July 05, 2009
Off-balance-sheet federal liabilities
Just how much has the U.S. government promised to pay?
Total public debt outstanding of the U.S. Federal Government is currently $11,490 billion, or $124,000 per taxpayer. But a fair chunk of that total public debt-- $4,350 B to be exact-- is money that the government owes to itself, about half to the Social Security Trust Fund, and the remainder to other government accounts such as Civil Service Retirement and Disability, Military Retirement, Medicare, and Unemployment Insurance Trust Funds. The debt actually held by the public is "only" $7,140 billion, which amounts to half of last year's GDP. The Congressional Budget Office estimates that debt held by the public will rise to 56.6% of GDP by the end of this year. That will put the number well above the peaks reached in the Revolutionary War, Civil War, World War I, or the Reagan years, though still significantly below the debt run up from World War II.
But is it correct to subtract off the $4.3 trillion that the government owes "to itself"? These intragovernmental accounting entries represent an intention of the government to deliver real resources to certain parties, such as retirees, at a future date, so perhaps we should include them in a reckoning of all that the government has promised to pay. On the other hand, given what is currently promised, and given trends in the aging population and rising medical costs, if benefit formulas continue as present, the amount that the government would be obligated to deliver far exceeds the sums acknowledged in the intragovernmental debt accounts or what could be covered with future tax revenues.
One calculation that the CBO has performed is what they call an "alternative fiscal scenario" representing
one interpretation of what it would mean to continue today's underlying fiscal policy. This scenario deviates from CBO's baseline even during the next 10 years because it incorporates some policy changes that are widely expected to occur and that policymakers have regularly made in the past.
According to the CBO, in the absence of a significant increase in taxes above historical rates or change in benefit policies, growth in Medicare, Social Security, and Medicaid would quickly produce an explosion of federal debt.
Of course such a path is completely infeasible and unsustainable. Then what exactly is the government promising to provide in the way of retirement medical care and income for those currently working, and what will the government actually deliver? The answer to both questions is unclear to me, though I have no doubt that this category of off-balance-sheet liability represents a potentially staggering sum.
But whatever you think future spending on Medicare will be, consider some of the other off-balance sheet federal promises. At the end of 2008, the Federal Deposit Insurance Corporation had insured $4.8 trillion in deposits. Fannie and Freddie, which are now effectively nationalized, bring perhaps another $4.9 trillion in notional liabilities to the table. Those two alone sum to an amount well in excess of the current federal debt owed to the public.
Ah, but the federal government wouldn't actually be asked to honor more than a small fraction of those guarantees, would it? Only a few banks will fail, and the prime loans insured by Fannie and Freddie are safe, right? Right?
Still, even a modest fraction of $10 trillion sounds like a lot of money to me.
Then there's the loose change, such as the $1.1 trillion in obligations of the Federal Home Loan Banks. The federal government does not officially acknowledge responsibility for the liabilities of these government-sponsored enterprises, though that of course is what it had also claimed about Fannie and Freddie. Government-owned Ginnie Mae has issued guarantees on another $577 billion in mortgage-backed securities, while the Federal Housing Administration has insured $532 billion in mortgages. The U.S. Federal Reserve has added $1.1 trillion to its liabilities since September. And now loan guarantees appear to be the instrument of choice for U.S. energy policy (, ).
Of course there's a simple reason why all this happens. There is tremendous pressure for politicians to deliver in the form of off-balance-sheet commitments. Voters credit them for giving us what we want now, and blame somebody else when the time comes to pay for it. I'm amazed that no one is being held accountable for the fiasco of Fannie and Freddie, and indeed leading elected officials continue to advocate more of the same policies that created the original problem.
Some might look at Figure 1 and conclude that the U.S. could issue much more debt and still find ready buyers. But I worry that Figure 1 is only the tip of a very big iceberg.
Posted by James Hamilton at July 5, 2009 02:14 PMdigg this | reddit
My son age 22, is majoring in econ and math. He has started to figure some of this out. He is not happy, and I do not blame him.
Posted by: Fat Man at July 5, 2009 06:36 PM
Though I believe strongly in Capitalism and (Representative) Democracy, there are (at least) two conflicts of interest that exist between the two...
First, politicians promise anything to get re-elected. Low taxes and high benefits is an unsustainable model that stole money from the future by borrowing excessively.
Second, the Financial, Medical and Defense Industries (among others) have all become bloated on government pork and political favoritism. Corporations can influence trillion of dollars in revenue with mere millions in political contributions. What a deal!
Until someone is willing to start making some hard decisions, the only constraint on both of these unsustainable models is their final collapse. No one is really making those decisions yet.
Math always wins in the end.
Posted by: Jim at July 5, 2009 07:28 PM
If we go by how politicians have historically dealt with the national debt, at least since 1913 with the establishment of the federal income tax, the bill will come due a lot sooner that today's politicians think.
There's a relationship that defines a kind of political "equilibrium" that affects the level of the national debt burden per capita and income tax rates. Basically, once the national debt burden per capita moves too far away from that equilibrium, tax rates are altered to bring it back in line - it's previously happened in 1918 (up), 1942 (up), 1964 (down), 1971 (down), 1982 (down), 1993 (up) and, if current trends hold, 2010 or 2011 (up). Based on that relationship, the maximum income tax rate should roughly double from the current 35% to around 70%.
The politicians won't have a choice - it will likely be a condition required by those lending money to the U.S. to continue that lending.
Posted by: Ironman at July 5, 2009 08:36 PM
Both Moody's and Standard & Poors have projected that on current policy the credit rating of the US will start falling in 2017. That's all of eightg years away.
Standard & Poor's has projected the credit rating of the US will be "junk" by 2027.
This was on "current policy" before the recession, Obama's extra trillions added to the debt, etc. (Of course we aren't the only ones, S&P has the French going off the cliff first, which may be fun for some to watch.)
The national debt as measured by the $11 trillion number, including debt "owed to itself", which is the one most frequently quoted, makes no sense to me.
The two debt measures that do makes sense ISTM are:
1) The debt held by the public, $7 trillion, because payment on it is guaranteed by the Constitution, it incurs cash flow cost (interest) that must be serviced by taxes, and the government's ability to service this cost is what determines the credit rating of the United States ... which is rather important; and
2) The present value of the cost of promises made, which the gov't doesn't count in its official debt number (on the official rationale that it can change to the law to avoid paying them -- tell that to the AARP at their next convention!). There are various measures of that all on the same order -- USA Today recently gave a number of $57 trillion.
This figures matters because in time -- 2017 isn't so far away! -- it gets rolled into the "debt owed to the public" and starts having its effect on the credit rating and cash interest payment costs of the US.
The "national debt $11 trillion" figure makes little sense because as a measure of the Constitutionally guaranteed cash flow cost-incurring debt it is 50% too large; while as a measure of the total accrued liabilities of the US -- which is what it usually is cited as, else why go past the debt owed to the public to include the debt owed by the US "to itself"? -- it is 83% too small.
So what good is it but to grossly mislead? It's an artifact of a computational anachronism.
And boy, compared to pushing liabilities "off the books" on this scale, what Enron pushed off the books was Mother Theresa's lunch money.
The SS Trustees use a 6% long-term interest rate on US bonds for projections. The $64 trillion debt cited by USA today ($7t + $57t) works out to $550,000 per US household, which at 6% gives $33,000 per household in annual debt service cost, today "implicit" but coming due in cash a year sooner every year.
And we continue to make things worse every year. The 2008 "official" deficit was $455 billion, but including net accrued liabilites kept off the books it was by the Treasury's own numbers more than $ 3 trillion. For just one year.
And, of course, for 2009 it is going to be much, much worse.
Hmmm ... what should the government's top policy concern at this point?
Anyway, one good thing about this is that it explodes one of the most popular myths about government today -- that it is so partisan that Democrats and Republicans can't agree about and cooperate on anything.
They certainly can agree and get along fine when it is their interests. Just look how they agree and cooperate to never ever ever make an issue of the above, and to suppress any politician who tries to -- so both sides can pretend that there is always plenty of money for the next tax cut or health benefit or Murtha Airport Extension stimulus spending (not to mention $80 billion a year in cap-n-trade corporate welfare) or whatever will get them votes in the next Congressional election. They sure cooperate just fine on this issue.
But it does brings to mind the old Washington joke about how in politics there is a stupid party and an evil party, and when they cooperate on something it is both stupid and evil.
Posted by: Jim Glass at July 5, 2009 08:48 PM
If we are concerned with the amount of debt the US Government owes as of today, it makes no sense to include the $4.3 trillion or so of intragovernmental holdings. The government might have to raise this amount of debt in the future but that in itself is not a reason to include it in the debt figure as of today. Any debt to be incurred in the future will be recognised when it is incurred therefore by including it there is always an overstatement of the amount of debt actually owed.
Posted by: RK at July 6, 2009 02:39 AM
Don't worry about it. Climate change and peak oil will "wipe out" the debt shown in Figure 2 ;-)
Posted by: Dave Cohen at July 6, 2009 05:26 AM
You say the intragovernmental debt is the intention of the govt to deliver real resources. Excuse me for being blunt but you are wrong. The govt has promised to give money. The private sector must deliver the real resources the money can buy! With unemployment in the US approaching 10% and underemployment around the world much higher, the labor is available to supply much greater goods and services. Affording health care (medicare) is not about having the money (the govt can create as much money as it wants), it's about the amount of health care goods and services the private sector can supply. When did economist stop teaching supply and demand and now only worry about money; did it have to do with the new financial economy that makes money by making money?
Posted by: markg at July 6, 2009 06:14 AM
Alexis de Tocqueville had this all figured out years ago: "The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money".
I see no good way out of our current dilemma. The blame is equally shared between the public (80% of which are mentally ill, uninformed, or apathetic), and our self-serving elected representatives. Or perhaps it was all due to the Bush tax cuts, as a frequent poster on this blog keeps reminding me...
Posted by: GWG at July 6, 2009 06:22 AM
Let me say that your analysis above is the excellent analysis that I have come to expect from your. Thank you.
I was really hard and harsh criticizing you in your thread "A V-shaped recession?" As I began reading this article my blood began to boil again as I read, "But a fair chunk of that total public debt-- $4,350 B to be exact-- is money that the government owes to itself, about half to the Social Security Trust Fund, and the remainder to other government accounts such as Civil Service Retirement and Disability, Military Retirement, Medicare, and Unemployment Insurance Trust Funds. The debt actually held by the public is "only" $7,140 billion, which amounts to half of last year's GDP." I almost stopped reading right there to post another blistering criticism, but I was wrong. You set the record straight and exposed the faulty reasoning in those who take this line.
I think that you do see how dire our situation is. We have been taking things "off budget" for decades in an attempt to pretend they do not exist, but they do. At some time we must pay the piper and sadly just as in the story of old it appears that the piper will destroy our children.
I may see the edge of the disaster before I die but it is my childre who will face the greatest suffering. Sometimes I wish I didn't know as much about economics as I do. At times my thoughts of the future my children will face - if nothing changes - almost overwhelm me.
Thank you for being a voice of reason.
Posted by: DickF at July 6, 2009 06:45 AM
Quick note: If you are going to include off balance sheet liabilities like Fannie and Freddie, you also need to include the assets. The current net worth of F/F is on the order of -$300bn, a large number but well short of the $5,000bn in obligations. Same applies to many of the other obligations...
Posted by: dm at July 6, 2009 07:28 AM
I have a real problem assigning credibility to people who ignore "defense" spending in their fiscal sustainability analysis. We don't *really* have a problem until a substantial number of the people who now ignore "defense" spending decide it's on the table too.
Posted by: Russell L. Carter at July 6, 2009 07:53 AM
I commend you for raising in proper detail this paramount issue.
GWG's quote of de Toqueville captures in a nutshell where we are.
Inflation is the path of least resistance, & that is the path our demoschlerotic society is likely to follow. Destroying the accuracy of the language of prices, as inflation does, will make things many times worse.
Posted by: algernon at July 6, 2009 08:00 AM
Sooner or later the US government will face a severe financial crisis, certainly worse than the one Cal government is facing righ now. As shown by the many experiences of Argentina (my home country) and the experiences of many other governments at all levels, eventually governments cannot finance their cash deficits by any form of legal and illegal borrowing and taxation. Since only small local governments can be liquidated, there are only four options: to sell real assets; to reduce expenditures as much as needed; to get conditional financial assistance from another government (for example from the IMF and the WB); or to merger with another government (for example with Venezuela now that Chavez is so willing to buy partner governments). Usually the first option is not enough to solve the crisis; the second one implies a high political cost, especially in democracies; the third one is only slightly different from the first two although has the benefit of transfer the responsibility for failure to the lender; and the last one is not relevant to the US government (I hope so but not sure with BHO). Thus, it may be argued that for both Cal government and US government the only relevant alternative is a substantial reduction in expenditures. Unfortunately, in both cases, you can bet that in the next ten years politicians will do nothing. Actually, it's much worse because there are a few politicians willing to implement NEW policies and programs that will increase public expenditures and/or reduce private incomes significantly. Good luck.
Posted by: Edgardo Barandiarán at July 6, 2009 09:15 AM
"There is tremendous pressure for politicians to deliver in the form of off-balance-sheet commitments. Voters credit them for giving us what we want now, and blame somebody else when the time comes to pay for it."
This is more or less what happened with US auto companies. Managers in an earlier period decided that they could get "re-elected" by promising future benefits (health care and retirement) in return for restrain on wage demands. They were right, and the liability they incurred in order to make themselves look good (and so allow themselves to grow rich) was passed on to the next generation of managers, workers, share holders and tax payers.
Public sector. Private sector. Doesn't matter much. Large, long-lived institution with great access to resources - that seems to be what makes GM and the US government similar in this context.
Posted by: kharris at July 6, 2009 09:45 AM
How much would China give us for California? Or would we have to pay them to take it off our hands since they have a state budget deficit?
All kidding aside, the point is that a state or federal budget deficit does not have the same meaning as a personal or corporate 'deficit'.
What is the value of California's off balance sheet real assets? ...Same question for the U.S. We could raise hundreds(?) of trillion$ by selling real assets.
Which is worse, dumping an impossible debt burden on our children, or selling off all their national assets?
Posted by: tj at July 6, 2009 10:14 AM
"Inflation is the path of least resistance"
Unfornately inflation won't work. Social Security benefits are inflation adjusted, Medicare-Medicaid benefit are provided in real terms and so rise with inflation too, and federal emplyee-military retirement benefits are inflation adjusted. Those are the future budget crushers, and inflation provides no way out for them.
"If you are going to include off balance sheet liabilities like Fannie and Freddie, you also need to include the assets."
The future off-balance-sheet accrued obligations that make up the $57 trillion reported by USA Today are all *net*.
"you can bet that in the next ten years politicians will do nothing."
I'm afraid this is true. The problem has been fully known for a good 20 years and all we do is keep making it worse every year. The record says they won't do a damn thing until the day it becomes **now, or else!**. That will be in around 10, 15 years.
Private sector actors who betrayed their fiduciary responsibility this way would get more years than Bernie Madoff.
Posted by: Jim Glass at July 6, 2009 11:16 AM
"Private sector actors who betrayed their fiduciary responsibility this way would get more years than Bernie Madoff"
This isn't the private sector. The fact you think of it as such, shows your mindset for internationalism.
The debt charts shown are useless "what ifs", we don't know anything more than the present tells us, hence, your point of some 20 year myth is as well, useless.
Posted by: Johnson at July 6, 2009 12:28 PM
I've long been concerned about these issues, and I'm sympathetic to Professor Hamilton's economic and political viewpoint here. But the alarmist commentary above motivates me to point out some common sense solutions to the problems to show that things are not quite so bad as they seem at first. To start with, everyone should look trhough the CBO docs to see how that the biggest problems are being driven by assumptions of an aging population and excess cost growth for medicare, etc. If we can control those two problems, we are well on our way to solutions. That's where common sense kicks in. I submit that the commonsense solutions, which are not yet politically viable but which will become so in the future, are as follows. The problem of the aging population will be addressed by radical changes in immigration policy to encourage more and more productive workers in the prime earning years. The problem of excess cost growth will be addressed by changes to the medical care and payment delivery system to eliminate the implicit promise of continuing no cost hedonic improvements to covered care. Once Joe Sixpack accepts that they can't have as big a house or take as many vacations as Mom and Dad, and that there current standard is threatened, then they will become more accepting of medical care that is only about as good in its end results as what Mom and Dad had, and he will welcome his new immigrant neighbors that moved into the bank owned property down the block.
Posted by: Josh Stern at July 6, 2009 02:16 PM
Virtually all my assets are in the equities and bonds of emerging market countries. China, India, Brazil, and a few others.
I have moved myself out of US-based positions. I stand to gain if the dollar weakens.
Posted by: GK at July 6, 2009 02:54 PM
The US spends more on its military than all the rest of the world together. This is absurd. Let's cut that by 75% before we do anything else.
Posted by: John at July 6, 2009 04:20 PM
An alternative/complimentary measure to doubling the federal income tax would be to monetize the debts. Writing for the Financial Times a few weeks ago, John Taylor predicts that the U.S would start experiencing high (double digits)and unpredictable inflation rates on a persistent basis in the near future.
The next decade is going to look a lot like that 70s (high inflation) show.
Posted by: aml1648 at July 6, 2009 06:19 PM
Common sense dictates there are budgetary constraints in both personal and government entities going forward, with regards to health care spending. Last I checked, there were excess economic profits being had in the health care sector. Future spending will inevitably get squeezed as the collective markets (in both legal structure and all aggregate participants) both lower their toleration for these profits and more firms come in. I see a future of a health care market inundated with cheap(er) doctors, medicine, etc.
Lastly, that income to the health care part of GDP will recirculate back into the local economy. If our future economy is one where 50% of GDP is health care expenditure, then we are all the better off for it, as employment needs are satisfied while we all receive more health care services.
Social security I think is a slightly different story -- one where intergenerational discontent will likely drive retiree benefits down and payroll taxes up. But again, this is a money transfer program, and the liabilities are to ourselves, collectively.
In the end, it boils down to real resources and competition within markets, not notional debt figures.
I am a perfectly healthy slightly under 30 owner of a CA blue cross health insurance policy and just saw my rates go up 25% this year (no claims, just biz as usual for insurance companies). Let me propose: just as $500k homes for $30k/yr income earners were not sustainable, so are these increases in health care (echo that for education, etc.) prices, in real terms. Wages must recover, or these trends will eventually stop. High prices are a great cure. (look to crude oil, overvalued real estate, tech stocks, etc)
Posted by: Mike at July 6, 2009 08:40 PM
Actually, the SS and Med debts are not what the US gov't "owes to itself." It owes that money to me and other workers.
I've loaned the US gov't tens of thousands during my career years--not voluntarily. My employers deducted that money from my paychecks and sent it in to the SS Administration.
It was a LOAN, on which interest was to accrue. And I expect it to be paid in full.
RK is simply wrong in saying above Any debt to be incurred in the future will be recognised when it is incurred therefore by including it there is always an overstatement of the amount of debt actually owed.
SS obligations are not debts that will be incurred. They are existing debts.
Posted by: unirealist at July 6, 2009 10:30 PM
You join with the contractionists.
Contractionists see the economy as stagnant and unable to sustain the current population. That means that the solution must be reduceed costs, increased efficiencies, and redistribution of wealth, but obviously the price will be reduced goods and services. So then how do we deal with reduced services? The contractionist view is "just suck it up. There is no alternative."
You are not alone in this view. The contractionists include Keynesians, monetariests, and all those who believe in the command economy, with the Obama administration exhibiting it in the extreme. They are easily recognized by listening to their rhetoric: reduce costs, increase efficiency, redistribute wealth.
But economics went through a radical change during the time of Adam Smith and those who followed him. They moved away from a contractionist view of the economy to a pro-growth view. Their policies were to reward creativity and the intelligence of people to rearrange scarce resources creating new and different technology and techniques to improve quality and the quantity of goods and services with the same or less effort, growth.
The contractionists also want to achieve growth but they expect it to come through the altruistic attitudes of the people. They see the role of government as protecting people so their contractionist policies actually hamper growth. Then if someone comes into conflict with the contractionist policies of reduced services and redistribution of wealth they are punished to pull them back in line.
Those who believe in growth believe in a rewards system for innovation rather than a punishment system for protection.
The problem we face in our current world is that the contractionists have become better at punishment than pro-growth is at rewards.
As long as the calls for reducing costs and improving efficiency at the expense of goods and services (listen to Obama on health care and cap and trade) is stronger than innovation and growth our society will decline.
Posted by: DickF at July 7, 2009 05:28 AM
You join with the contractionists.
Contractionists see the economy as stagnant and unable to sustain the current population. That means that the solution must be reduceed costs, increased efficiencies, and redistribution of wealth, but obviously the price will be reduced goods and services.
DickF, I'm not 100% sure about what you are saying, but I believe you misunderstood what I wrote above. And if you misunderstood, then probably I wasn't clear enough and others misunderstood as well. So I'll try to say the same thing a different way.
The CBO estimates that JDH linked to are estimates of future balance of payments based on both projections of future tax revenues and future payments that promised by existing govt. programs. Two important factors leading to a shortfall in payments which the CBO explicitly highlight in their models are the demographic aging of the U.S. population and continued increases in costs of medicare services that would be expected to increase faster than inflation on a per insured basis as they have done in the past. The aging of the population matters a lot because they govt. gets most of its revenues from the working age population and pays out most of the social security and medicare costs to the retired age population.
One partial "solution" to the demographic/revenue problem - one which I tend to approve of but didn't mention above - is to push back the retirement age. That is a suggestion which I expect you might characterize as "contractionist" since it involves a contraction in implied benefits and more per person transfer from workers to retirees. The suggestion related to the aging problem that I actually offered above however was to expand immigration programs with the idea of adding a lot of new, productive, working age residents. It seems to me that you should characterize that as a pro-growth suggestion, at least relative to the economic boundaries of the U.S. economy. It's certainly not as pro-growth as the different idea that the aging demographics might be countered by productivity gains, but it is less vague and has more compact/tangible assumptions.
Figuring out what to do about excess cost growth of medicare, beyond what is due to aging demographics, is easier to do if one has a model of what else is causing the excess cost growth. Some people point to inefficiencies in the medical care and insurance system as the main culprit. I believe there are inefficiencies, but I'm skeptical that they are increasing so fast over time or that they are the main issue. I believe that the main cause is that ever increasing amounts of per person medical care delivered are automatically built into the current system. As a society, we place of a lot of effort and value on improving medical practice by being able to treat ever more conditions ever more effectively. For example, my wife is an M.D. who specializes in clinical care and research related to stroke. Five years ago, her weeks in the hospital were divided between stroke care and general Neurology of other conditions, and now, due to increased volume of stroke patients (same number of strokes in the population, but more patients are reaching the hospital in time for treatment), she treats only stroke patients by design. Moreover, she tells me that stroke care has become substantially more complicated during this interval because there are many more treatment options available today than there were five years ago. This example shows societal advancement - a higher percentage of the population is being saved either from death or from the disability associated with cell death in large portions of their brain - but that advancement comes at increased cost. And the situation is similar in other areas of medical practice. What I am trying to say is that the current U.S. system of medical research, practice, and insurance is leading to un-contained cost growth because it is implicitly providing ever more and better medical care, year after year and people expect that as the norm. That's all great if/when the nation can afford it, but if it is causing the nation to go broke, then common sense suggests that policies have to change in order to check the rate of cost increase, if necessary by checking the rate of increase in the cost of promised coverage that is related to the unstated idea of receiving better and better care, year after year.
To engage with DickF's framework on the point above, it wasn't my intent to express skepticism about the technological possibility of getting ever better medical care in the future for a fixed percentage of GDP, or even for the same fixed cost after inflation. Rather I'm saying that the current system of implicitly promising to pay for any potentially life saving improvement in medical care is clearly unsustainable, and it's that promise/system rather than inefficiencies that are at the root of the excess cost problem.
Posted by: Josh Stern at July 7, 2009 08:26 AM
Its good to flag the theoretical bank and fannie and freddie liability of 10 trillion. But a portion is actually baked in the cake right now. I will be surprised if F/F CITI and possibly AIG Bk america and other banks do not actually cost at least 1.5 trillion, with about half that F/F. So add that 10+% of GDP to your deficit and debt buildup forecasts. It could easily be more.
This is a far more immediate problem than Social Security/ medicaid. Not to dismiss them though...
Posted by: AWH at July 7, 2009 08:39 AM
Josh Sterns point is well stated and reasonable. I would expect doctors to continue to try to do the best for their patients, which involves more tests, more "actions", some of which may be a waste.
One of my sources recommeds not using a new drug until it has been on the market for 2 years.
New things have to be tried. Not all new things work as anticipated.
Shall we confront the issue of rationing of medical care? When my wife had by-pass surgery, I did not go searching for a low cost surgeon. The presures are all on the side of increased costs, as Josh says. Physicians want to provide the best possible care: Patients want the best possible care.
The only solution I see is to continue to let those with the financial means purchse the best possible care but the rest of us - those who depend upon insurance or other third party care - should be restricted in what is provided us. If we don't have the money, we should expect to be treated by interns or others with less training and less prestige. Third rate medical care from a government payed for system, regardless of its details, seems in the cards (if we want to restrain costs).
Posted by: ReformerRay at July 7, 2009 11:25 AM
A brilliantly simple solution to both global warming and healthcare costs!! - All liberals can completely eliminate their carbon footprint and reduce the burden on the healthcare system by euthanizing themselves, thus killing 2 birds with one stone (pun intended)
Posted by: K at July 7, 2009 12:06 PM
Even for econobrowser, this was a good one. You've shown the simple fact, that one cannot realistically describe "debt" as ONLY already issued debt instruments, without also mentioning future liabilities for which debt instruments have not yet been issued.
I am confident that the US could theoretically grow its economy enough to handle this debt burden. However, I see no evidence that the political climate lends itself to extreme pro-growth policies.
Re: comments that the US can squeeze health-care to solve the problem, for the average American, 50% of the lifetime consumption of health-care is in the last 6 months of life. Large enough reductions in health-care outlays are simply unobtainable by trimming other areas of health-care, like lawsuits or HMO profits. IMHO, it's politically impossible to achieve the necessary reductions in "end of life" care.
Re: defense cuts, factually, defense is absolutely not the area where "cost growth" savings can be found. The defense budget (per GDP) has already been shrinking for years. Even a total elimination of the defense budget would create only a one time downward blip in debt growth. It would not affect the rate at which unfunded future liabilities are growing (unless you count a slight reduction by eliminating military retirements).
Posted by: JJ at July 7, 2009 01:33 PM
"Re: defense cuts, factually, defense is absolutely not the area where "cost growth" savings can be found. The defense budget (per GDP) has already been shrinking for years. Even a total elimination of the defense budget would create only a one time downward blip in debt growth. It would not affect the rate at which unfunded future liabilities are growing (unless you count a slight reduction by eliminating military retirements)."
Easily demonstrated by running this post's scenarios against a 50% and 75% "defense" budget reduction. I would love to see that and would change my mind if the data required it.
Until then, people who don't consider "defense" spending cuts to be worth considering are very difficult to assign credibility to.
Posted by: Russell L. Carter at July 7, 2009 07:45 PM
Neglecting defense, particularly war spending is a serious deficiency. Those peaks in that chart are all due to wars and leaving out a guestimate of future war spending undermines the argument. If deficits lead to fewer wars, they can only be looked on as beneficent.
Posted by: Lord at July 7, 2009 09:49 PM
It would be interesting to see debt versus income over time. Good to see overall and separate by current expenses and income versus Long term debt like Social security and medicare. In the long term the GDP is only the potential ability to pay expenses but if increasing taxes to collect on that potential collapses the GDP then the potential ability to pay down the debt is not really there.
Posted by: David Kardatzke at July 9, 2009 08:17 AM
"But the alarmist commentary above . . ."
Commentary on econ blogs has to be alarmist, because something alarming has been happening. Anyone who is not profoundly alarmest and who does not hew to a supremely dismal view of America's future risks being labeled a sunshine pumper, and will have no ability to claim in the future that they "saw this coming." You can make a real name for yourself if you convince people you "saw this coming." You don't really have to have seen "this" coming, even; just something kinda like "this."
"The US spends more on its military than all the rest of the world together. This is absurd. Let's cut that by 75% before we do anything else."
So you want to spend equivalently less on defense than does China? I don't understand why people think you can cut XX% from defense spending and maintain the remaining XX% of capability. It simply doesn't work that way. Even small cuts as a percentage of the budget can have exponentially greater effects on capacity and capability. Regardless, even a 75% cut in defense spending is not going to change our fiscal fortunes, at least not if we're on the path to inevitable oblivion that the comments sections of econ blogs insist.
"Until then, people who don't consider "defense" spending cuts to be worth considering are very difficult to assign credibility to."
You're intentionally conflating criticism of comments like "let's cut defense spending by 75%" with not believing there is value in looking at trimming defense spending.
Posted by: PM at July 13, 2009 12:53 AM
Democrats and Republicans alike have been cavalier about the public debt since the 1990s. Okay, some Republicans have come around recently, after they lost control of the presidency and the appropriations committees. Only a grass-roots movement could stop the ballooning debt, and that looks very unlikely. I'm afraid we fiscal conservatives grousing on this blog are a tiny minority. Most Americans want more deficit spending. I suspect the American republic will survive despite it all, but with significantly reduced living standards.
At some point, the market will limit the amount of debt the US can sell - even if the ceiling is still a long ways up, it is there. What is the point of drawing charts showing how Medicare and Social Security entitlements will send US public debt to levels right through all rational estimates of where that ceiling is and further on up to ridiculously impossible levels? The serious analysis that needs to be done is to estimate how much Social Security and Medicare will need to be pared back unless something else is changed.
Maybe journalists could help. Instead of constantly claiming the stimulus and other new government-funded projects are being funded out of "American taxpayers' money", which isn't really true since the money is borrowed, and indeed some of it is being given to taxpayers as stimulus checks, they could tell the truth and explain that it is being funded with debt that will probably have to come out of Americans' future Social Security and Medicare benefits.
Posted by: Tom at July 16, 2009 10:51 AM