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When Pretending Fails to Hide Bankruptcy

02/27/2011

Democracy and Power 108:  Obfuscation

Wherever politics intrudes upon economic life, political success is readily attained by saying what people like to hear rather than what is demonstrably true. Instead of safeguarding truth and honesty, the state then tends to become a major source of insincerity and mendacity. – Hans F. Sennholz

                 

When Pretending Fails to Hide Bankruptcy

Laurence Kotlikoff, an economist at Boston University, has long been a sane voice on the accruing government debt that will harm America’s children and grandchildren.  In a Bloomberg article, he exposes the mendacity of the Democrats and Republicans in concealing the true debt by manipulating the labels used to define taxes and debt: 

It’s only the value of the infinite horizon fiscal gap that is unaffected by the choice of labels of language. Take this year’s payroll tax contributions. Let’s call these transfers from workers to Uncle Sam “borrowing” by the government, rather than “payroll taxes,” since the money will be paid back as future benefits. If the future payback isn’t in full (equal to principal plus interest), we can call the difference a “retirement tax.” Presto! With this change of words, our 2011 deficit of about 10 percent of GDP is boosted another five points to 15 percent.

Thus, politicians manipulate the labels to obscure the actual debt. Clinton, Bush and now Obama are all guilty.

Kotlikoff estimates the real debt (fiscal gap) is $202 trillion.  In terms "We the People "can grasp:  government must tax or cut spending at 12% of the annual GDP forever.  As a comparison the FICA tax paid by employers and employees for Social Security and Medicare is presently at 5% of GDP.

Kotlikoff has personally witnessed the political conniving and mendacity.  In 1993, Kotlikoff and other economists were asked by Alice Rivlin of the Office of Management and Budget to analyze the fiscal gap.  After months of study the report exposed rapidly increasing debt. However, the report was never published.  It was squashed by the Clinton Administration, which didn’t like the negative repercussions.  The next attempt was by Treasury Secretary Paul O’Neill in 2002.  O’Neill and the report were annihilated in favor of pushing tax decreases and prescription drugs.  Now the Obama Administration is claiming the 12% fiscal gap is only a 1.8% deficit.  This is mainly because in 2014 the Independent Payment Advisory Board will adjust the payments of Medicare and Medicaid.  A reduction that has no historical precedent, and even the Medicare’s chief actuary Richard Foster said:

“The financial projections shown in this report for Medicare do not represent a reasonable expectation…in either the short range…or the long range.”

 Dear fellow Americans, we have a momentous problem.   America’s elected elites have willfully, wrongfully and harmfully damaged America.  These political power addicts - Republicans, Democrats, progressives, liberals, and conservatives - all seek the immediate gratification of power over long-term, good policy.  Over the last three elections, Americans have peacefully rebelled by voting out incumbents.  Continuing the peaceful rejection of this deceit and mendacity is the only hope for saving freedom, peace and democracy.  We the People, the hoi polloi, are the only safeguard in our present system of government from being overwhelmed by the greed and avarice of the political plunderers.