Boston University economics professor Laurence Kotlikoff penned a great guest article for Bloomberg, where he takes a hard look at the fiscal gap in the US, concluding that our country is basically bankrupt.
Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.
The root of the problem? Kotlikoff continues:
How can the fiscal gap be so enormous?
Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.
This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.
In his conclusion, Kotlikoff “keeps it real” by denouncing Keynesians and supply-siders alike as being equally delusional about overly simplistic ways out of this mess.
Further reading: But if the fiscal deficit is so bad, why aren’t long term interest rates skyrocketing?