Sunday, December 24, 2006

Steffy in the hole, not spectacular

The Houston Chronicle's Loren Steffy is a mixed bag in this piece about the government deficit. The good:
"It seems clear that the nation's current fiscal path is unsustainable and that tough choices by the president and Congress are necessary in order to address the nation's large and growing long-term fiscal imbalance."

That's a statement from David Walker, the U.S. comptroller general and head of the Government Accountability Office, that was attached to the annual financial report released by the Treasury Department on Dec. 15.
Walker also noted that the GAO, which essentially plays the role of auditor in this case, couldn't render an opinion on whether the government's books are sound. In fact, the GAO hasn't been able to do that in more than a decade.

The report notes that the lack of controls doesn't mean the government's accounting isn't accurate, it just means that there's not enough information to determine if they're reliable.
After all of this, there is no Steffy call to apply SOx regulations or put department heads in jail for not complying with existing laws. And yet, when lesser issues come up in private industry Steffy has no problem with calling for jail time and continual audits.

Here, Steffy just turns muddleheaded:
Total liabilities, including Social Security and Medicare, now top $50 trillion, or four times our gross domestic product. That's more than doubled in six years.
In other words, we owe four times more than we make. We would have to quadruple our economy to meet our obligations, and that's if we did it right now.
Bzzzzz. Wrong. The $50 trillion figure does not require a $50 trillion economy to support its obligations. This would be like saying we could not meet a $500,000 house loan obligation unless we make $500,000 a year. Not true.

I think Steffy needs to read the actual GAO report as it is very clear there.
Where does all this lead? A paper by Boston University economics professor Laurence Kotlikoff and published by the Federal Reserve Bank of St. Louis this summer frames the question this way: "Is the United States Bankrupt?"

Kotlikoff stopped short of saying yes, but he warned that the U.S. "seems clearly headed down that path."

There aren't easy options for changing course.

We can print more money and weather the effects of persistently high inflation, or we can raise taxes dramatically and gut entitlements just as the largest segment of the population begins to draw them.

Kotlikoff says adding a 33 percent federal retail sales tax, cutting discretionary spending by one-fifth, slashing trillions from Social Security benefits and curbing growth in health care expenses might do the trick.
I am surprised that Steffy does not offer his prescription that, no doubt, would be to tax higher income people.

Oh well. The crux of the issue is that Social Security and Medicare are Ponzi schemes that depend upon having many more young people than old people. That is no happening.

There is also no will to either raise taxes or cut benefits. That will mean we will not face up to the consequences of big promises made to people living longer and longer. And that is why I am excited to see what will happen in the future when financial war breaks out between the baby boomers and the rest of us. It is one of the most important issues of our time.


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