Shadow Government Statistics estimated that by 2006 the total net worth of the US Government, based on GAAP and including Medicare, Social Security and other liabilities was $54.6 Trillion in 2006. This is easily $60 Trillion by now. The only reason for the rating agencies to give U.S. Bonds AAA ratings is that a US default is "unthinkable." They might have to think again.
Closing even the yearly total deficit for 2006 of $4.6 Trillion could not be done by increasing income taxes, even if all income were taxed at 100%.
Part of my disquiet is that I really have no idea of what the worst case yearly demand on non-existent US Government financial resources might be. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
Also, I'm pretty sure that some of those lines are based on estimating an actuarial value for an infinite series of liabilities (always very dangerous), which is highly dependent on what the tax rate will be during all those years.
Yes the US government is in dire financial straits, but this seems more an exercise in accountancy than economics. Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
My only advantage, geezer that I am, is that I have watched much of this unfold, usually with a mixture of puzzlement, astonishment and dismay. I read Keynes' The Economic Consequences of the Peace in 1964 or '65 and discussed it with grad students in economics. One of his points was, counter-intuitively, that massive reparations by Germany to GB and FR would tend to impoverish the recipients. Other discussions had to do with similar problems in inter-generational wealth transfer relating to Social Security. Such little understanding as I have is mostly confined to the problems.
John Williams' Shadow Government Statistics series attempts to describe the history of how the US Government has stated its budget and various econometric data. Not too supprising is his assertion that metrics have been changed to make the current administration look good. Over time such changes can seriously affect the data, i.e. we can show inflation adjusted growth, but if the measure of inflation has been understated then the inflation adjusted growth will be overstated. The usual mainstream response to this is to deplore and then ignore.
In the late '70s to early '80s Congress and the Carter and Reagan administrations crafted a "rescue" of Social Security. There was legitimate concern that not enough was being withheld to pay for the retirement of the boomers, who constituted a demographic bulge. So the amount withheld was increased substantially. Social Security was "saved."
However, the increased withholding for Social Security was not saved. Reagan budget and tax policies, as David Stockman memorably noted, produced deficits "as far as the eye can see." With my own dim awareness of the problems of inter-generational wealth transfer, I thought that the best way to prepare for the retirement of the baby boomers, whom I preceded by about three years, was to invest the increased withholding in education and infrastructure and to grow the productive capability of the country. I have yet to see a better proposal that I could understand, but I have never seen an explicit discussion of these problems in the US public sphere. Instead, Social Security became the third rail of American politics: touch it and you die.
Instead of investing the increased withholding in areas that conceivably might boost the productive capacity of the USA, the Reagan and GHW Bush Administrations used it to mask deficits resulting from tax cuts, primarily for the rich. Regulatory policy has, arguably, facilitated the flow of some of this withholding revenue into various asset bubbles on Wall Street. Policies under Clinton noticably reduced the budget deficit, but only that part remaining after excluding Social Security, Medicare, etc. which had been taken "off budget." This was clearly and openly proclaimed by all, but not clearly comprehended by many.
Of course "W's" Administration, in conjunction with the Republican majorities in Congress, gleefully reversed all of the Clinton administration's work towards closing the deficit, inadequate though they were. As I understand him, John Williams has computed the federal budget deficits as they would be were the government itself to use the Generally Accepted Accounting Procedures which it mandates for others and were it to include the "off budget" items such as Social Security , Medicare, etc. for which it has been collecting taxes in the form of withholding.
Which is worse: looking at the numbers or ignoring them? Better yet, is there additional context which will make this situation clearer?
Perhaps this subject could be a part of the Socratic Economics Series. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
