So What’s a Year Worth? (2)
This completes the piece I wrote last week on the entitlements crisis. Look at the following graph and table.
Those are trillions of dollars that we are looking at, and a 14% growth rate over the last eight years, significantly outpacing GDP growth. Why did I not like Bush Jr., and why is Obama likely worse? There is no concern for the long run effects of current policies. Does it matter that current policy is unsustainable? This does not count in state defined benefit pension plans and retiree healthcare. Even without that, the deficit on an accrual basis is 3.5x GDP. Another way to think of this is that we are at least ten years behind in tax collections.
We are viewing the slow failure of the US Government. It may not be for years or decades, but the lack of willingness of the current administration to address the growing shortfall shows that they are more similar to the Bush, Jr., administration, than different from it. After all, who ran the biggest deficits? Obama, by a long shot.
May 19th, 20095:22 am at
how do i reconcile this with the 350% debt to GDP that you showed graphically last year? specifically, does the 350% figure exclude ss and medicare? if you include the PV of them, what does the total debt to GDP come to? thanks
May 19th, 20099:56 am at
David, for some reason the two charts are not appearing- just a red X.?.
Secondly, thanks for part 1. I recall your articles on CDS and CDOs back on RM, and the ultimate end-game for those instruments we saw in 2008 played out as you expected.
You have a very grounded vision of the probable.
Is the path binary? Debt inflation or huge tax increases, or both? Any other solution?
I suppose I am thinking back to Figgie (SP?) who was worried about the deficit in the 80’s and preached disaster that never came true? As a young guy at the time it scared the heck out of me- (I still have a gold coin…) so I’ve learned to be a bit more cynical of end of world predictions. No matter how convincing, and this is not looking too good for the next few years.
David, my studies were in political economy, not economics. If you trace out the historical paths other countries have gone through of creeping then rampant socalism/nanny state expansion they always hit a wall of reality, leading to either chaos (Argentina, Venez) or reform.
Look at the Baltic states, Chile, ANZ/NZ. They all maxed out and then went free market.
I’ve no clue if this could happen here. We do have a strong philosophy among a minority for limited government. 7 more years of gov’t expansion could render us ripe for some true ‘change.’
Final comment: Isn’t it interesting how the hurdles are being raised for citzens to have offshore accounts and assets? Although there are few barriers to owning foreign US listed stocks, owning assets outside the US is getting very difficult for the individual due to informal barriers like reporting, forms, taxes and intimidation of foreign fiduciaries.
Regards!
May 19th, 200910:15 am at
These are totally different — these are the net liabilities on the US Government. Those were the private debts and explicit US Government debts, excluding accrual liabilities like Social Security and Medicare.
May 19th, 200911:11 am at
it seems to be a bug in internet explorer… if you click on them, go up to the address bar, and remove an excess slash, you can see them one by one.
May 19th, 200911:25 am at
fixed. the problem wasn’t IE, it was some mysterious code that I must have
accidentally put in.
May 25th, 200910:00 pm at
Obama has run the biggest deficits yet has been in office for a bit longer than 100 days? Why not wait until we see the actual results vs projections. Bush and the CBO had projected surpluses for 2008 while cutting taxes and running two wars. Interesting that there is such harsh criticism for a president that’s inherited a disaster based on failed policies, crony capitalism, and more importantly has been on the job for a handful of months yet is being judged as though he’s had two full terms.
May 26th, 20099:33 am at
We shouldn’t have run the deficits or the done the bailouts under Bush. Obama is not anti-Bush on the economy. He is Bush times two.