The Government Debt Iceberg

Government accounting books debt immediately but cannot book the offsetting gains accruing from social services that historically result in lower future costs of policing and incarceration and higher revenues from citizens living productive lives longer.

CATO repeatedly gets this wrong.

Investment delivered to increase the productivity of those currently unlikely to be productive will result in significant GDP growth.

The problem lies in government subsidies to already productive businesses and demographic groups that produce relatively small marginal growth for their investment. The Trump tax cut is the latest example of such a misallocation of capital.

Acknowledging the realities of increases in lifespan and extended quality of life along with a strong public campaign against age discrimination would greatly increase the productivity of a significant sector of the population while incurring relatively little additional training costs. This would then justify raising the Social Security retirement age with consequential decreases in the cost of that entitlement program.

These changes to budget priorities become vital if we are to avoid significant additional borrowing in the new high-interest environment.

Of course, as time marches on boomers will leave the Medicare and Social Security system resulting in a significant reduction in costs. The possibility of a surplus in a little over a decade is conceivable.

This doesn't seem very compelling, when you look at the debt to GDP ratio you see a very clear theme: Disasters happen, debt:gdp spikes, and then slowly returns to reasonable levels. WW1, Great depression, WW2, Great recession, Pandemic. Clear events that spike debt and damange GDP. Outside of those events we see it basically flat, often falling. And tax revenue and spending charts? Before the pandemic spending wasn't on a particular upward trend and revenue wasn't particularly high or low. Then they go and project a massive, unprecedented continual rise for decades. Not compelling, maybe call us in 15 years and show us that we really are on that escalator?

And the explanation for this? An ageing population putting new pressure on social security and medicare. And an ageing population means fewer people in work causing slower GDP growth.

Well I've got an answer for this: it doesn't have to be the case that the US has an ageing population. It doesn't have to be the case that the US has slow economic growth.

Let's assume you buy this argument though, and you decide that you want to throw an entire generation of older Americans into poverty and allow them to die en masse from preventable diseases so that you can balance the budget. Even then, what you're basically saying is the American dream is over, the core belief in this article is that the US economy is going to basically stagnate and we'll all get poorer. Hell, that might be correct, but that doesn't seem like the outcome that I would be aiming for and planning for.

Or we could label it the "private sector savings iceberg", because that's what the other side of the balance sheet records.

Doesn't sound as scary then, particularly not when you realise that when you spend savings, that causes tax and income, which causes more spending, tax and income and so in until all of the saving disappears in tax.

And of course when the savings disappears in tax, then the debt does as well.

Government debt is a store of taxation that retires the government debt. It's all there in the accounting.

You just have to look at the left side, not the right.

If Cato spent less time worrying about debt that isn't really debt and more time worrying about productivity, it might have an argument.

The statements in this article may or may ot be true. What prevents me from engaging with the argument is that the right wing think tank universe always makes these claims, and yet always finds excuses for the blank check military budget. Its a little hard to take fiscal prudence seriously when the largest expenditure is considered sacrosanct. Secondly, these claims always vet louder during Democratic administrations. The most recent Republican administration spent (wasted) money and ran up significant debt and yet its only now that Cato wakes up? The timing is just too coincidental.

If your view of macroeconomics is essentially kitchen table "income < liabilities = trouble", fine, but at least be consistent.

Ah, the Cato institute, a "think tank" which in this case has the usual meaning: an opaquely funded right-wing and big business lobby group.

https://rationalwiki.org/wiki/Cato_Institute