Perhaps Hugh Catherwood would care to comment on this article

["fair use," "teachable moment," "archival," Section 107(a), 1976
Copyright Act and 1998 Digital Millennium Act]

Source: http://www.nationalreview.com/nrof_bartlett/bartlett060903.asp

Text portion:

---------------------------------06-16-2003-------------------------------------

June 9, 2003, 7:00 a.m. Our "Astronomical" Debt Not really, at closer
look.

n May 29, London's Financial Times reported some startling news about
the U.S. national debt. Instead of being about $3.5 trillion, as
commonly understood, it was actually $44 trillion, according to a
suppressed Treasury Department report by economists Kent Smetters and
Jagadeesh Gokhale.

This was an odd story to put on page one, since it mostly just
repeated information that had been in the public record for a while.
Smetters revealed the $44 trillion number during congressional
testimony on March 6. On May 9, the supposedly suppressed report was
the object of a conference at the American Enterprise Institute and
was posted on the institute's website. On May 19, economists Laurence
Kotlikoff and Jeffrey Sachs published an op-ed article in the Boston
Globe that discussed the study in detail.

Moreover, the idea that the study was suppressed in any way fell apart
when the authors denied it. This fact was easily confirmed because the
Financial Times posted interviews with the study's authors on its
website in which they rejected the charge. It also turned out that
much of the substance of the study appeared in the 2004 budget in a
chapter entitled, "The Real Fiscal Danger," as well as the Financial
Report of the United States Government released in March. 

Once these facts became known, the press lost interest in the story.
No American paper followed up on the Financial Times report. However,
it continues to be a topic of interest in cyberspace, where several
websites known as "blogs" have run extensive commentaries. These
include those of economists Brad DeLong and Kevin Drum. 

The first thing to know is that this $44 trillion figure is based on
projecting taxes and government spending under current law in
perpetuity _ two-thirds of the debt comes more than 75 years in the
future. To put the numbers into today's dollars, they are adjusted
both for inflation and the rate of interest. When calculating figures
this way, very small changes in assumptions can radically alter the
results. 

In any case, the debt is not particularly large when put in context.
When the size of the future economy is calculated the same way as the
$44 trillion debt figure, it comes to $682 trillion. Thus this
astronomical debt that so alarmed the editors of the Financial Times
turns out to equal just 6.5 percent of the gross domestic product _
something to be concerned about, but hardly a crisis in the making. 

The real purpose of the study was not to alarm people about deficits
100 years or more from now, but to help inform policymakers
considering significant changes to programs such as Social Security
and Medicare. Using a conventional 75-year time horizon, for example,
tends to exaggerate the cost of shifting toward private accounts for
Social Security, because much of the saving will fall more than 75
years in the future. 

Nevertheless, the figures reveal important imbalances in our largest
entitlement programs. The study shows that the biggest fiscal problem
we have is in Medicare. It accounts for $37 trillion of the $44
trillion debt. Almost all the rest is accounted for by Social
Security, which has promised benefits $7 trillion greater than future
revenues will support. 

Interestingly, the non-entitlement portion of the budget _ national
defense and everything else the federal government does _ runs a
substantial surplus. Future revenues are estimated at $85 trillion and
spending at $80 trillion. When one throws in the national debt, as
conventionally measured, the non-Social Security, non-Medicare portion
of the budget is roughly in balance. 

This fact puts a lie to the notion that recent tax cuts have somehow
contributed significantly to a $44 trillion debt. The imbalances in
Social Security and Medicare are inherent in those programs and will
not be cured except by fundamentally restructuring them. Raising taxes
or rescinding recent tax cuts will not suffice. Payroll taxes would
have to roughly double immediately and stay at that level forever to
cover the deficit, or income taxes would have to rise by 70 percent. 

Of course, if taxes did rise by such an amount, future economic growth
would be affected. We would not get $682 trillion of GDP in the
future, but considerably less. That will require even higher taxes to
pay promised benefits, which in turn will further reduce growth. 

In any case, it is extraordinarily na‹ve to think that higher taxes
today will ever be used to reduce deficits 75 or more years in the
future. The money will just get spent today. If anyone really cares
about the federal government's indebtedness, they should oppose new
entitlement programs, such as the prescription drug plan being
considered in Congress, as strenuously as possible. 

-- 


           W. Curtiss Priest, Director, CITS
   Research Affiliate, Comparative Media Studies, MIT
      Center for Information, Technology & Society
         466 Pleasant St., Melrose, MA  02176
   781-662-4044  BMSLIB@MIT.EDU http://Cybertrails.org