Deficit/Debt Discussion Thread

[Kidlicious]

No, you dolt, I'm explaining why the creation of assets which are not fixed in cash value doesn't have the same implications for inflation as does the creation of money

Yeah, whatever.

[Drake Tungsten]

Social Security will run a deficit this year...

Social Security to See Payout Exceed Pay-In This Year

The bursting of the real estate bubble and the ensuing recession have hurt jobs, home prices and now Social Security.

This year, the system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.

Stephen C. Goss, chief actuary of the Social Security Administration, said that while the Congressional projection would probably be borne out, the change would have no effect on benefits in 2010 and retirees would keep receiving their checks as usual.

The problem, he said, is that payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program’s revenue has fallen sharply, because there are fewer paychecks to tax.

Analysts have long tried to predict the year when Social Security would pay out more than it took in because they view it as a tipping point — the first step of a long, slow march to insolvency, unless Congress strengthens the program’s finances.

http://www.nytimes.com/2010/03/25/business/economy/25social.html

[Ben Kenobi]

Man, it's a good thing they passed Obamacare just in time.

[Hauldren Collider]

...unless Congress reduces the program’s expenses.[/q]

(fixed)

[Drake Tungsten]

A Max Boot column that is germane to my earlier discussion with Guy about the coming cuts in U.S. defense spending necessitated by growing entitlement spending...

ObamaCare and American Power

A lot has been written about the impact of ObamaCare on health care and the economy. I am worried about its impact on our global power.

The United States currently spends roughly as much on defense ($661 billion in fiscal year 2009) as the rest of the world combined. But that’s a pittance compared to what we spend on three major entitlement programs—Social Security, Medicare and Medicaid. Combined, they cost $1.38 trillion or almost 35% of the budget, compared with 17% for defense. And entitlements will only grow dramatically. The current unfunded liability for Social Security and Medicare, according to the 2009 Social Security and Medicare Trustees Report, is nearly $107 trillion—seven times the size of our economy.

It’s hard to remember now, but there was a time when the federal government spent most of its money on the armed forces. In 1962, the total federal budget was $106 billion of which $52 billion—almost half—went for defense. It wasn’t until 1976 that entitlement spending exceeded defense spending. Since then the totals have been getting more lopsided—more for social programs, less, in relative terms, for defense.

In 1935, Franklin Roosevelt assured the public that the new Social Security system would not lead to runaway spending. In 1965, Lyndon Johnson pledged that the fiscal impact of Medicare would be minimal. And now Barack Obama cites a Congressional Budget Office estimate claiming that the vast new health-care entitlement will actually reduce the deficit.

Count me as skeptical. Odds are great that the cost-containment provisions will never be rigorously implemented while the promised subsidies will prove more costly than projected.

In other words, ObamaCare will likely continue the trend already evident during the first year of the administration—when, thanks to the bank bailout and stimulus bill, federal spending as a share of GDP soared to 24.7%, unprecedented in peacetime. If you add in state and local spending, the government as a whole consumes 37.5% of GDP, up from 34.7% in 2008. Prepare for those figures to climb further as government takes on new health-care obligations.

To consider the implications for defense, look at Europe. Last year government spending in the 27 European Union nations hit 52% of GDP. But most of them struggle to devote even 2% of GDP to defense, compared to more than 4% in the U.S.

When Europeans after World War II chose to skimp on defense and spend lavishly on social welfare, they abdicated their claims to great power status. That worked out well for them because their security was subsidized by the U.S.

But what happens if the U.S. switches spending from defense to social welfare? Who will protect what used to be known as the “Free World”? Who will police the sea lanes, stop the proliferation of weapons of mass destruction, combat terrorism, respond to genocide and other unconscionable human rights violations, and deter rogue states from aggression? Those are all responsibilities currently performed by America. But it will be increasingly hard to be globocop and nanny state at the same time. Something will have to give.

President Obama’s budget projects that “core” defense spending (excluding supplemental appropriations for wars) will fall as a percentage of GDP to 3% in 2019 from 3.9% in 2010. Assuming the economy keeps growing, that will still deliver more defense spending in absolute terms—but economic growth may well be endangered by the higher taxes needed to fund ObamaCare. Even if defense spending stays steady, it will be increasingly hard to replace aging weapons systems such as Bradley Fighting Vehicles, Abrams tanks and Black Hawk helicopters, which were purchased during the Reagan defense buildup.

The Air Force, which is responsible for maintaining air and space superiority—a sine que non of American power—faces a particularly big budget crunch. Its aircraft are aging and need to be replaced (KC-135 tankers and B-52 bombers are more than 40 years old), but each new plane is much costlier than its predecessor.

The Navy faces a similar problem. It now has only 283 ships—the smallest number since 1916. Granted, each of those vessels is much more capable than earlier models. But at some point quality cannot substitute for a crippling lack of quantity.

The crunch will not come anytime soon. The U.S. will remain strong for years to come. But if we are looking at major threats to our global standing, we should not look at China, Iran or Russia. We have met the enemy and he is us—specifically, our insatiable demand for entitlement spending, which ObamaCare will only exacerbate.

http://online.wsj.com/article/SB20001424052748703312504575141744210163602.html

Defense spending does need to be cut, but going lower than the 3% of GDP figure Obama is predicting for 2019 would be worrisome without an accompanying change in America's global strategic posture. America can't have European defense spending levels and still be responsible for exporting security the world over.

[Jon Miller]

The problem with entitlements isn't the additions to universal health care, which will mostly effect young workers. Rather it is the old who have outrageous medical bills and retire too early.

JM

[MRT144]

The problem with entitlements isn't the additions to universal health care, which will mostly effect young workers. Rather it is the old who have outrageous medical bills and retire too early.

JM

Can't we round up oldies and shoot them for the greater good? Or make eating anything but cat food for people in retirement a crime?

"Sorry old codger, fresh Steelhead Salmon is not cat food. Put that back and pick up the equivelent weight in Friskies Senior Tender Cuts Chicken and Tuna in Gravy."

[Drake Tungsten]

The problem with entitlements isn't the additions to universal health care, which will mostly effect young workers.

Don't be stupid, JM. Young, healthy workers will be subsidizing older, unhealthy workers under the age of 65, just like we've been subsidizing the elderly. The only difference between the new healthcare entitlement and Medicare in terms of societal wealth transfers is that the new healthcare entitlement also transfers wealth from the rich to the poor, in addition to from the young to the old and the healthy to the sick like Medicare.

Basically, the Baby Boomers didn't want to wait until they retired to force younger generations to pay for their healthcare, so they passed a new entitlement to get that money now.

[Kidlicious]

Wow Drake, I'm glad we have you to tell us that healthy people will subsidize sick people. Oh wait it was already like that.

[Drake Tungsten]

Oh wait it was already like that.

It's a hell of a lot worse now thanks to community rating and regulations requiring private insurers to take all comers. The proper pricing of risk by health insurers is all but dead.

[Kidlicious]

Oh wait it was already like that.

It's a hell of a lot worse now thanks to community rating and regulations requiring private insurers to take all comers. The proper pricing of risk by health insurers is dead.

It's the cost that matters, not the price.

[Drake Tungsten]

I'm sure that statement makes sense in your economically retarded mind.

[Kidlicious]

Well if I'm going to be retarded at least I'm economical about it.

[Drake Tungsten]

The CBO's final report on Obama's 2011 budget is out...

• If the President’s proposals were enacted, the federal government would record deficits of $1.5 trillion in 2010 and $1.3 trillion in 2011. Those deficits would amount to 10.3 percent and 8.9 percent of gross domestic product (GDP), respectively. By comparison, the deficit in 2009 totaled 9.9 percent of GDP.

• Measured relative to the size of the economy, the deficit under the President’s proposals would fall to about 4 percent of GDP by 2014 but would rise steadily thereafter. Compared with CBO’s current-law baseline projections, deficits under the proposals would be about 2 percentage points of GDP higher in fiscal years 2011 and 2012, 1.3 percentage points greater in 2013, and above baseline levels by growing amounts thereafter. By 2020, the deficit would reach 5.6 percent of GDP, compared with 3.0 percent under CBO’s baseline projections.

• Under the President’s budget, debt held by the public would grow from $7.5 trillion (53 percent of GDP) at the end of 2009 to $20.3 trillion (90 percent of GDP) at the end of 2020, about $5 trillion more than under the assumptions in the baseline. Net interest would more than quadruple between 2010 and 2020 in nominal dollars (without an adjustment for inflation); it would swell from 1.4 percent of GDP in 2010 to 4.1 percent in 2020.

We are so ****ed.

[Theben]

What are the assumptions for economic growth for the next decade?