We Can’t Afford the Bailout
The idea that the current financial crisis is going to cost $1 trillion dollars is shocking to many. Not to me. After all, we have an economy where the GDP is just over $14 trillion. A large financial melt down costing $1 trillion? Sure I can see that. And normally a government for a $14 trillion economy could afford that kind of a bailout.
So why the title of this post? Well, suppose we did to the government what it forces all private coporations to do: list all of its future liabilities. What would that do? We’ll according to Richard Fisher, the head of the Dallas Federal Reserve,
Please sit tight while I walk you through the math of Medicare. As you may know, the program comes in three parts: Medicare Part A, which covers hospital stays; Medicare B, which covers doctor visits; and Medicare D, the drug benefit that went into effect just 29 months ago. The infinite-horizon present discounted value of the unfunded liability for Medicare A is $34.4 trillion. The unfunded liability of Medicare B is an additional $34 trillion. The shortfall for Medicare D adds another $17.2 trillion. The total? If you wanted to cover the unfunded liability of all three programs today, you would be stuck with an $85.6 trillion bill. That is more than six times as large as the bill for Social Security. It is more than six times the annual output of the entire U.S. economy.
And that is for just Medicare alone. Adding on Social Security we’d have to add on another $13 trillion. Just those two programs indicate a discounted net present value of just under $100 trillion dollars.
And people complain about greed and mismanagement on Wall Street.
Bwahahahahaha!
And just to make sure the point is fully understood lets explain what this means. Suppose we wanted to set aside the money for all the promised spending for Medicare and Social Security in an interest bearing account. How much would we have to set aside? $100 trillion. That is right now, we’d have to put aside $100 trillion dollars. But recall my comments in the opening paragraph. Our economy is only just over $14.3 trillion in terms of GDP. We’d need to set aside the GDP for the next seven years. All of it.
Seems to me the failure of the market pales in comparison to the failure of government. But what the Hell, lets go for more government. I’m sure they wont screw things up any worse than they already are.
Market failures versus government failures. Skim through this one for a thumbnail comparison: http://is.gd/31n3
As usual you have opted for a completely moronic representation of how Social Security works. No business projects their accounts payable 75 years into the future. Only the government does that. And in the case of Social Security there’s a known, mandated future cash flow which supports the future projected expenditure. Subtract the net present value of that cash flow from the net present value of the outlay and you come out to roughly zero, depending on which of the trustees’ three scenarios comes to pass. The only what you can make Social Security look like a net deficit is if you assume the economy will hardly grow at all for the next hundred years.
Of course, Medicare Part D is completely ridiculous. As a Republican give-away to their pharmaceutical industry campaign donors, it’s brilliant. As policy, it’s idiotic. I agree that we should get rid of it immediately. However your attempt to start with the example of a failed Republican giveaway and extrapolate that out to the successful system of Social Security is misleading and dishonest.
Uh, because no business, unlike the federal government, has liabilities on their balance sheets that extend for 75 years, or more correctly, indefinitely.
Here’s a modest proposal. Just announce that the government is going to print $700B in new paper and distribute it to these financial institutions to cover these fiasco. Sure, it will cause inflation, but in all seriousness, how would that be any worse than this?
Sure, if we had Social Security by itself it isn’t that bad of a problem. Its expensive, but it could be managed. The real problem is Medicare, and when taken together both problems are about $100 trillion.
However, my post isn’t just about Social Security (by the way, can you read?). It is about the future unfunded liabilities that our government has taken on. There is no projected cash flow of $100 trillion for these programs.
You can’t say, “Well, we can pay for $13 trillion of it, so now worries.” That is just stupid.
And actually, no the future cash flow does not support the projected current outlays. Hence the funding short fall. Hence the reason the Trustees reports keep saying “raise taxes”.
It isn’t just part D and pretending it is is just moronic. In fact, part D is the smaller of Parts A, B and D.
Can you even read? No, that’s a serious question actually. It seems pretty obvious to me that I’m talking about Medicare and Social Security and you keep going on about Just Medicare Part D and Social Security.
And no, growth can’t save us here. Maybe if we didn’t have Medicare and just Social Security, but not both together.
Bottomline, it probably wouldn’t be. And the ensuing caterwauling would show just how bad an idea this really is.
Sure Steve, I can read. You say, in short “Medicare is a mess, we must get rid of it and Social Security”. It’s the same type of misleading and dishonest horse hockey that your side of the debate has been pitching for 15 years. The only problem is it’s completely false. Social Security is in excellent shape and its solvency is practically assured for nearly the rest of this century. Do you ever get tired of lying through your teeth?
Furthermore, since you’re a self-labeled expert on economics, you should undertake to explain how ditching Social Security will help governmental finance. Do you intend to get rid of the benefits, but keep the payroll tax? If you intend to get rid of the payroll tax then you must also agree that this will result in an immediate liability to the government, since today Social Security is in surplus. If you intend to keep the payroll tax then you’re simply talking about taxing work — remember that Social Security is the most regressive income tax we have — without a benefit.
Since you’re on the subject, you might also want to reflect on whether getting rid of Social Security will cost more or less than keeping it. Like nationalized health care, Social Security is the kind of program which looks like it has a big price tag but actually costs little. The costs of _not_ having Social Security will be much more than the cost of having it (which, I feel compelled to point out, is zero).
Just to demonstrate my point regarding the deficit of Social Security, here is an excerpt from the 2007 Trustees report,
Again, by itself the funding shortfall for Social Security is not horrible. It probably could be managed. But the idea that it is not in actuarial imbalance is simply not true at all.
I’m sorry you are the one who is lying.
1. There is currently a deficit for Social Security.
2. I’ve already noted that by itself that Social Security is something that could probably be managed.
3. I haven’t said we need to get rid of Medicare and Social Security, but now that we have come to it I think that gradually phasing out the former and changing the latter is a damn good idea.
So, now we see who the real liar is. It is you Jeffery.
So kindly, STFD and STFU before you really hurt yourself.
Until someone can provide a better explanation I still see this not as a market failure but a government failure. It can all be traced back to Fannie and Freddie, two government created, government controlled entities. The policies of pushing homeownership beyond reasonable expectations contributed to the home price bubble and the volume of sub prime loans. Both are now biting us all in the behind.
Plunk said it.
Interesting to note that McCain’s campaign chairman was a lobbyist for Fanny and Freddy promoting minority home ownership…
Yeah and James Johnson ran Fannie Mae, so what’s your next useless fact anjin-san?
Just a counterpoint to the endless whining and schreeching from the right that “it’s all the Democrats fault”…
Perhaps you should actually reference some valid sources before throwing around a comment like that. According to the Congressional Budget Office, Social Security is currently running a surplus, with revenues exceeding outlays. That’ll change after about 2020, but to say that there is a deficit now is disingenuous.
not to mention the loss of revenue to the GF if payroll tax were eliminated, unless of course you are thinking about eliminating the programs but keeping the payroll tax.
Just so you know, Anjin, there’s a difference between promotion of minority home ownership, and promotion of re-writing lending rules to accomplish that goal. Unless that is, you’re going to aver that minorities are always and forever, deadbeats. In which case, I can’t help you.
Brett,
Can you be anymore of a dishonest hack?
I fail to see how citing the official budget resource for the program makes me a dishonest hack, but I suppose I wouldn’t, seeing as how I don’t live in Libertopia Land.
Try again, Steve, and this time add some actual content.
To add, I answer your claim which was that the program is already running a deficit. I pointed out that that is bullshit – the records show that revenues for it are greater than the outlays, and will stay that way until about 2020. Do you actually dispute that, and if you do, do you have a source?
As usual Bit, you don’t get it.
McCain is traveling around the country, talking about how the awful lobbyists for Fanny and Freddy got us into this mess.
Problem is those same awful lobbyists run McCain’s campaign.
Pretty much all pols lie, but McCain has degenerated into a bald-faced serial liar. It’s sad, he used to be an admirable guy.
Brett,
My two previous comments indicate that the problem with Social Security is that it is in actuarial imbalance–i.e. it wont continue to pay for itself contrary to Jeffery Baker’s claims. So you ignore those two comments and focus on one quick enumerated comment by me.
By the way note that the second comment actually links to the Trustees report and they too note Social Security is in deficit…actuarial deficit.
It seems pretty clear from the context I’m right, if perhaps a bit sloppy, and you are wrong and dishonest.
How nice of you to not bother to make that distinction until called upon it. Perhaps you shouldn’t use the word “currently” with regards to the deficit when you’re talking about a 75-year projection.
That makes you evasive, Steve – not me dishonest.
Oh, I get it just fine.
You see, like you, I read the Democrat party talking points, too, Anjin. The difference is, I don’t regurgitate them like they were the gospel.
Brett,
I think it is clear that I’ve been talking about Social Security being in actuarial imbalance…i.e. actuarial deficit. This is the case with the source I link too, it is the case with previous comments. You are merely playing a game of “gotcha” and it belittles you.
I hope I’m clear. All comments of Social Security being in deficit refer to the actuarial deficit as per the Trustees report, on of the primary sources for the financial state of Social security for the next 75 years.
Ok Bit, tell me what is not factual here:
1. McCain has been traveling around the country telling us how lobbiest for Fannie and Freddy helped cause this mess.
2. McCain recently stated Rick Davis “had no involvement with the company for the last several years.”
3. Davis was being paid 15k a month to lobby for Freddic Mac until last month while he was McCain’s campaign manager.
4. McCain either lied about Davis’ relationship with Freddy, or he is unaware of what is happening in the top level of his own campaign (either on kind of bad for a would-be President, no?)