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Our treasured colleague Kulak is at it again with another post on his Substack.
I know that a slow-moving budget crisis is not the spiciest meatball, but the fiscal situation in the United States is looking bad. Debt to GDP is now above the previous high set at the peak of WWII. But whereas the post-wars years saw demographic and technological tailwinds, the current epoch is characterized by low fertility and productivity growth.
It gets worse:
While it might be possible to split a shrinking pie and remain friends, it is definitely IMPOSSIBLE to split a pie when more than 100% of the pie has already been promised to one person or another. Give a person a dollar, they are mildly happy. Take a dollar away and they are FURIOUS.
At this point, I'd encourage you to find a nearby senior citizen. Please explain to them that they don't deserve their social security check. You see, the money that was supposedly SAVED was in fact already SPENT. Far from saving money, their generation actually left a sizeable DEBT to future generations. So not only would seniors have to give up their government checks, they would have to pay hundreds of thousands of dollars in additional taxes just to get to even.
I'll wait.
Just how irrational are the expectations of our Boomer rulers? Slobodan Milošević understood.
The last politician to even contemplate reforming Social Security was George W. Bush, who claimed to have earned "political capital" shortly after his re-election in 2004. By March of 2006, his approval rating had fallen from the high 50s to just 31. Nowadays, politicians in either party don't even mention Social Security except to praise it effusively and promise to defend it at all costs.
We are well and truly fucked. The Federal government will be forced to default or inflate away its debts within the next 10-20 years. And this is BEFORE the numerous suggestions to somehow EXPAND the welfare state, whether they be student loan forgiveness, payments to favored racial groups, or universal basic income. After all, ours is a great laboratory of democracy. So while the Federal government enters a slow fiscal doom loop, some states like Illinois, California, and New York seem to be attempting a speed run.
How do we get out of this? Kulak has a few ideas, but I'm a little less dramatic.
AI. Maybe we will somehow thread the needle between doom and nothingburger. 🤷
Immigration. The U.S. could escape this problem by cherry picking the best citizens from other countries and telling everyone else to GTFO. We are still, after all, the best country (>10 million population subdivision). This would work, but it would never happen and it's probably a bad thing for the world at large.
Inflation. Many liabilities are indexed to inflation such as Social Security and Medicare. But we could inflate away all the existing debt. Debt to GDP actually decreased in 2022 because of 9% inflation. That level of inflation for a decade or two could make the problem less bad. It would also be helpful if the official inflation numbers were even more fake.
Things are just shittier in the future. Brazil is still a country. This is your future.
Where did he get this number from? I looked at other estimates in the 100-200 range, this paywalled article from 2017 says 210 which suggests it'd be way higher now.
https://www.forbes.com/sites/johnmauldin/2017/10/10/your-pension-is-a-lie-theres-210-trillion-of-liabilities-our-government-cant-fulfill/
I don't disagree with the premise, US is not fiscally sound. But unfunded liabilities seem to mean all different kinds of things over different time horizons.
This website reports 213 trillion in unfunded liabilities, listing the US Treasury as its source, though I can't seem to find the exact source myself.
https://usdebtclock.org/
I read the document around page 63 like the Forbes article says and couldn't find it.
https://home.treasury.gov/system/files/261/FSOC-2016-Annual-Report.pdf
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Recursive link-following from the above Forbes post says that the 210 trillion is an estimate by a cabal of right-wing economists of the NPV of future federal deficits out to an infinite horizon (as of 2015). In other words, it is a voodoo number - it is sensitively dependent on assumptions made about demographic and technological change in the 22nd century.
The up-to-date equivalent number out to the 75-year horizon used in the official Financial Report of the United States Government (see Cato commentary) is $80 trillion
The 213 trillion on the Debt Clock is given by debt ($34 trillion) + unfunded Social Security benefits ($27 trillion) + unfunded Medicare benefits ($41 trillion) + unfunded federal employee pensions (including veterans' benefits). The debt clock doesn't give a number for the employee benefits, but the official number is about $13 trillion. It looks like the reason why the numbers don't add up is that the debt clock people are using the 75-year horizon for the SS and Medicare numbers given in isolation, but the infinite horizon numbers (which, for those two programmes only, are official US Treasury numbers) as part of the grand total.
Those big scary SS/Medicare numbers are not "liabilities" in an accounting sense - the debt clock misleadingly describe them as GAAP numbers, but a private-sector organisation with underfunded pension liabilities would account for them very differently under GAAP. They are just NPVs of future cashflows - in the case of Medicare parts B and D which are funded on a PAYG basis, the "unfunded liability" is just a projected NPV of gross spending. A private sector GAAP analysis would only count a liability for accrued benefits - i.e. benefits that were "earned" through taxes paid in the past that will be paid in the future. An NPV analysis includes pensions that will be paid to people who haven't started working yet. In particular, the SS projections assume that people who are now under 15 or not yet born will get more out of SS than they pay in to the tune of $17 trillion, and include that as a "liability".
If I am correct about the debt clock methodology, the two numbers are similar because the largest component of both is infinite-horizon projections of SS and Medicare spending, where they both use the same official Treasury estimates.
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