In their acceptance speeches at the respective political party conventions in 2016, the problem of unfunded liabilities for social welfare programs, primarily Social Security and Medicare, was not mentioned by either of the candidates for the office of President of the United States. Other than avoiding war and defending against terrorism, there is no bigger issue and problem for the American people. Where is the leadership? Why will neither of the two nominees for election as President say anything about the unfunded liabilities of the United States for social welfare programs?
Social Security and Medicare are essentially programs that benefit middle class people who have reached retirement age. Generally, they fail to provide a safety net for the poorest of the poor, who are destitute or even homeless. There likely would be near universal agreement in America that
- Any overhaul of social welfare programs to make them sustainable over the long run should also include provisions to provide a real safety net for those who presently are left out of state organized welfare programs.
- Insofar as feasible, welfare programs for the poorest of the poor should be designed and administered to help people become independent, working, and productive individuals if they are capable of that.
In 2011, Congressman Paul Ryan persuaded Congressional Republicans to propose some modest steps to address the problem and mitigate it. His proposal was promptly characterized as ridiculous and heartless by a widely read economist and columnist, Paul Krugman. The editors of a leading newspaper, The New York Times, said that the proposal would do enormous damage to all Americans.
Economist Laurence Kotlikoff is an expert on this subject, with two books to his credit on the problem of unfunded liabilities of the United States for social welfare programs. Kotlikoff asserts about Medicare, Social Security and other welfare programs that $210 trillion is the true amount of the unfunded liabilities of the U.S., including social welfare program liabilities. What does that mean in terms of the ability of the American people to pay it? By calculating how much the $210 trillion comes to on a per household basis, for the 116 million households in the United States. It comes to $1.8 million per household. That is an overwhelming amount compared to the resources of the American people.
According to an article in a popular journal, U. S. News and World Report, “While the typical household headed by someone age 65 or older had a net worth of $170,128 in 2010, most of that wealth is in the form of home equity . . . If home equity is excluded from the calculation, the median senior-citizen household had a net worth of just $28,518 in 2010.” That is doubly significant: first because senior citizen net worth is so small compared to the liabilities discussed herein and second because senior citizens on average have more assets than the average for all Americans.
According to the National Institute on Retirement Security, the typical working class household in America has just $2,500 saved for retirement. How are the American people going to be able to save for retirement during their working careers if they have to pay for hundreds of trillions of dollars in social welfare benefits already promised by the United States Congress?
The fiscal gap of $210 trillion includes the much smaller amount known as the public debt of the United States, referred to generally as the national debt. As of 2016, the public debt consists of the bonded debt of the United States, amounting to some $13.9 trillion or about $114,000 per household.
Professor Kotlikoff says that to cover the fiscal gap would require an immediate, permanent 59 percent increase in federal tax revenue or an immediate, permanent 38 percent cut in federal spending; and that if Congress does nothing for twenty years, the requisite federal tax increase would be 70 percent or the requisite spending cut would be 43 percent.
Paul Ryan and Lawrence Kotlikoff are not alone in voicing concern about these unfunded liabilities. In 2004 the International Monetary Fund made similar assertions in a report entitled “U. S. Fiscal Policies and Priorities for Long-Run Sustainability.”
A debt that is impossible to be paid will not be paid. The history of recent world affairs shows that. Nazi Germany, Adolf Hitler, and World War II was the German answer to unacceptably heavy debts imposed on the German people by the combination of the Treaty of Versailles and protectionist policies of other countries that prevented Germans from earning money in foreign trade to service their Versailles Treaty debts. Argentina’s default in 2001 on sovereign debt was the outcome of decades of irresponsible spending by the Argentine state. Argentina’s government had accumulated debts it could not pay, so it repudiated them.
The debts accumulated by the United States are not unique to it. Debts so large that they cannot and will not be repaid are a problem of political states, businesses, and individuals around the world, according to a thoughtful analysis by economics columnist, Philip Coggan.
In the United States it is absolutely certain that politicians in or seeking high federal office know full well of the U.S. debt problem. They know that the United States has incurred long-term liabilities it cannot pay without unacceptable consequences. Where is the political leadership? Who in a responsible position politically will address this problem? What do Presidential candidates Hilary Clinton and Donald Trump propose to do about U.S. debt? Nothing. What do they say about it? Nothing. They are silent. They are supported in this disregard of distasteful facts by supposed authorities and experts such as Paul Krugman and the editors of The New York Times who denounce any remedial proposal as ridiculous, heartless, and enormously damaging to the American people.
That is the opposite of the truth. Doing nothing will be cruel and heartless to future generations, damaging to the American people and damaging to the political institutions by which the American people are ruled. 1
- The sources for this post are Wikipedia, The Path to Prosperity; Kotlikoff, Laurence, America’s Hidden Credit Card Bill, The New York Times, July 3, 2014; “Retiree New Worth Declines,” U.S. News & World Report, July 23, 2012; “The United States of Insolvency,” by James Grant, Time, April 15, 2016; Coggan, Philip, Paper Promises (2012); International Monetary Fund, U.S. Policies and Priorities for Long-Run Sustainability (2004); “State [of California] to offer retirement accounts to workers without pensions, 401(k)s,” by Aaron Kinney, Bay Area News Group, reported in Eureka Times-Standard, August 31, 2016. ↩