Arnold Kling  

Unchecked Government Marches On, II

PRINT
Unchecked Government Marches O... Conservatives, Libertarians, a...

USA Today reports,


Taxpayers are on the hook for a record $57.3 trillion in federal liabilities to cover the lifetime benefits of everyone eligible for Medicare, Social Security and other government programs, a USA TODAY analysis found. That's nearly $500,000 per household.

When obligations of state and local governments are added, the total rises to $61.7 trillion, or $531,472 per household. That is more than four times what Americans owe in personal debt such as mortgages.

The $2.5 trillion in federal liabilities [added last year] dwarfs the $162 billion the government officially announced as last year's deficit, down from $248 billion a year earlier.

...The reason for the discrepancy: Accounting standards require corporations and state governments to count new financial obligations, even if the payments will be made later. The federal government doesn't follow that rule. Instead of counting lifetime benefits for programs such as Social Security, the government counts the cost of benefits for the current year.

The newspaper calculates that last year the government added $1.2 trillion in future Medicare liabilities and $0.9 trillion in new Social Security liabilities. Again, a private sector company would not be allowed to do this without reporting it and without taking steps to fund such liabilities.

But the government is the solution to the private sector "debt crisis."


Comments and Sharing


CATEGORIES: Fiscal Policy



TRACKBACKS (3 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/833
The author at Roth & Company, P.C. in a related article titled YIN: TEMPORARY TAX PROVISIONS ARE GOOD writes:
    George Yin, the former chief of staff of the Joint Committee on Taxation, makes an unusual argument. Guest-blogging at Tax... [Tracked on May 22, 2008 9:38 AM]
COMMENTS (11 to date)
Randy writes:

"...The reason for the discrepancy: Accounting standards require corporations and state governments to count new financial obligations, even if the payments will be made later. The federal government doesn't follow that rule."

Actually, this makes perfect sense given that the government doesn't really have to pay these "lifetime benefits" - seriously, who's going to make them pay? The primary objective of programs such as Social Security and Medicare is to raise revenue for the political class, and the one thing that we can count on is that the programs will be modified as necessary to accomplish this objective.

KipEsquire writes:

Don't forget state & local government pension, healthcare and other benefit obligations, currently self-reported (i.e., underreported) at $750 billion and climbing.

Note also that the federal government does indeed publish "notes to consolidated financial statements" similar to a private business that acknowledge the fact that it does not present its future obligations in accordance with GAAP (though the statements do not present alternative "private sector" reconciliations).

ryan writes:

Randy, I'm not sure if I understand how this makes sense from a standard public choice point of view. Are Medicare and Social Security payoffs to rent-seekers? If not, what are they there for? If they are payoffs to "the political class", then why aren't they being funded? I think whatever the explanation, there needs to be some accounting of mistake, which given the long-standing state of the problem, implies some sort of irrationality, right?

Steve Balboni writes:

a private sector company would not be allowed to do this without reporting it and without taking steps to fund such liabilities.

Yes, if only we had some sort of dedicated tax to fund Social Security.

Randy writes:

Ryan,

"Are Medicare and Social Security payoffs to rent-seekers?"

Yes.

"If they are payoffs to "the political class", then why aren't they being funded?"

They are being funded. To date, these programs have always been profitable for the political class. The current discussion of the "looming crisis" is simply propaganda to set the stage for actions necessary to maintain profitability. Social Security is in no immediate danger, but Medicare is - thus the intensity of the propaganda pushing universal healthcare.

"I think whatever the explanation, there needs to be some accounting of mistake, which given the long-standing state of the problem, implies some sort of irrationality, right?"

These programs are in no way irrational. They do now and have always accomplished their objective - to produce a profit for the political class.

Bob Knaus writes:

Ryan - to clarify Randy's point a bit, I thin what he means by "profit for the political class" is political profit, not monetary profit.

There are quite a number of people who value political success far more than monetary success. Consider the number of wealthy people who run for mundane office, or the number of corporate execs who are thrilled to leave their private-sector posts to be secretary of an obscure department. Clearly, political success is a powerful draw.

The federal entitlement programs will only be funded to the extent our elected leaders judge to be politically expedient. The programs are projections, not promises.

You can read words to that effect on the annual benefits projection that the SSA sends you.

Randy writes:

Bob,

True enough about political profit, but I do mean financial profit as well. So far over $2 trillion dollars has gone into the Social Security trustfund, and then passed immediately into the hands of the political class to distribute as they see fit. It is no small amount that found its way into their pockets via the distribution process.

ryan writes:

Bob, sure, political profit not monetary profit. But where does the political profit come from? From voters that are profiting monetarily, right? (If "the idea" of Social Security and Medicare is making someone happy, then we're back to our story of rational irrationality, or maybe just plain irrationality.) For this to work, people have to have some expectation of getting money, so if you're saying that people don't expect to get their rents, then they shouldn't respond by giving the political class any political profit. So which is it? Are SS & Medicare (a) real rents that rationally generate political profit because they will actually be funded, (b) false promises that won't be fulfilled and so rationally don't actually generate much in the way of political profit, or (c) false promises that are believed by the (rationally?) irrational who then give political profits to the false promisors?

Randy writes:

Ryan,

I'll go with a combination of b and c, false promises. The political class is made up of the deluders, not the deluded. The deluders can and do profit at the expense of the deluded. There's a reason that the political class invests so heavily in propaganda and indoctrination. Why, for example, do so many middle class people believe that Social Security and Medicare are "necessary"? Because that's what they've been taught to believe.

Matt writes:

If you believe Hauser's law, the federal government will spend about 19% of the economy, medium and long term. So, this unfunded liability is not really a liability, but rather a wish never to be fulfilled.

If these liabilities were realistic, then for a young person on his first day at work assumes a $550,000 liability. The underground economy would (and probably is) exploding.

Lord writes:

We should also have an accounting of projected future wars. They are more predictable than one might assume and their costs very large. Budgeting for them may be a mistake though. In down times it may just encourage starting one. Even though this incentive already exists, a budget for it would make it all the easier.

Comments for this entry have been closed
Return to top