Arnold Kling  

Dr. Doom

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Jagadeesh Gokhale writes,


As reported by its trustees, Social Security's total imbalance has increased from $10.4 trillion in 2004 to $13.4 trillion in 2006 - a jump of $3.0 trillion in just two years. And Medicare's imbalance has grown from $61.6 trillion in 2004 to $70.5 trillion today - an increase of $8.9 trillion in the same period.

That's $11.9 trillion in new debt in the past two years alone. Put another way, it's 85 percent of the $14 trillion of GDP that the United States will likely produce this year.


Wall Street economist Henry Kaufman was known as Dr. Doom back in the day of double-digit interest rates. Now, I would give that honor to Gokhale.

Given the way entitlement policy was handled, one cannot say that the Republicans cut taxes. They deferred them.


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CATEGORIES: Social Security



COMMENTS (7 to date)
Randy writes:

Sounds scary. But all it means is that benefits are going to be reduced. Politicians are running scared because they know that someone is eventually going to have to deliver the bad news, so they're all going to great lengths to avoid being the messenger. But aside from a few bullet riddled messengers, this is not a disaster - just a finale.

Barkley Rosser writes:

This whole infinite horizon imbalance is just goofball. Dr. Doom indeed. It remains a fact that if average growth remains above 2.2% and immigration remains above about half of what it is now, the social security trust fund will run a surplus forever, yep folks, forever. Sorry, this is not a crisis and the constant parading of these idiotically pessimistic projections as "mid-range" does not make it so.

Kent Gatewood writes:

Are these debt numbers present values? At what discount rate? Or is that a finance thing that economists don't use?

Arnold Kling writes:

Barkley, your 2.2 percent productivity growth scenario does not solve Medicare, which is the bigger problem.

Kent, yes those numbers are present values. See the work of Gokhale and Smetters for more on methodology.

http://www.aei.org/docLib/200307161_smetters.pdf

Kent Gatewood writes:

Arnold -- That was not the answer I wanted to hear or see.

Barkley Rosser writes:

Arnold,

I completely agree. This is what annoys me about this bipartisan crowd, including our glorious president, who are constantly whooping on and on about "entitlements," and then often list social security before medicare. Medicare and Medicaid have big funding problems. Social security does not, and the sooner the politicians and the public discourse recognize this and focus on what is the problem, the better.

BTW, you do get brownie points for having made efforts in this regard, whatever one may think of those efforts. Your eye is on the right ball.

Jim Glass writes:

Another thing always missed from the discussion is federal employee/military pensions. Totally unfunded (not even the pretense of a trust fund) their liability at present value roughly equals that for Social Security. And that doesn't count the liability for promised retiree medical benefits, which the Treasury won't even guestimate. Add them and it looks the liability is way over that for Social Security.

Just another few trillion$ to add as icing on top of the Medicare/Medicaid cake.

The Treasury, in one of its (almost never reported) annual reports now estimates the annual federal deficit, computed on an accrual basis (as the private sector uses) at over $3 trillion.

I've told and shown that number to people who get really mad about the always reported deficit that's only about 10% as large, and they just sort of glaze over, then go back to being upset about the deficit that's small enough for them to grasp. But it's a number worth contemplating. E.g., think what would have to be done to close a $3 trillion annual deficit.

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