Tuesday, January 23, 2007

State of the Union, what's good for the goose..

Grandfather Economics Report Series

Here is an interesting article that sums up why government of any kind (local, state or federal) ought to be held accountable the way Joe Blow/Schmo is when he/she proceeds to do the following:

If you or I managed our money the way that U.S. government manages our money, we'd be headed for bankruptcy.

Imagine if someone you knew:

Took on a mountain of debt -- to buy a house, say -- at a floating interest rate and never bothered to ask if the future payments would be affordable. That's exactly what the U.S. government does.
Used his annual bonus to make the down payment on a Porsche Cayenne and never worried that his current spending had created a huge future obligation for years of high payouts. That's exactly what the U.S. government does.
Ran up big credit card debt because the money he was saving for his kids' college education easily balanced out that debt. That's exactly what the U.S. government does.
Just kept on spending not only every bit of the monthly paycheck but every dollar that credit card companies and banks would lend, despite knowing that he would have to pay for college and retirement one day. That's exactly what the U.S. government does.
Oh and get this:
By the way, Iraq expenses are 'off budget'
If you want to correct for the $185 billion collected by Social Security as surplus cash flow in 2006 -- that is, the taxes came in today to pay for benefits promised in future years -- then you have to look at the on-budget deficit, which Walker calls the "operating deficit." The on-budget deficit came to $434 billion in 2006. The on-budget deficit shrank from 2005 to 2006, just as the unified budget deficit did, but the drop was much smaller: to $434 billion in fiscal 2006 from $494 in fiscal 2005.

Both of these still understate the size of the deficit. The Bush administration has been adamant about keeping certain costs out of the budget figures. Spending on the war in Iraq, for example, has been included not in budget resolutions but in special emergency spending bills. They are "off budget" in the language of Washington. That spending, estimated by the Congressional Budget Office at $360 billion overall and $95 billion in the fiscal year that ended in October 2006, aren't in either of these two budget figures. And Iraq funding for fiscal 2007 won't be included in the budget the president will introduce next month, either.

When will the crisis begin to start showing?
The upcoming crisis is absolutely predictable
This ban on including costs that are probable but not legislatively certain and the prohibition on looking further than five years out -- even though politicians routinely push the costs of their most expensive programs "off budget" by delaying the worst for more than five years -- has led to a veritable industry of alternative budgeting in Washington. Many of these have been created by groups with agendas to push -- higher social spending, lower taxes, more tax cuts, fewer tax cuts for the "rich." But what's most interesting to me about them is that any that look out more than five years see an absolutely predictable budget deficit crisis looming somewhere between 2015 and 2040.

It's caused, surprise, surprise, by the aging of the baby boomers.

The first official baby boomer will become eligible for early retirement under Social Security on Jan. 1, 2008, and for Medicare benefits in 2011. Social Security surpluses -- the surplus of tax receipts versus benefit payouts -- will begin its decline in 2009 and by 2017, unless benefits are cut or taxes increased, Social Security cash flow will have moved into deficit and begun to add to the unified budget deficit rather than diminishing it, as at present.

Don't forget Medicare and Medicaid
But the budgetary problems caused by the growth in Social Security outlays are dwarfed by the increase in spending on Medicare and Medicaid. By itself, the extra demands of Social Security are manageable: According to the Congressional Budget Office, spending for Social Security will reach 4.7% of U.S. gross domestic product (GDP), up from 4.2% in fiscal 2007. But pile the growth in Medicare and Medicaid spending on that relatively modest increase and you've got a backbreaker for the federal budget. According to the Congressional Budget Office, combined Medicare and Medicaid spending will add up to 6.3% of GDP in 2016, up from 4.6% in 2007. By 2030, federal spending for these three entitlement programs will add up to 15.5% of GDP, up from 8.8% in 2007.
This same demographic trend makes growing our way out of this problem very unlikely. Economies of countries with aging populations grow more slowly. It's likely that the real (i.e. after subtracting inflation) rate of economic growth will drop to 2.6% for 2012 through 2016 from a projected 3.1% in 2008, according to the Congressional Budget Office.

Well, perhaps we can do some celebrity watching to make this speech halfway interesting


Anonymous Anonymous said...

yeah- i skipped the 'lies to the union' address. from what i have read about it in the paper and elsewhere- it was pretty much as i imagined it. lies and no new ideas.

8:34 AM  
Blogger Ingrid said...

Betmo, sometimes I imagine how this would read in a history book. We all live so in the 'now' and are so wrapped up with the situation, that I wonder, what kind of film or how would it be judged 50yrs from now with the right amount of 'distance'? Probably the way it ought to be judged right now; guilty!

11:46 AM  

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