Rob Douglas: The true cost of generational theft

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“The United States has spent decades playing ‘take as you go,’ in which each generation of elderly takes from the young while promising the young their turn when old to expropriate from their own children. I consider this a Ponzi scheme, or chain letter if you’d prefer, that has been organized by Uncle Sam in such a way that each new generation of retirees can claim to be entitled to the off-the-books benefits that they have been promised.” — Laurence Kotlikoff

Rob Douglas

Rob Douglas' column appears Fridays in the Steamboat Today. He can be reached at rdouglas@SteamboatToday.com.

Find more columns by Douglas here.

In a recent study published by the Mercatus Center, “Assessing Fiscal Sustainability,” Boston University Professor of Economics Laurence Kotlikoff finds that, not only is the United States operating fiscally as a Ponzi scheme, economists have been complicit in deceiving Americans about the true cost of this growing generational theft by deliberately using the wrong accounting standard.

“But like the tailors in ‘The Emperor’s New Clothes,’ they went along to get along, in this case with the measures that the politicians, media and general public thought they understood and wanted to talk about.”

Still, Kotlikoff thinks honest fiscal accounting will soon prevail.

“But things have changed. Today, the economics profession is speaking with almost one voice, proclaiming that conventional fiscal accounting needs to be supplemented with, if not totally replaced by, fiscal gap and generational accounting … (because) misleading, fallacious fiscal accounting, which is not worthy of even Enron or Bernie Madoff, must end.”

According to Kotlikoff, fiscal gap accounting “discloses the amount of adjustment needed to restore sustainability,” and generational accounting “looks at the impact of current and implied policy on specific generations.”

Using fiscal gap and generational accounting to determine the long-term financial burden of current federal public policy, Kotlikoff finds:

■ The U.S. official debt ($12 trillion) is just 6 percent of the federal government’s true fiscal gap of $205 trillion.

■ The burden of that $205 trillion fiscal gap saddles each new American child with a debt of $420,600 that will rise as the expected wages of each new generation rise.

Further, the true fiscal gap already is impacting national savings, income and net domestic investment. According to Kotlikoff:

■ In 1950, national saving and investment rates were 14 percent; today, they are 2 percent and 4 percent, respectively.

■ These declines have reduced the growth in real wages and dampened the increase in living standards.

Overall, Kotlikoff finds:

“The U.S. fiscal gap now stands at $205 trillion. This is 10.3 percent of the estimated present value of all future U.S. GDP (gross domestic product). The United States needs to raise taxes, cut spending, or engage in a combination of these policies by an amount equal to 10.3 percent of annual GDP to close its fiscal gap. Closing the gap via raising taxes would require an immediate and permanent 57 percent increase in all federal taxes. Closing the gap via spending cuts (apart from servicing official debt) would require an immediate and permanent 37 percent reduction in spending. This grave picture of America’s fiscal position effectively constitutes a declaration of bankruptcy.”

While I miss them dearly, there are moments when I’m glad my parents didn’t live to witness how thoroughly my generation squandered our nation’s wealth while simultaneously stealing from future generations of Americans. Given the ongoing fiscal fraud being conducted at all levels of government, it’s doubtful those future generations will look back on the baby boomers and echo boomers who are now predominate in the halls of government with the justified esteem we have for the greatest and silent generations.

Admittedly, for many years I was like most Americans. I didn’t pay attention to the unsustainable spending that takes place at every level of government. I was too busy doing whatever it is we’re all too busy doing to pay attention to the long-term fiscal health of the United States.

But for the past 15 years, I’ve been a close observer of public policy at the local, state and federal levels. Now, when I watch constituents ask their elected representatives for “more,” I wonder where they think “more” comes from.

After all, when a nation is significantly funded at all levels by federal deficit spending, “more” comes from the stolen prosperity of our children and grandchildren.

To reach Rob Douglas, email rdouglas@SteamboatToday.com

Comments

mark hartless 5 months, 3 weeks ago

“The U.S. fiscal gap now stands at $205 trillion. "

I't's all ok, we're getting bike trails...

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mark hartless 5 months, 3 weeks ago

"After all, when a nation is significantly funded at all levels by federal deficit spending, “more” comes from the stolen prosperity of our children and grandchildren..."

Actually, "more" doesn't come from stolen prosperity." ALL" comes from stolen prosperity.

The funny part is that many of those who do the stealing chant about how they are all about "the children" and other euphamistic nonsense while stealing those peoples future.

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Sam Jones 5 months, 3 weeks ago

Rob, as usual I find your regular column somewhat pointless and sharply skewed to the conservative right. First, is this topic news? That our entitlement programs are overpromised and underfunded like all private pension liability? Tiresome is a word that comes to mind. By your judgment, the US government is fraudulent in their fiscal plans because they use debt spending models? This has been the case for nearly a century. This is not news.

On the issue of debt and deficits, those measures ran far higher in the Reagan years when adjusting for the value of the US dollar and implied inflation (real dollars). I'm sure he was your lifelong champion and somehow, someway, the US of A managed to grow and prosper for decades after while deficit spending shrank. The pattern is no different today. After running very high deficits during a Great Recession, our current level is falling now - has been for nearly two years. Wait until the tax receipts at the new higher rates come piling in by the end of April and watch the current deficit drop dramatically. I'll bet you'll be surprised! I won't. Public sector employment is falling (read the employment report this am), our government is getting smaller, just as we all want, with private sector jobs replacing public sector jobs. This is the recovery phase just like all cycles in the past.

Back on the entitlement issue, if you were to look at the personal balance sheet of most Americans, perhaps even your own, you might find that you are nearly bankrupt by way of your assets and liabilities. Is carrying a mortgage wrong? If we can't pay it all off today are we bankrupt? Why do you hold the US gov to a different standard? Because its an easy target for a conservative rant.

Finally, waggling your finger at the actions of those who have gone before is cheap and easy. It seems you want a quick fix for all macro issues. Why don't you lead the charge and be the first to give up your social security benefits when they become available? Or perhaps you can see the changes already in place - raising the eligibility age, reducing benefits over time, etc. It's going to take a long time to correct the imbalances in place but of course this too is common knowledge.

I'll leave the floor to the tea party bloggers - I'm sure they'll have a field day with this.

over and out

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Neil O'Keeffe 5 months, 3 weeks ago

Thanks Sam you made my day. It's so easy to stir up that hornets nest, once a needler always a needler! What the world needs is more SLOMO! http://www.lobshots.com/2014/04/01/unreal-ny-times-made-a-documentary-on-slomo/

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mark hartless 5 months, 2 weeks ago

Yeah," the government is getting smaller... " umm hmm... that's a good one!! I almost pissed my pants when I read that; thanks for the giggle, Sam.

There are a few less people employed at Mordor on the Potomac... MAYBE..., but now they all have drones and access to everybody's e-mails and you're stupid enough to state (and apparently believe) that the government is getting smaller??

Yes. I said "stupid..." S-T-U...

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John Weibel 5 months, 2 weeks ago

Sam,

I have never heard of fiscal gap and generational accounting being proposed to replace what has been used for years. So while it may not be news to you, it is to me.

It is unfortunate that the echo chamber we live in allows us to tune out messages that may differ from what we wish/believe/think is how the world should be. We live in a very complex and dynamic world that is rapidly changing and what used to fund the US economy probably needs to change. As robotics, enterprise resource management and other technological tools continue to replace humans (they are about to test print a 2000 square foot home) the current paradigm of funding the government needs to change.

Just as you are a "true believer" to bring an alternative power source to the valley, solar, one that I disagree with in its current form as the greenhouse gasses and toxins that its production process gives off, Rob and others are "true believers" that the system needs massive overhauls.

The Name Calling of "Tea Party" bloggers might demean the message that others are trying to put forth. When I campaigned for Ron Paul in Boulder, most individuals doing so were from the far left and hated to change their party affiliations to Republican in order to try and bring forth change. However, they believed in his message and if one actually did any research they might come to the conclusion that many of the ideas espoused are not without merit.

Anyway, maybe you should try and seek out alternative messages to those that you believe are "true" and open your mind. From my perspective, Rob's column was "new" and news.

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Fred Duckels 5 months, 2 weeks ago

On the one hand concerning Rob's article the left takes the "what me worry" stance and could care less. On the other hand when AGW is mentioned they are suddenly concerned about the future and are all on board. I guess it matters when one's religion is affected.

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mark hartless 5 months, 2 weeks ago

That's been my point for some time now.

That our current debt and deficit spending is CERTAINLY un-sustainable is "no problem".

The invasion on our southern border is un-sustainable is seen as "no problem".

The fact that our educational system is sliding into the abyss at breakneck speed is not a sustainability issue at all.

However, That our energy extraction and consumption methods MIGHT be un-sustainable is a huge concern... huuuuuuuuge concren...

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