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Posts Tagged ‘Social Security’

What’s America’s main fiscal policy challenge, particularly in the long run?

Most sensible people will agree that our greatest threat is the rising burden of entitlement spending.

More specifically, demographic changes and ill-designed programs will combine to dramatically expand the size of the public sector over the next few decades.

So it’s really amazing that some politicians, led by the clownish Elizabeth Warren, want to dig the hole deeper.

Here are some excerpts from a recent article in the Washington Examiner.

Elizabeth Warren is pushing Democrats to expand Social Security rather than cut it, a move that could pressure presumed party frontrunner Hillary Clinton to move left. …”What Elizabeth Warren has done on pushing the ball forward on Social Security is another example of why she’s a bold progressive hero,” said T.J. Helmstetter, a representative for the Progressive Change Campaign Committee, an outside group that pushes for progressive causes. …In March, almost all Democratic senators voted for a symbolic budget amendment to express support for expanding Social Security. …The messaging amendment approved by most Senate Democrats also did not specify how benefits were to be expanded.

I discussed this topic in a recent interview.

Though I’m surprised that my head didn’t explode while discussing such a reckless idea.

I closed the interview by expressing a modest bit of optimism.

Surely (at least I hope) politicians won’t dig the hole deeper when we can see right before our eyes the fiscal chaos and economic disarray in Greece, right?!?

I’m surprised demagogues such as Elizabeth Warren haven’t rallied behind a plan to simply add a bunch of zeroes to the IOUs already sitting in the so-called Social Security Trust Fund.

Fortunately, not all politicians think it’s smart to accelerate as you’re driving toward a cliff.

Writing in the Washington Post, Charles Lane explains Governor Christie’s proposal.

New Jersey Gov. Chris Christie…wants to campaign on a sweeping proposal to rein in federal entitlement spending on the elderly. …he urged a phaseout of Social Security benefits for retirees with $80,000 or more in other income and backed a gradual upward adjustment of the retirement ages for Medicare and Social Security, which is also appropriate, given increased life expectancy. …Social Security…remains a non-trivial cause of the government’s long-term fiscal imbalance. Its trust fund, admittedly an accounting fiction of sorts, is on course to run out of cash by the early 2030s. Christie’s plan would provide three-fifths of the resources necessary to guarantee Social Security’s solvency for 75 years

Kudos to Governor Christie for recognizing that you can’t repeal mathematics with politics.

And this modest bit of praise isn’t based on policy. I’m not a big fan of means testing, which has some unfortunate economic effects.

And I also think that raising the retirement age is sub-optimal since it forces people to pay longer into an inferior system that already is giving them a very low rate of return.

The right approach is to transition to a system of personal retirement accounts, but at least Christie has an adult proposal based on real-world considerations.

Though, to be fair, many leftists claim we can afford higher benefits and also “fix” the system with a giant tax increase. So they sometimes recognize that math exists, even if they want us to believe that 2 + 2 = 7.

P.S. If Hillary winds up endorsing Warren’s reckless plan, it will give us another data point for our I-can’t-believe-she-said-that collection.

P.P.S. Is Elizabeth Warren more of a faux populist or more of a faux American Indian?

P.P.P.S. You can enjoy some previous Social Security cartoons here, here, and here. And we also have a Social Security joke if you appreciate grim humor.

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Last month, I posted “the cartoon argument” for Social Security reform.

My main goal, as an American, is to achieve this important reform in the United States.

And I’ve tried to bolster the argument by citing lots of hard data, including the fact that “funded” accounts already exist in nations such as Australia, Chile, Sweden, and the Netherlands.

In this spirit, I wrote an article for the most recent issue of Cayman Financial Review, and I looked at the issue from a global perspective. I first explained that demographics are destiny.

It is widely believe that aging populations and falling birth rates represent one of biggest global challenges for long-term economic stability. How can a nation prosper, after all, if there are more and more old people over time and fewer and fewer workers? Don’t these demographic changes put every-growing fiscal burdens on a shrinking workforce to support the elderly, leading to crippling tax burdens and/or enormous levels of debt? In most cases, there are no good answers to those questions. So it is quite likely that many nations will face serious economic and fiscal challenge… Here are some charts showing the age profile of the world’s population in both 1990 and 2100. As you can see, demographic changes are turning population pyramids into population cylinders. …virtually every industrialized nation is undergoing demographic changes that will produce some very painful fiscal consequences.

But not all nations are in trouble.

there are jurisdictions, such as Singapore and Hong Kong that are in reasonably good shape even though their populations rank among the nations with the lowest levels of fertility and longest life expectancies. And other nations, including Sweden, Australia, Switzerland, and the Netherlands, have much smaller long-run challenges than other industrialized countries with similar demographic profiles.

Why are these jurisdictions in stronger shape?

Simply stated, they have personal retirement accounts.

Mandatory pension savings is a key reason why some jurisdictions have mitigated a demographic death squeeze. Whether they rely on occupational pensions, individual accounts, or even central provident funds, the common characteristic is that workers automatically set aside a portion of current income so it can be invested in some sort of retirement vehicle. Over several decades, this results in the accumulation of a substantial nest egg that then is used to provide retirement income.

And there are now about 30 nations that have implemented this critical reform…though that number unfortunately is dwarfed by the number of countries that haven’t modernized their tax-and-transfer schemes.

For advocates of funded pension systems, there is good news and bad news. The good news is that there has been a dramatic increase in jurisdictions that have adopted some form of private retirement system. …the bad news is that mandatory private retirement systems still only cover a small fraction of the world’s workers. The vast majority of workers with retirement plans are compelled to participate in pay-as-you-go government schemes.

Unsurprisingly, I explain why personal retirement accounts are much better for the overall economy.

Economists have been concerned about a triple-whammy caused by traditional tax-and-transfer retirement schemes. First, payroll taxes and other levies discourage labor supply during peak working years. Second, the promise of retirement benefits undermines a very significant incentive to save. Third, the provision of retirement benefits discourages labor supply once a worker reaches retirement age. …Systems based on private savings, by contrast, have very little economic downside. Workers are compelled to save and invest some portion of their income, but all of that money will be correctly seen as deferred compensation. …Perhaps equally important, second-pillar systems boost national savings, which means more funds available to finance productive private-sector investment.

Though I bluntly admit that there will be a significant transition cost.

The…common critique of mandatory retirement savings is that…if younger workers are allowed to shift their payroll taxes into personal accounts, policy makers would need to find lots of money over several decades (trillions of dollars in the American example) to fulfill promises made to existing retirees as well as workers that are too old to get much benefit from personal accounts. This critique is completely accurate. …But here’s the catch. While trillions of dollars are needed to finance the transition to a system of personal accounts, it’s also true that trillions of dollars are needed to bail out the current system. …The real question is figuring out the best way to climb out of that hole. From a long-term fiscal and economic perspective, personal accounts are the more attractive option.

To elaborate, it’s better to somehow find $5 trillion over several decades to finance the shift to personal retirement accounts than it is to somehow find $30 trillion over a longer period of time to bail out the current system.

For more information on personal accounts, you can click here for my video on the topic.

And to learn about Obama’s supposed solution, watch (with horror) this video.

P.S. You can enjoy some previous Social Security cartoons here, here, and here. And we also have a Social Security joke if you appreciate grim humor.

P.P.S. While I’m a very strong advocate of personal retirement accounts (my Ph.D. dissertation was about Australia’s very good system), I’ll be the first to admit that it’s even more important to modernize Medicare and Medicaid.

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We have some good news to share.

A government has just announced that it is going to end the unfair practice of giving government bureaucrats pension benefits that are far greater than those available for workers in the economy’s productive sector.

Can you guess which jurisdiction took this important step, notwithstanding the greed, political sophistication, and power of government bureaucracies?

Is it the federal government in Washington, which provides bureaucrats with much higher levels of overall compensation than workers in the private sector?

Is it Ireland, which a few years ago actually cut bureaucrat salaries by more than 13 percent?

Is it California, which is infamous for over-compensated bureaucrats?

Is it Denmark, which has the world’s most expensive bureaucracy?

Is it Italy, which has some of the most coddled government bureaucrats in the world?

Is it New Jersey, where it’s possible for a bureaucrat to have six government jobs at the same time?

Is it the Cayman Islands, which actually contemplated the imposition of an income tax to finance its bloated bureaucracy?

Is it Portugal, which overpays bureaucrats more than any other nation?

Those jurisdictions are all be good guesses. Or, to be more accurate, that’s a good list of jurisdictions where reform is desperately needed.

But all those guesses are wrong. The nation that is ending special pension privileges for government bureaucrats is the People’s Republic of China.

Yes, you read correctly. A communist-run nation is implementing this pro-market reform. Here are some of the details from CNTV.

China will reform its public sector pension system to reduce disparity between the public and private sectors, Vice-Premier Ma Kai said Tuesday… Under China’s dual pension system, civil servants and employees in state agencies do not need to pay for their pensions — the government provides full support for them. But employees of private enterprises have to pay 8 percent of their salary to a pension account. After retirement, private urban employees usually get a pension equal to about half of their final salary, but civil servants get much more without making any financial contribution. …now the reform is coming. The aim is to build a system for Party, government and public institution staff that is similar to the one used by the private sector. This move will affect around 37 million people: 7 million civil servants and 30 million public institution staff.

Wow, bureaucrats will have to live under the same rules as folks in the private sector.

What a radical concept! Maybe we could even try it in the United States at some point.

By the way, one additional indirect feature of the story is worth a mention. China actually has the beginnings of a private Social Security system.

Because the system is still developing, I don’t put it on my list of nations with private Social Security (though it is on the Social Security Administration’s list), but the goal is to slowly but surely shift to a funded system.

Assuming that actually happens, China could mitigate the fiscal consequences of a very large demographic crisis caused by that nation’s barbaric one-child policy.

In any event, China’s at least moving in the right direction (see here, here, and here for more information), which is more than can be said for the United States.

P.S. While China has moved in the right direction in recent decades, it still gets a relatively low score from Economic Freedom of the World. Which helps to explain why I think it’s silly for people to fear the supposed Chinese Tiger.

P.P.S. If you want to see far more striking examples of Chinese people being successful, check out Hong Kong and Taiwan.

P.P.P.S. Though at least some Chinese government officials have a very perceptive understanding of the European welfare state.

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I confess that I get a bit of perverse pleasure when a left-leaning media outlet screws up and inadvertently shares information that helps the cause of limited government.

A New York Times columnist, for instance, pushed for a tax-hiking fiscal agreement back in 2011 based on a chart showing that the only successful budget deal was the one that cut taxes.

The following year, another New York Times columnist accidentally demonstrated that politicians are trying to curtail tax competition because they want to increase overall tax burdens.

Now it’s happened again.

In a major story on the pension system in the Netherlands, the New York Times inadvertently acknowledged that genuine private savings is the best route to obtain a secure retirement.

Let’s look at a few excerpts, starting with some very strong praise for the Netherlands in the article.

Imagine a place where pensions were not an ever-deepening quagmire, where the numbers told the whole story and where workers could count on a decent retirement. …That place might just be the Netherlands. And it could provide an example for America… “The rest of the world sort of laughs at the United States — how can a great country like the United States get so many things wrong?” said Keith Ambachtsheer, a Dutch pension specialist who works at the University of Toronto… The Dutch system rests on the idea that each generation should pay its own costs — and that the costs must be measured accurately if that is to happen. …The Dutch approach bears little resemblance to the American practice of shielding the current generation of workers, retirees and taxpayers while pushing costs and risks into the future, where they can metastasize unseen.

Interestingly, the article doesn’t explain what makes the Dutch system so superior to its American counterpart, but the phrase “each generation should pay its own costs” is a big hint.

That basically means that the system is not based on inter-generational redistribution, which is a core feature of pay-as-you-go schemes such as America’s bankrupt Social Security system.

That’s important, but what’s really key is that the Dutch system is based on private savings and private investment. It’s not a pure libertarian system, to be sure, since there are government mandates (such as high mandatory savings to finance generous old-age payments), but it is definitely a far more market-based system than what we have in America.

Here are some details.

About 90 percent of Dutch workers earn real pensions at their jobs. Their benefits are intended to amount to about 70 percent of their lifetime average pay… For this and other reasons, the Netherlands has for years been at or near the top of global pension rankings compiled by Mercer, the consulting firm, and the Australian Center for Financial Studies, among others. Accomplishing this feat — solid workplace pensions for most citizens — isn’t easy. For one thing, it’s expensive. Dutch workers typically sock away nearly 18 percent of their pay, most of it in diversified, professionally run pension funds. That compares with 16.4 percent for American workers, but most of that is for Social Security, which is intended to provide just 40 percent of a middle-class worker’s income in retirement.

And it’s worth noting that a system based on private savings also means that there is lots of money that can be invested.

And “lots of money” isn’t just a throwaway line. The Netherlands leads the OECD in private pension assets, measured as a share of economic output.

It’s worth pointing out, by the way, that the leading nations in this chart (Chile, Iceland, Australia, Switzerland, and Denmark) generally have systems based at least in part on private mandatory savings.

And given that big piles of money are very tempting targets for greedy governments, it’s also worth noting that the Dutch haven’t allowed the system to get politicized.

There’s not the slightest whisper of a rumor, for instance, that the government will grab the money.

Moreover, unlike the United States (particularly when discussing the pension systems operated by state and local governments), pension funds actually have to maintain adequate assets to pay promised benefits.

And no using funky math!

Imagine a place where regulators existed to make sure everyone followed the rules. …standing guard over it is a decidedly capitalist watchdog, the Dutch central bank. …the central bank in 2002 began to require pension funds to keep at least $1.05 on hand for every dollar they would have to pay in future benefits. If a fund fell below the line, it had just three years to recover. …The Dutch central bank also imposed a rigorous method for measuring the current value of all pensions due in the future. …Notably, the Dutch central bank prohibited the measurement method that virtually all American states and cities use, which is based on the hope that strong market gains on pension investments will make the benefits cheaper. …He explained that in the Netherlands, regulators believe that basing the cost of benefits today on possible investment gains tomorrow is the same as robbing tomorrow’s workers to pay for today’s excesses.

No wonder the Netherlands ranks so much higher than the United States in the rule of law index.

Now that I’ve said what’s good about the system, I’ll be the first to admit that it could be improved.

First and foremost, the Dutch system is basically a near-universal defined-benefits regime, which means that workers get a guaranteed amount of money and it is up to the fund administrator to make sure there is enough money.

This type of system has been very unstable in the United States because of chronic underfunding. The Dutch so far seem to have avoided that problem, but I still prefer the defined-contribution systems, which means that workers get back exactly what they paid in, plus all the earnings.

And the good news, from this perspective, is that the Dutch are moving in this direction according to a British service that monitors global pension developments.

Occupational pension schemes in the Netherlands are still mostly defined benefit (DB) schemes. But as companies are seeking to control costs and risk, a massive shift from final salary career average plans is taking place. Also, the popularity of defined contribution (DC) and hybrid schemes is growing.

One thing I wouldn’t change about the Dutch system is the tax treatment. The Dutch have what is sometimes called an exempt-exempt-tax (EET) system, which is sort of like a traditional IRA (i.e., no double taxation).

The Dutch government explains that the income is taxed only one time.

No tax is levied on pension contributions. And the growth of pension rights via the pension fund’s investment performance remains untaxed. Pension benefit is only taxed when it is received.

And let’s hope it stays that way, though the welfare state in the Netherlands is so large that the nation does have some significant long-run fiscal challenges. And that could lead future politicians to sacrifice the stability of the private pension system in order to prop up big government.

That being said, I would gladly trade the U.S. Social Security system for the Dutch mandatory pension system. An imperfect system based on private savings is always a better bet than a perfectly terrible tax-and-transfer scheme.

For more information, here’s the video I narrated explaining why personal retirement accounts are far superior to government-run schemes such as Social Security.

By the way, since I began this column by making fun of the New York Times, I may as well close it by sharing examples of biased and/or sloppy reporting by that outlet.

And none of this counts Paul Krugman’s mistakes, which are in a special category (see here, here, here, here, here, here, here, and here for a few examples).

P.S. I shouldn’t be too critical of the New York Times. After all, they ran a great piece by Pierre Bessard dealing with tax competition, fiscal sovereignty, and financial privacy. Heck, they once even let me pontificate on those issues.

P.P.S. While the Dutch system is far better than the American system, I think Australia is the best role model. Chile also is a big success.

P.P.P.S. You can enjoy some Social Security cartoons here, here, and here. And here’s a Social Security joke, though it’s too close to being true to be funny.

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The polling data I shared last month about confused young people was a bit of a downer, so let’s look at three different polls that are a bit more encouraging.

First, I’m glad to see that many Americans feel that government and politicians are their leading cause of daily stress.

Here’s some of what the Washington Post reported on this poll.

…much of that emotional response is completely justified. As if it weren’t enough that our politicians are actively working to harm the global economy and otherwise failing to do their jobs or even show up for work in general, they’re also stressing everyone out with the astonishing breadth and depth of their incompetence. And since high stress is linked to shorter life expectancy, they are also literally killing us with their incompetence. In other words, thanks, Obama (and everyone in Congress too).

My job is to connect the dots so that people understand that the only way to reduce stress is to make government smaller.

And, for what it’s worth, that’s the best way to make government at least semi-competent.

Our second batch of polling numbers come from Rasmussen. I’ve shared research and data on the negative impact of redistribution spending (as illustrated by this powerful chart), but I figured most Americans didn’t understand that such programs trap people in dependency.

I’m glad to read that I’m wrong. In an article entitled, “49% Believe Government Programs Increase Poverty in America,” Rasmussen reports the following.

Most Americans still believe current government anti-poverty programs have no impact on poverty in this country or actually increase it. A new Rasmussen Reports national telephone survey finds that a plurality (44%) of American Adults still think the government spends too much on poverty programs.

The Rasmussen folks also have this encouraging bit of public opinion research.

A new Rasmussen Reports national telephone survey finds that 67% of American Adults think there are too many in this country who are dependent on the government for financial aid, up slightly from 64% in September of last year.

Our third set of polling numbers come from the periodic Reason-Rupe poll.

I’ll share several pieces of data, but here are the numbers I find most encouraging. Apparently most people realize that pro-growth policy is the right approach, not class warfare and redistribution.

In terms of economic policies, 74 percent of Americans would like Congress to focus on policies to promote economic growth, while 20 percent favor policies to reduce income inequality.

I guess I’m also happy about these results, though I can’t help but think that there are some very confused folks in the Tea Party.

Fifty-five percent of Americans tell Reason-Rupe they have a favorable opinion of capitalism. Meanwhile, 36 percent of those surveyed, including 33 percent of independents and 26 percent of self-described Tea Party supporters, have a favorable opinion of socialism.

I don’t even think Obama’s a socialist, so these ostensibly anti-Obama folks apparently favor even more government than our statist President. Go figure.

Last but not least, I should like this result, but I’m actually disturbed since the margin is much smaller than it should be.

When asked about the size of government, 54 percent of Americans favor a smaller government providing fewer services. Forty-two percent favor a larger government providing more services.

P.S. Remember when I warned that the one downside to personal retirement accounts is that future politicians might steal the money?

Well, it’s happened again according to Reuters, this time in Russia.

Russia’s government has approved a plan to use contributions to employees’ privately-managed pension funds to plug budget holes for a second year running. The move was confirmed by Labour Minister Maxim Topilin on Tuesday in comments published on the ministry’s website. It has been heavily criticised by some officials and analysts, who say it will hurt the pensions industry and financial markets.

P.P.S. I was beginning to feel a bit more positive about the Tory-led government in the United Kingdom, particularly after reading about some well-designed welfare reform, significant corporate tax cuts, and postal service privatization.

Then I read something awful. And what could be worse than imposing a death tax on people who are still alive.

Savers could be forced to pay inheritance tax while they are still alive, under a new drive against tax avoidance planned by the Government. …Under plans put out for consultation, HM Revenue & Customs would have powers to subject people minimising inheritance tax to “accelerated payment” laws, meaning they would be forced to pay up front if officials suspect them of using new schemes to avoid tax. Experts have warned that under the rules, taxpayers will be treated as “guilty until proven innocent”. …there will be concerns that innocent people could be investigated and made to pay large sums before they are able to defend themselves. …Economists, tax experts and Tory MPs have called for reform of the tax, warning that it predominantly hits middle-class families.

Shame on David Cameron for allowing this to happen. But I’m not surprised given the government’s track record.

And what else would you expect from a government that brainwashes children to rat out their parents and also puts despicable Orwellian ads on subways and trains?

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With all the controversy over the failed and costly Obamacare program, it’s understandable that other entitlements aren’t getting much attention.

But that doesn’t mean there aren’t serious problems with Medicaid, Medicare, and Social Security.

Indeed, the annual Social Security Trustees Report was released a few days ago and the updated numbers for the government-run retirement program are rather sobering.

Thanks in part to sloppy journalism, many people only vaguely realize that Social Security is actuarially unsound.

In reality, the level of projected red ink is shocking. If you look at the report’s annual projections and then adjust them for inflation (so we get an idea of the size of the problem based on the value of today’s dollars), we can put together a very depressing chart.

How depressing is this chart? Well, cumulative deficits over the next 75 years will total an astounding $40 trillion. And keep in mind these are inflation-adjusted numbers. In nominal dollars, total red ink will be far more than $150 trillion.

That’s a lot of money even by Washington standards.

Just as worrisome, the trend is in the wrong direction. Last year, the cumulative inflation-adjusted shortfall was $36 trillion. The year before, the total amount of red ink was $30 trillion. And so on.

But regular readers know I’m not fixated on deficits and debt. I’m much more worried about the underlying problem of too much spending. So let’s look at the annual data showing how much payroll tax will be generated by Social Security and how much money will be paid out to beneficiaries.

As you can see, the problem is not inadequate tax revenue. Indeed, revenues will climb to record levels. The problem is that spending is projected to increase at an even faster rate.

Once again, don’t forget that these are inflation-adjusted numbers. In nominal dollars, the numbers are far bigger!

Why is the program becoming an ever-larger fiscal burden? The answer boils down to demographics. Simply stated, we will have more and more old people and fewer and fewer younger workers.

So if we do nothing, we’ll be Greece in 20 or 30 years.

That’s not a happy thought, so let’s close on a humorous note. Here’s a joke about how Social Security works, and you can enjoy some Social Security-themed cartoons here, here, and here.

P.S. I’m confident that few people will be surprised to learn that Obama’s supposed solution to this mess involves a huge tax increase.

P.P.S. The real solution is personal retirement accounts. I think Australia is the best role model, but Chile also is a big success.

P.P.S. The good news is that the American people are quite sympathetic to personal retirement accounts.

P.P.P.S. Statists try to scare people by claiming private investments are too risky, but one of my Cato colleagues showed that workers would be better off even if they retired after a stock market crash.

P.P.P.P.S. By the way, Social Security is a really bad deal for blacks and other minorities with lower-than-average life expectancies.

P.P.P.P.P.S. In the interests of fairness, I’ll admit the biggest weakness in the argument for personal accounts is that we might not be able to stop politicians from confiscating the money at some point in the future.

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I had a very bad lunch today.

But not because of what I ate. My lunch was unpleasant because I moderated a noontime panel on Capitol Hill featuring Senator Ron Johnson of Wisconsin and my Cato colleague Chris Edwards.

And I should hasten to add that they were splendid company. The unpleasant part of the lunch was the information they shared.

The Senator, in particular, looked at budgetary projections over the next 30 years and basically confirmed for the audience that an ever-expanding burden of federal spending is going to lead to a fiscal crisis.

To be blunt, he showed numbers that basically matched up with this Henry Payne cartoon.

Here’s a chart from his presentation. It shows the average burden of spending in past years, compared to various projections of how much bigger government will be – on average – over the next three decades.

The Senator warned that the most unfavorable projection (i.e., “CBO ALT FISC”) was also the most realistic one. In other words, federal spending will consume a much larger share of economic output over the next three decades than it has over the past two decades.

But our fiscal outlook is actually even worse than what you see in his slide.

The Senator’s numbers are based on average spending levels over the 2015-2044 period. That’s very useful – and sobering – data, but if you look at the annual numbers, you’ll see that the trendline gives us additional reasons to worry.

More specifically, spending for the major entitlement programs (Social Security and Medicare, as well as Medicaid) is closely tied to the aging population. So as more and more baby boomers retire over the next couple of decades, spending on these programs will become more burdensome.

In other words, our fiscal problem will be much larger in 2040 than it will be in 2020.

Here are the long-run numbers from the Congressional Budget Office. The blue line is federal spending on various programs and the pink line is total spending (i.e., programmatic spending plus interest payments). And keep in mind that these numbers don’t include state and local government spending, which presumably will chew up another 15 percent of our economic output!

In other words, America will become Greece.

And don’t delude yourself into thinking that CBO must be wrong. I’m not a big fan of the Congressional Budget Office (particularly CBO’s economic analysis), but these numbers are driven by demographics.

Moreover, CBO’s grim outlook is matched by similarly dismal numbers from the IMF, BIS, and OECD.

By the way, CBO doesn’t do projections once federal government debt exceeds 250 percent of GDP, so the gray-colored trendline beginning about 2048 is not an official projections. It’s merely an estimate of the total spending burden assuming that the federal budget is left on autopilot.

Of course, we’ll never reach that level. We will suffer a fiscal crisis before that point. But when it happens to us, the IMF won’t be there to bail us out for the simple reason that the IMF’s credibility is based on the backing of American taxpayers.

And we’ll already have been bled dry!

So unless we find some very rich Martians (who are also stupid enough to bail out profligate governments), it won’t be a pretty situation. I’m not sure we’ll have riots, such as the ones that have taken place in Europe, but there will be plenty of suffering.

Fortunately, there is a solution. All we need is a modest bit of fiscal restraint so that government grows slower than the private sector. That would completely reverse Senator Johnson’s dismal long-run numbers.

And some countries have shown that multi-year periods of fiscal restraint are possible.

The real question, though, is whether politicians in America would be willing to adopt the entitlement reforms that are needed to control the long-run growth of spending.

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