The $102 Trillion Bailout

With a bailout bill that totals $8.5 trillion so far and a "stimulus package" yet to come, the federal debt, currently about $6.3 trillion, can be expected to grow substantially in the next few years. But as a new report from the National Center for Policy Analysis notes, the official number is limited to debt held by the public; it does not include entitlement obligations. The report's authors, economists Andrew Rettenmaier and Thomas Saving, estimate that paying Social Security and Medicare benefits to current workers will cost $52 trillion. If these programs were funded by investments, they say, the government would have to set aside $102 trillion ("about 7 times the size of the U.S. economy") to keep the programs solvent. Assuming the government continues to use current tax revenue to pay for Social Security and Medicare, the two programs will consume one-tenth of the federal budget by 2012, almost half by 2030, and 80 percent by 2070.

Rettenmaier and Saving concede that their preferred solution—reforming Social Security and Medicare "so that each worker saves and invests funds for his own post-retirement pension and health care benefits"—would impose a "substantial" burden on current workers, who would have to  "sav[e] for their own benefits while at the same time paying taxes to fund the benefits of current retirees." But the alternatives—a crushing tax burden and/or dramatic benefit cuts—are even less appealing. Except if you're a politician whose main concern is getting re-elected in two, four, or six years. Too bad there's no other kind.

The full NCPA report is here (PDF).

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  • Poobah||

    Reason, shilling once again for Big Solvency.

  • anon||

    "a politician whose main concern is getting re-elected in two, four, or six years. Too bad there's no other kind"

    Yeah - we need a politician that's installed for life...

  • Naga Sadow||

    After anon's comments, in the background.

    BURN!!!

  • The Angry Optimist||

    would impose a "substantial" burden on current workers, who would have to "sav[e] for their own benefits while at the same time paying taxes to fund the benefits of current retirees."

    Well, we could alleviate the burden by means-testing current benefit recipients.

  • ||

    Dear Jesus.

  • ||

    Well, we could alleviate the burden by means-testing current benefit recipients.

    That would fall under "dramatic benefit cuts", I believe.

  • ||

    I think the real issue is what's driving up health care costs. You can point at rapidly improving new technologies, but that would be like saying oil prices are high because oil companies are spending a lot of money on exploration and development. Spending on technology is a market response to money pouring in.

    I think the problem is more that people are spending money on the most expensive, latest procedures who can't really afford it. Those costs are displaced to insurers and/or the government, which are under political pressure not to ration, and are required to distribute costs to the healthy instead of requiring those receiving treatment to forego the most expensive techniques.

    That's the classic party line for advocates of universal health care - the healthy should pay the expensies of the sick. In effect, that's what we already have going on, though. Employers, insurers, or the government, pay the costs, the individual never sees it.

    The problem is that it causes a disconnect in the price signals that get sent to consumers. There's no incentive not to get the latest treatments, plus the hospitals and HMOs are subject to malpractice lawsuits that effectively require them to provide the latest and greatest to everyone. The net result is that money keeps pouring into the system as if there was insatiable demand, and the market responds by producing ever better (and more expensive) treatments.

    This isn't all bad. We have seen a lot of progress in treating all sorts of illnesses come out of it. The problem is it's also produced spiraling health-care costs.

    In actuality the current rising rates of uninsured are a symptom that the system is already breaking down. Insurers are dropping patients who are expensive to treat because they can't restrict the types of treatment they get, and/or raising rates on healthy people to the point that healthy people are dropping off the rolls. Vicious cycle.

    The advocates of universal coverage are going the wrong direction. Pushing us to extend the cost displacement from the sick to the healthy to more people, deepening the disconnect and virtually guarenteeing a further explosion in health-care costs unless (until) some form of rationing is instituted. Even then, political pressure will prevent much rationing from taking place until a bugetary crisis forces it.

  • ||

    Well, we could alleviate the burden by means-testing current benefit recipients.



    Yeah, right, good luck with that. :)

    Besides, joe says economic growth will take care of it. In the same way as "your house value will increase so you'll have no problem with this mortgage" he's no doubt right.

    Like our current addiction to deficit spending, this is a problem that noone wants to tackle.

    So, it's either talk a lot about "the problem" and do nothing, or simply pretend there's no problem at all.

  • ||

    very poor article. It fails to take into account the time value of money, and doesn't disclose any of the demographic assumptions that it makes. worthless.

  • ||

    Well, we could alleviate the burden by means-testing current benefit recipients.

    While your statement overflows with common sense that would mean that it would be just another form of welfare. It would no longer be a "retirement" plan. Supporters of SS know this and will fight to the death to make sure everyone gets their cut no matter how many billions (or trillions as is the case) are wasted.

  • ||

    I'll opt out of the benefits if I can opt out of being taxed to pay for other people's benefits.

  • robc||

    I am fulling willing to make the sacrifice of continuing to pay to FICA while saving for my own retirement in order to start moving people to personal accounts.

    Its not as big as sacrifice as dying at Normandy, but its what I got to offer.

  • ||

    I'll say it again, the only solution is:

    ZOMBIE PLAGUE!!!!!!!!!!!!!!!

  • ||

    Actually, robc, what would be more useful to America is, on the day that you retire, that you travel to Normandy and, um, die.

  • ||

    Agreed. You can keep what I've already paid in as long I don't have to pay in any longer. Let me out of the damn Ponzi scheme.

  • ||

    Equating anticipated governmental entitlement benefits with "debt" is highly misleading. The difference is that Congress can wipe-out entitlements with the stroke of the pen. (Whether the political will exists to do so is another question.) Thus, a twenty-something wage earner will not be able to claim that the government owes him money if Congress decides to eliminate Social Security or drastically cut benefits.

    On the other hand, if the government cannot pay out on, say, a bond, the bondholder can get a judgment in court and attempt to execute on that judgment. That is public debt.

  • ||

    domoarrigato | December 3, 2008, 3:40pm | #
    very poor article. It fails to take into account the time value of money, and doesn't disclose any of the demographic assumptions that it makes. worthless.

    Sullum's blog post (it's not an article) may not, but the 16 page report he linked to does both. If you can't be bothered to read, please don't bother to post.

  • robc||

    My plan*, if I was emperor:

    Step 1:
    Immediately, anyone born in 1990 or later cannot enter the current social security system (for retirement benefits, medicare and disability/death FICA bits dont change). Any money those people have already paid in** (which should be a small amount) gets put in an individual account plus 1% annual interest. From this point on those people will not pay the full FICA, but 5% (of their 15.3%) will go into this account [ my understanding of breakdown is 5% for retirement, 1.2% other ss benefits, 1.65% medicare X2 for employer portion/self-employed ]. The rest will continue to go as it currently does.

    Step 2:
    Each year we move two more birth years of people on to this plan. Assume step 1 was 2010 (plan passes in 2009). In 2011 we will move 1988/1989 births, in 2012 1987/1988, etc.

    Step 3:
    At some point, we make the move optional.*** This could be from the beginning or when we hit people who are 50 or something. During this time, people will obvious roll past their retirement age. Nothing will change for them.

    Step 4:
    One of two things will happen, depending on demographics, economic growth, etc.
    4A: The money coming in+trust fund IOUs can no longer cover payments - at this point either something must change or we suck it up and pay off the rest of the liabilities out of the general fund.
    4B: There is way more than enough money to cover a declining population depending of SS and we can start cutting the FICA tax rate (retirement part).

    Step 5:
    At retirement of people in private accounts, a minimal lifetime, inflation-adjusted annuity must be purchased from the account. The rest may be used as the retiree sees fit. Anyone without enough to buy the annuity gets help from the SS fund to buy the annuity.

    Its not perfect (see my first footnote) but I can live with it.


    *subject to 3 or 4 different standard libertarian disclaimers

    **the 5% part, not the whole thing

    ***or not

  • ||

    OK, skimmed the article, and the authors do note my distinction.

  • squarooticus||

    the official number is limited to debt held by the public


    Who is this "public" of which you speak?

    As far as I am concerned, the debt incurred by this government is an odious debt that we can and will repudiate at the earliest opportunity.

    All US government creditors beware: when the federal government finally succumbs to economic reality, your Treasuries will become worth the paper they're printed on. Doesn't sound like such a safe investment anymore, does it?

  • ||

    I, too, favor means testing. And to those who like to believe their Ponzi Tax payments are sitting somewhere in a drawer, waiting for them, I say:

    "Just think of it the same as all the other taxes you paid- wasted."

  • BDB||

    P brooks, I don't expect to see any of that SS tax money back, anyway (I'm 24). So I say go for it.

    That's why I find it funny when people say ZOMG! WE'LL LOSE THE MONEY IN THE MARKETS!!11!!11! when there is talk about privatizing SS. Maybe, maybe not. But under the current system people may age are 100% guaranteed not to see one damn cent, anyway.

  • ||

    Just so I'm ready for the next report of the cost of all the combined bailouts, how many trillions are a gajillion?

  • ||

    This must be one of those money fires I've heard so much about.

    What ProL and SF said, +10. I've been saying the same for years, to the aghast looks of the less-than-libertarian listeners.

    I just want old people to starve or die in the streets.

  • ||

    how many trillions are a gajillion?

    Technically? Oodles.

  • kinnath||

    Three basic options:

    1) Cut benefits to everyone

    2) Cut benefits for some (e.g. means testing)

    3) Delay benefits for everyone

    Fucking with the Consumer Price Index is an invisible way to do number 1.

    Number 2 will happen when enough people get tired of rich old farts collecting SS for two or three decades.

    Number 3 is already happening.

  • kinnath||

    By the way, number 1 is already happening as well.

  • ||

    Charlie: Since when do you pay to stay in a hospital?

    Doctor: Since always.

    Charlie: Uh, no, I believe that is what taxes are for.

    Mac: Yeah, you don't pay a fireman to put out a fire.

    Charlie: Or a cop to shoot a guy.

    Dennis: How do you not know how this works? You've been in a hospital before.

    Charlie: I-I guess I must have slipped through the cracks. I do always give a fake name 'cause I like to stay off the grid. You know what I mean?

    Mac: Yeah, they usually just give me a bunch of antibiotics, the sores go away, and I walk out.

  • Paul||

    With a bailout bill that totals $8.5 trillion so far and a "stimulus package" yet to come, the federal debt, currently about $6.3 trillion, can be expected to grow substantially in the next few years.



    That's called deficit spending. Nothing to see here, move along.

  • ||

    Here's the way I see it. Deficit spending is bad because our children will end up paying the bill. The problem then is the timing of the comeuppance. Why not just extend the actual payment to, I don't know, 3001? By then, they'll have replicators and tamed black holes for power, so resources and taxes will be less of an issue.

  • RMN||

    We're all Keynseians, now.

  • ||

    There is one up side. When the government goes bankrupt it will have a hell of a time running a multi-billion dollar drug war. Same goes for the states. As state after state goes belly up people are going to start to wonder why it is we are paying to keep a bunch of drug users from offing themselves.

  • ||

    Pro,

    There is actually something to that. As long as your technology is advancing and your economy is growing, you can run moderate or even semi moderate deficits basically forever. You cannot however run deficits like this forever.

  • ||

    Why not just extend the actual payment to, I don't know, 3001? By then, they'll have replicators and tamed black holes for power, so resources and taxes will be less of an issue.

    They'll have time machines, by then, and they can beat Pizarro to South America and swipe the Incas' gold to pay the bills.

    What could go wrong?

  • Kolohe||

    There is one up side. When the government goes bankrupt it will have a hell of a time running a multi-billion dollar drug war.

    Considering the Marihuana Tax act was during the Great Depression, and the orginal drug war was declared in the 70's as repeated turbulence hit the American economy, I am not optimistic.

    Economic downturns tend to empower the moralists. The repeal of alcohol prohibition seems to be the only exception to this rule.

  • ||

    John, all these silly "wars" really should end including the war on drugs, the war on crazy religions in other countries, the war on diplomacy, the war on intellectuals, the war on teachers, the war on domestic manufacturing, (you get the point).

    That's is why Obama has a SMALL chance of saving this Bush-fucked country and McCain had none.

    btw, the official national debt to others is now over $10 trillion as the clock in New York city had to add another place to accomadate the GOP policy of "deficits don't matter".

  • ||

    Number 2 will happen when enough people get tired of rich old farts collecting SS for two or three decades.

    Why shouldn't the rich old farts collect the benefit, they put into it against their will. The threat of means testing my future Social Security benefit will only encourage me to save even less for retirement today, or more likely, to start shifting my assets to my children with the agreement that they come back to me when I need them.

  • cunnivore||

    John, we've been hearing "starve the beast" rhetoric out of the mouths of so-called conservatives for decades now. Either this beast has a hell of a lot of fat reserves or it doesn't work.

  • Ironic||

    "John, we've been hearing "starve the beast" rhetoric out of the mouths of so-called conservatives for decades now. Either this beast has a hell of a lot of fat reserves or it doesn't work."

    Or it has not yet been tried.

  • ||

    "Either this beast has a hell of a lot of fat reserves or it doesn't work."

    It has a lot of at, but if something can't go on forever, it won't. See Weimar, Germany. It is not going to end well, but it will end.

  • cunnivore||

    Private retirement investments aren't the magical foolproof solution that they're made out to be either. The current SS system is melting down because of the imbalance between the number of people retiring in the next few years vs. the number of people entering the workforce.

    You're going to have a similar problem if everyone is shifted to private investments; if at any time there are more people retiring and selling off their investments than there are new workers buying investments, the value of those investments is going to plummet. Tanstaafl still applies to private investments.

  • cunnivore||

    Ironic, "starve the beast" refers to the counterintuitive idea that lots of govt spending will drive it so deep into debt that it can't spend anymore. Spending lots of taxpayer money has been tried, I assure you.

    John, I'm no fan of the drug war, but I'll take having a Drug War going on in my backyard over the massive economic collapse that we're headed toward. A few people dead after a wrong-door SWAT raid is nothing compared to having people fighting in the streets for scraps of spam.

  • kinnath||

    Why shouldn't the rich old farts collect the benefit, they put into it against their will.

    I was not saying that it was fair.

    I was saying that the same mentality that says people that make more than $250K should pay more tax now, will also take over when SS runs out of money.

    There are more low-income people jealous of high-income people than there are high-income people to defend themselves.

    TAX THE RICH! I hate those fuckers.

  • ||

    You're going to have a similar problem if everyone is shifted to private investments; if at any time there are more people retiring and selling off their investments than there are new workers buying investments, the value of those investments is going to plummet.

    Not quite the same scenario. Only people who are working paying FICA, but lots and lots of people who aren't working buy stocks. You can still be an active investor with a growing portfolio after you retire.

  • ||

    Kolohe-

    The FDR moralists did not get their way with the great tax cuts of 1981.

  • ||

    TAX THE RICH!

    As Willy Sutton said, "That's where the money is."

  • ||

    Equating anticipated governmental entitlement benefits with "debt" is highly misleading. The difference is that Congress can wipe-out entitlements with the stroke of the pen.

    Which would be different from eliminating SS how?
    It's unlikely that congress will simply vote to reduce benefits.

    What is likely to happen is that they'll rig the COLA adjustments to some small number, and then devalue the currency, causing massive inflation, which will make the benefits worth less. After the fact, the AARP will be told to suck it up, just like the UAW and their pensions if the big three croak. (Only nobody is going to bail out the US government.)

    This will allieviate the problem but be far more painful for everyone than privatizing social security would have been.

  • ||

    Jealousy is an attribute of a loser.

  • ||

    How long does it take to print $102 trillion?

  • Kolohe||

    Kolohe-

    The FDR moralists did not get their way with the great tax cuts of 1981.


    I'm not sure what your trying to say here (vis my previous comment), but forming a poltical alliance with moralists and then winning an election also tends to empower the moralists.

  • Kolohe||

    How long does it take to print $102 trillion?


    "During fiscal year (FY) 2007, the Bureau of Engraving and Printing produced approximately 38 million notes a day with a face value of approximately $750 million."
    http://www.bep.treas.gov/document.cfm/18/106


    So, 136,000 years.

  • ||

    That's why I find it funny when people say ZOMG! WE'LL LOSE THE MONEY IN THE MARKETS!!11!!11! when there is talk about privatizing SS. Maybe, maybe not. But under the current system people may age are 100% guaranteed not to see one damn cent, anyway.

    I'm 53 and don't expct to receive a damned cent of social security retirement benefits. I've felt that way for at least 20 years. Social security is just a 15% tax that starts with the first dollar you earn. There is no trust fund. Never has been.

  • Kolohe||

    whoops, missed the 'per day'

    about 373 years.

  • ||

    Kolohe-

    I agree that Ronald Reagan winked and a large number of moralistic evengelical christians alligned themselves with him. He paid lip service to their causes but ultimatley, wouldn't you agree that the alliance was basically one sided?

    The point of my post was to suggest that the 1981 tax cuts were passsed over the objections of FDR moralists like Tip O'Neil, Teddy Kenedy and the like during economic tough times. When Reagan signed the tax cuts into law on August 13, 1981, interest rates were several times higher than they are now; the Dow was, what, 800-850? and we were bailing out Chrysler.

  • Kolohe||

    FDR moralists

    I would argue that the moralist part of FDR's coaltion were essentially the same people (technically their kids and grandkids) as the moralist part of Reagan's, personified by someone like Strom Thrumond.

    And it was and is on a orthogonal plane to the economic issue spectrum

  • Neu Mejican||

    So, no one is questioning the basic conclusions of the report.

    Interesting.

    Remember, SS is not about me saving for my retirement...it is me paying for my elder's retirement, and the kids coming up behind me paying for mine, and so on. Sucks for my generation 'cuz of those damned baby boomers, but...

    Do you really buy the idea that this arrangement will always grow as a percentage of the government's budget?

    Aren't all the global warming dangers overblown because our infinitely wealthy heirs will be able to deal with the costs better than we can?

    How is this different?

    Yadda yadda.

  • ||

    How long does it take to print $102 trillion?

    Not too long as long as you use $1,000,000,000,000 bills. It hs a picture of Agnew on it.

  • Paul||

    Aren't all the global warming dangers overblown because our infinitely wealthy heirs will be able to deal with the costs better than we can?

    No. They're overblown because increasing CO2 emissions are generally tied to growing economies. The government just fixed that problem.

    Who says the gov't couldn't come up with innovative plans to stem global warming.

  • Clemsonuee||

    It shouldn't take that long to print the money. Once you need it the massive inflation will have kicked in so you can start printing $1 Million dollar bills and finish off the printing in about two and a half days.

  • Kolohe||

    Neu-

    You may be interested in this 50(!) part series from a guy named Bruce Webb who contends basically what you allude to: that SS is fine because increasing economic growth will cover all costs.

    http://bruceweb.blogspot.com/2008/08/angry-bear-social-security-series.html

    He is, needless to say, normally at odds with most of the libertarian think tanks on the issue.

  • Paul||

    Koloho,

    Perhaps he differs from 'libertarian thought' with analysis like this:

    We have a chance, said President Clinton, to "fix the roof while the sun is still shining." He was talking about dealing with Social Security immediately, while the economy is growing and the federal budget is balanced. The audience was a regional conference on Social Security, in Kansas City, Missouri, that the White House had helped bring together.

    The roof analogy is illuminating, but we can make it more accurate. Imagine that it's not going to rain for more than 30 years. And the rain, when it does arrive (and it might not), will be pretty light. And imagine that the average household will have a lot more income for roof repair by the time the rain approaches.



    Or, imagine that a market correction causes politicians to panic so utterly, so completely, that they put the economy on a stagnation track for the next 50 to 100 years with debt service payments eclipsing anything anyone thought possible in history.

  • cunnivore||

    Only people who are working paying FICA, but lots and lots of people who aren't working buy stocks.

    Lots of people who aren't retiring sell stocks, too. My point is that, all other things being equal, a large ratio of retirees to earners is going to tip the normal buy/sell balance toward sell, thus lowering the value of stocks.

    Privatization is generally a good thing, but it's not a solution to everything.

  • Neu Mejican||

    Solution,

    So, raise the Social Security Wage Base?

    Isn't that at the heart of why this?

  • Neu Mejican||

    You may be interested in this 50(!) part series

    That made me smile....

    Obsession takes all forms, I guess.

  • The Bearded Hobbit||

    Fellow Neu Mejican,

    Expect the SS wage base to disappear sometime in the next four years. My guess is sooner than later.

    .. "Jemez" Hobbit

  • Doug||

    We're even bailing out thick-headed Australians. (although the training mission argument does have some merit)

  • ||

    PM770 wins the thread - no contest.

    "Just so I'm ready for the next report of the cost of all the combined bailouts, how many trillions are a gajillion?"

  • Xeones||

    Not too long as long as you use $1,000,000,000,000 bills. It hs a picture of Agnew on it.

    Actually, JW, it has Ed Meese on it.

  • Paul||

    So, raise the Social Security Wage Base?

    Expand is a better word. Raising the wages of an existing number of workers may not do it. We need more earners, not just higher earners.

    But wait, that would make SS a Ponzi scheme...

    Never mind. Just raise the minimum wage to $500 an hour. Problem solved.

  • Neu Mejican||

    Paul is an idiot.

    Hobbit...

    Jemez is beautiful.

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