Follow-up on Government Entitlement Promises: Time Is Indeed on Their Side

William Baldwin, editor of Forbes, writes the following in his space (requires subscription) at the beginning of the Feburary 13 issue:

U.S. household net worth, $48 trillion at last count, is on a long-term upward surge.

….. The Federal Reserve’s happy statistics on household wealth omit a big deficit item, and when you include it you have to stop talking about the national net worth. Instead, you have to talk about national worthlessness.

The deficit is the future gap between the federal government’s revenues (assuming no changes in tax law) and spending (assuming no change in spending habits). Two economists, Jagadeesh Gokhale of the Cato Institute and Kent Smetters of Wharton, have studied this gap in some detail, taking the spread for all future years and discounting it back to the present. In an academic article due to be published in the spring, they come up with $63 trillion. Forget net worth. We’re $15 trillion in the hole.

Now, households are not going bankrupt en masse and the government is not going bankrupt. Instead, we are in for a period of disillusionment. Benefits like Medicare drug coverage and Social Security will be scaled back. Or taxes will go up. Or both. Either way, you are not going to retire in the grand style you were expecting.

Disillusionment will not necessarily descend upon us in the next year, but it surely will over the next decade or two.

Smetters and Gokhale are right to make noise about the size of the problem (The Christian Science Monitor did a piece on their study in early January), but I’m not sold on the idea that “disillusionment” is inevitable. It’s our elected leaders’ job to get the government’s house in order, and our job to throw them out on their ears if they don’t. The fundamental element of any solution is to turn over responsibility to the citizens who have managed to accumulate the wealth and to take as much of it as possible away from the government, which has clearly squandered it.

One small example: Cheering about the fact that Social Security drifted for another year, and dedicating your career to making sure its liability, along with that of Medicare, becomes so big that it is incurable, is particularly irresponsible:

Democrats stood and cheered when Bush said Congress did not act a year ago “on my proposal to save Social Security.” Bush got a bemused look on his face, shook his finger and continued, “yet the rising cost of entitlements is a problem that is not going away.”

It sure isn’t. The cost of doing nothing is the disillusionment mentioned above. It needn’t be final legacy of the Baby Boomers, the Real Entitlement Generation, but it will be if the do-nothings have their way.