Is the Congressional Budget Office (CBO) becoming a Cassandra?
You remember Cassandra. She was given the gift of prophecy but, for holding out on that rake, Apollo, was cursed so that her predictions and those of all her descendants would never be believed. Like CBO, she paid the price for integrity.
Once again (and again and again…), CBO has offered up a very disturbing picture of America’s fiscal situation, a disaster really.
“Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946, causing the federal debt to soar,” states CBO in The 2013 Long-Term Budget Outlook. “Federal debt held by the public is now about 73 percent of the economy’s annual output, or gross domestic product (GDP). That percentage is higher than any point in U.S. history except a brief period around World War II, and it is twice the percentage at the end of 2007.” It gets worse.
If current law remains the same, there would be a slight decline over the next few years relative to GDP. Thereafter, things deteriorate rapidly. “CBO projects that federal debt held by the public would reach 100 percent of GDP in 2038” about the time my new grandson turns 25. This projection does not account for other harmful effects to the economy stemming from this growing debt burden, says CBO. “Moreover, debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely.”
The federal debt “held by the public” will likely decline to 68 percent of GDP by 2018. However, this percentage rises to 71 percent of GDP by 2023 “…mainly because of increasing interest costs and growing spending for Social Security and the government’s major health care programs (Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies to be provided through health insurance exchanges).” Indeed, “CBO expects interest rates to rebound in coming years from their current unusually low levels, sharply raising the government’s cost of borrowing.” And don’t forget an aging population, rising health care costs, and an expansion of federal subsidies for health insurance.
These calculations do not account for the full enormity of the crisis facing American taxpayers in this and future generations.
Recalling Mitt Romney’s attack on the nation’s $16 trillion debt during the presidential campaign, I thought that he was probably understating the problem. Niall Ferguson seems to agree with me in his new book, The Great Degeneration: How Institutions Decay and Economies Die in which he notes that “the statistics commonly cited as government debt are themselves misleading, for they encompass only the sums owed by governments in the form of bonds.” This is certainly a problem since it “implies a growing charge on those in employment, now and in the future, since—even if the current low interest rates of interest enjoyed by the biggest sovereign borrowers persist—the amount of money needed to service the debt must inexorably rise.”
Continues Ferguson, “But the official debts in the form of bonds do not include the often far larger unfunded liabilities of welfare schemes like—to give the biggest American programmes—Medicare, Medicaid and Social Security.”
“The best available estimate for the difference between the net present value of federal government liabilities and the net present value of future federal revenues is $200 trillion, nearly thirteen times the debt as stated by the US Treasury,” say the Harvard historian and native Scot. Ferguson also makes clear that this staggering number does not include state and local government’s unfunded liabilities estimated to be in the neighborhood of $38 trillion.
“These mind-boggling numbers represent nothing less than a vast claim by the generation currently retired or about to retire on their children and grandchildren, who are obliged by current law to find the money in the future, by submitting either to substantial increases in taxation or to drastic cuts in other forms of public expenditure,” observes Professor Ferguson.
CBO and Niall Ferguson are painting a frightening picture of what is facing this nation over the coming decades. The unfunded liabilities over the years will drive the debt burden beyond anything we can imagine even in these times of profligate spending.
Really, what more can be said about the greatest crisis facing the United States? Syria and China are dwarfed in comparison. This is a slow motion train wreck ignored in most political campaigns, hardly a subject of sustained congressional deliberations, and to which the press corps is almost completely oblivious. When Paul Ryan (R-WI) tries to address the problem, he is accused of wanting to throw grandma and grandpa over the cliff. The Democrats continue to maintain complete radio silence on the issue.
If this hands-off approach to our entitlement crisis persists there may be no “government” left as citizens normally conceive of it. No National Parks, no Weather Service, and not much military defense. It will be all high taxes and entitlement transfers. Even the latter will be curtailed over time as the tax burden squeezes workers creating a raging backlash. This is no way to run a railroad.
Photo: Creative Commons