I have to vent a little bit about this article, which is claiming that the “real” deficit last year was $1.4 trillion, instead of the $248 billion reported. Now, you should know by now that I’m no friend of either Bush or the Republicans. And I agree that both the real debt and real deficit are higher than reported. But they’re not $1.4 trillion.
How they get this number is bogus math.
The key quote is this one:
This hidden debt is the amount taxpayers would have to pay immediately to cover government’s financial obligations. Like a mortgage, it will cost more to repay the debt over time.
This is bogus math in two different directions.
First is the concept that the goverment needs to pay now for payment they’ll need to make decades from now. One of the first problems with this is that they also count the payments that the US goverment is making now to pay for obligations made decades ago. This is not only counting your chickens before they hatch, this counting your chickens both before and after they hatch, and thinking you have twice as many chickens. This is the account practices of people who can not reliably add 1 + 1 and get 2- they’re adding 1 + 1 and getting 4 here. Please try that again.
Either the payments being made now don’t count, or the payments to be made decades from now don’t count. Pick one.
The second flaw is in thinking that, by not paying for or accounting for those payments in the future, they’re getting more expensive. No, actually, they’re getting cheaper. It works like this: how much, today, is $1 worth, say 40 years from now? If you say $1, have I got a deal for you- for the low, low, price of only $1, paid to me immediately, I will gladly pay you $1 40 years from now. Sound like a good deal?
Of course not. Even ignoring inflation- if I can earn, say, 1% risk-free compound interest over inflation, that $1 you pay me now will turn into almost $1.49 2007-dollars over the next 40 years. At which point I give you the $1 back, and keep the $0.49 for myself. Which raises the question of why the heck don’t you just invest that $1 risk-free yourself, and get back the full $1.49 in 40 years? And remember, this is discounting for inflation. If you don’t, and you assume a modest inflation rate of, say, 4%, that $1 in 2007 money turns into $7.04 of 2047 dollars. At which point my profit goes from $0.49 to $6.04.
The real value of that 2047 dollar today is more like 1/7.04, or about $0.14. As $0.14, returning 5%, will be worth about a dollar in 2047. But they’re not only claiming that the 2047 dollar is worth more than $0.14, they’re claiming it’s worth more than a dollar! “Like a mortgage, it will cost more to repay the debt over time.” According to their logic, you should be willing to pay $7.04 for the privelege of receive $1 in 40 years!
What’s really annoying with this bad math is that it’s being used to convince people to screw themselves over- to convince people that social security is unfundable, by adding 1 and 1 and getting 4.
There is a problem mentioned in this article, and it is an unsupportable problem. Here’s the relevent quote:
“There is a shortfall in Medicare and Medicaid that is potentially explosive, but that is related to overall trends in health care spending,” [Chad Stone, chief economist at the liberal Center on Budget and Policy Priorities] says.
Social security is fine. Medicare and medicaid are in trouble. Why? Spiraling health care costs- for the Goverment and everyone else.
But that’s a rant for another day.
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