To Whom Are "Third Rails" Really Dangerous?

Monday, October 27, 2014

Writing at RealClear Politics, James Harrigan and Antony Davies observe that, as of October 26, the federal government has already exhausted this year's revenues towards this year's expenses. They call it "Deficit Day", and elaborate further:

When politicians talk about the debt, they invariably refer to the debt-to-GDP ratio, which is presently around 106%. That measure is fine for comparing debt levels across countries (it is noteworthy that the Greek and Cypriot economies imploded when their ratios reached 120%), but it doesn't tell us much about a government's ability to make good on what it owes. To measure the government's ability to repay its debt, we need to look at the debt-to-income ratio. That is 600%.
The last ratio, they note, is approaching the point at which it would become mathematically impossible, all things remaining the same, for the government to repay its debt. And then the authors drop the real hammer: They hadn't even included so-called "unfunded liabilities", such as Social Security, in that calculation. When those are included, the ratio becomes 3,000 per cent -- already well past that point. I guess they had to leave out the "unfunded liabilities" to even be able to have a "deficit day".

I agree with the authors that this is cause for alarm, but disagree with their contention that "our financial problems begin with deficits". No: Those deficits had to come from somewhere, and that "somewhere" is spending on programs which enjoy significant political support. We aren't going to even start solving these problems until the sense in which these programs are known as "third rails" changes from "dangerous to attack" to "dangerous to continue", and that's going to take cultural change on a historic scale.

-- CAV

2 comments:

Realist Theorist said...

Not sure if you're aware, but occassionally your posts cross-posted to OO.com trigger quite an argument.
For example, this one"

Gus Van Horn said...

RT,

Yes. I noticed that yesterday, but thanks for mentioning it here.

Gus