Romain Hatchuel writes,
As applied to the euro zone, the IMF claims that a 10% levy on households’ positive net worth would bring public debt levels back to pre-financial crisis levels. Such a tax sounds crazy, but recall what happened in euro-zone country Cyprus this year: Holders of bank accounts larger than 100,000 euros had to incur losses of up to 100% on their savings above that threshold, in order to “bail-in” the bankrupt Mediterranean state. Japanese households, sitting on one of the world’s largest pools of savings, have particular reason to worry about their assets: At 240% of GDP, their country’s public debt ratio is more than twice that of Cyprus when it defaulted.
I consider this to be one of the most likely scenarios.
Cullen Roche writes,
total fossil fuel resources owned by the Federal government are valued at over $150 trillion alone.
Pointer from Mark Thoma.
My guess is that land is the largest real asset of the government. So there is a case for saying that even with all the unfunded liabilities that the government has accrued, the government is not broke.
I think that the best argument against those of us who say that the U.S. will have to inflate away its debt at some point is the argument that the government could sell assets if it wanted to.
William Galston has some facts.
Many frustrated liberals, and not a few pundits, think that people who share these beliefs must be downscale and poorly educated. The New York Times survey found the opposite. Only 26% of tea-party supporters regard themselves as working class, versus 34% of the general population; 50% identify as middle class (versus 40% nationally); and 15% consider themselves upper-middle class (versus 10% nationally). Twenty-three percent are college graduates, and an additional 14% have postgraduate training, versus 15% and 10%, respectively, for the overall population. Conversely, only 29% of tea-party supporters have just a high-school education or less, versus 47% for all adults.
Although some tea-party supporters are libertarian, most are not. The Public Religion Research Institute found that fully 47% regard themselves as members of the Christian right, and 55% believe that America is a Christian nation today—not just in the past. On hot-button social issues such as abortion and same-sex marriage, tea partiers are aligned with social conservatives. Seventy-one percent of tea-party supporters regard themselves as conservatives.
Galston also has delivers some insinuations and assumptions. In particular, he assumes that the the Tea Party movement is some sort of dysfunctional emotional reaction and that the establishment is correct on the fundamental policy issues.
It is possible that this view is correct. However, the probability is not zero that the establishment view on the budget (spend more now; the future will take care of itself, or brilliant health care technocrats will take care of it, or something) is more dangerous than the view of the Tea Party. In fact, the establishment strikes me as suffering from a dysfunctional emotional reaction every time the topic of future budget commitments is brought up.
First, some reality:
At the close of business on Jan. 20, 2009, the day Obama was inaugurated, the U.S. government debt held by the public was $6,307,311,000,000, according to the Daily Treasury Statement for that day.
At the close of business on Sept. 30, 2013—the last day of fiscal 2013—the Daily Treasury Statement said the U.S. government debt held by the public was $11,976,279,000,000.
I think that it is fair to attribute a lot of this debt increase to policies and economic conditions created under President Bush. Still, I find it ironic that President Obama would tell Wall Street that investors should be concerned about a potential default.
My views of the current situation:
1. Our politicians are like a family with a huge credit card debt. The Republicans are threatening not to make the minimum payment, and that is clearly a case of brinkmanship. However, the Democrats have no plan to keep the debt from growing out of control, and that in its own way is brinkmanship.
2. It is almost as if our political system and the news media are designed to conjure up short-term symbolic conflicts to distract attention from long-term problems.
3. A good rule of thumb in politics is that fiscal conservatives make noise, but spenders win in the end.
The Harvard School of Public Health reports,
Many experts believe that future Medicare spending will have to be reduced in order to lower the federal budget deficit but polls show little support (10% to 36%) for major reductions in Medicare spending for this purpose. In fact, many Americans feel so strongly that they say they would vote against candidates who favor such reductions. Many experts see Medicare as a major contributor to the federal budget deficit today, but only about one-third (31%) of the public agrees.
Pointer from Phil Izzo. Somehow, I don’t think Tyler Cowen would be surprised by these results.
Larry Kotlikoff writes,
The fiscal gap is a comprehensive measure of our government’s indebtedness. It is defined as the present value of all projected future expenditures, including servicing outstanding official federal debt, less the present value of all projected future tax and other receipts, including income accruing from the government’s current ownership of financial assets.
He wants to see CBO, OMB, and GAO all report on this measure.
I think I would prefer to see accrual accounting. That is, report the increase in government obligations each year. But the fiscal gap idea might be helpful.
A good response occurred to me, to those cited by Josh who want to argue that underfunding is a mere $1 trillion. OK, let’s issue the extra $1 trillion of Federal debt. Put it in with the pension assets. Now, convert the pensions entirely to defined-contribution. Give the employees and pensioners their money now, in IRA or 401(k) form. If indeed the pensions are “funded,” then the pensioners are just as well off as if they had the existing pensions. (This might even be a tricky way for states to legally cut the value of their pension promises)
I suspect the other side would not take this deal. Well, tell us how much money you think the pension promises really are worth — how much money we have to give pensioners today, to invest just as the pension plans would, to make them whole. Hmm, I think we’ll end up a lot closer to Josh’s numbers.
That is, one way to value government pensions is to ask workers how much they would be willing to take in the form of an individual retirement account to give up their pensions. Of course, if the government workers believe that their pensions are at risk, they might take a low figure. But if we take that possibility off the table, then workers are likely to demand a lot more money than the current stated value of the pension obligations.
I think others have pointed this out before, but when the subject of Social Security privatization comes up, aggressive assumptions about stock market returns seem reasonable to those on the Right and crazy to those on the Left. But their positions reverse when the subject changes to state and local pension funding. My own preference is to make conservative assumptions about stock market returns for both discussions.
The coming battles over wealth taxation may prove especially bitter and polarizing. Most wealth has already been subjected to income and other taxes, perhaps multiple times. It doesn’t seem fair to the holders of that wealth to suddenly pay additional taxes on assets that they thought were in the clear, and such taxes would signal that previous policy has failed.
Read the whole thing. Almost five years ago, I wrote,
That leaves the option of declaring a national emergency and enacting what is known as a wealth tax or a capital levy. The idea is you undertake a one-time confiscation of assets and promise never to do it again. You hope that this has zero adverse incentive effects but brings in a boatload of money.
Timothy Taylor writes,
Some other high-income countries have government programs to pay for long-term care. Not surprisingly, they spend a substantially greater share of GDP on long-term than does the U.S. In any event, the long-term U.S. budget picture is grim enough that adding another entitlement for the elderly isn’t likely.
As usual, he has useful links, primarily a CBO study.
I have a vision of the year 2025 in which the difference between the rich and everyone else is that the rich can afford to send their children to private schools, pay full fare for the children’s college education, and pay for their own parents’ long-term care. Everyone else will depend on public schools, community colleges and scholarships, and government-provided nursing homes. Otherwise, the lifestyles of the rich and the non-rich will look pretty similar.