $210 trillion “fiscal gap” and “may well be in worse fiscal shape than any developed country, including Greece,” Boston University economist Laurence Kotlikoff told members of the Senate Budget Committee in written and oral testimony on Feb. 25.
“The first point I want to get across is that our nation is broke,” Kotlikoff testified. “Our nation’s broke, and it’s not broke in 75 years or 50 years or 25 years or 10 years. It’s broke today.
“Indeed, it may well be in worse fiscal shape than any developed country, including Greece,” he said.
Kotlikoff has become skilled at producing sound bites. The media are always after sound bites.
He is always focusing on the key statistic, which is not the on-budget annual deficit. He focuses on the unfunded liabilities of the federal government.
“This declaration of national insolvency will, no doubt, shock those of you who use the officially reported federal debt as the measuring stick for what our country owes,” Kotlikoff told committee members who are considering President Obama’s proposed budget for Fiscal Year 2016.
“After all, federal debt in the hands of the public is only 74 percent of GDP. Yes, this is double the debt-to-GDP ratio recorded a decade ago. But it’s still a far cry from Italy’s 135 debt-to-GDP ratio or Greece’s 175 percent ratio.”
However, using the Congressional Budget Office’s July 2014 75-year Alternate Fiscal Scenario projection, Kotlikoff calculated that the U.S.’ “fiscal gap” –which he defines as “the difference between our government’s projected financial obligations and the present value of all projected future tax and other receipts” – is actually much higher than those of either Italy or Greece.
“We have a $210 trillion fiscal gap at this point,” Kotlikoff told the senators, which amounts to 211 percent of the U.S.’ $18.2 trillion GDP, making it higher than Greece’s 175 percent debt-to-GDP ratio.
The fiscal gap is “16 times larger than official U.S. debt, which indicates precisely how useless official debt is for understanding our nation’s true fiscal position,” said Kotlikoff, a former senior economist on President Ronald Reagan’s Council of Economic Advisers.
This number is astronomical. It should be obvious that there is no way, politically speaking, that this deficit is ever going to be dealt with, other than by default. We need to be reminded of this every year, because the media only talk about it once a year, and that is just after Kotlikoff testifies. He reminds us, and then the media go back to sleep. It happens every year.
“By way of comparison, the Social Security system, taken by itself, is 33 percent underfinanced.” Last year, Kotlikoff testified on Capitol Hill that the Social Security system was in “significantly worse financial shape than Detroit’s two pension funds taken together.”
Kotlikoff said that not counting “off book” liabilities like Social Security give lawmakers and the public a false sense of the nation’s true fiscal condition.
“What economics tells us is that we can’t choose what to put on the books. All government obligations and all government receipts, no matter what they are called, need to be properly valued in the present taking into account their likelihood of payment by and to the government,” Kotlikoff testified.
“Successive Congresses, whether dominated by Republicans or Democrats, have spent the postwar accumulating massive net fiscal obligations, virtually all of which have been kept off the books,” he noted.
We know what is going to happen. If there is anyone in Congress who is not aware of this, he is living in a fantasy world. But, I suspect, most Congressmen really don’t understand it. They have been able to kick the can, decade after decade, and they assume that they will be able to do this in the future. Nothing bad has happened so far, so they assume that nothing bad will ever happen.
The American people know nothing of this, but if they did know anything about it, they would side with Congress. They would assume that kicking the can is an effective way to deal with unfunded liabilities.
(For the rest of my article, click the link.)
