$120 Trillion: That’s a reoccurring figure in my writings on the economy. It’s, plus/minus, the sum total of the American government’s debt, including unfunded obligations and promises. According to Princeton’s Garry Becker and Richard Posner of the University of Chicago Law School, “evaluating a nation’s economic condition” involves comparing not the “public debt (government bonds) to Gross Domestic Product,” but comparing “assets and liabilities.”
“The major asset of any government is its taxing power, which of course cannot be equated to the entire GDP, or the entire value of the nation’s human and physical capital; for both economic and political reasons, the taxing power is limited to a percentage of GDP well below 100 percent. And, realistically, the liability side of the national ledger includes not only government bonds but also other contractual obligations, entitlements, and at least strongly anchored expectations concerning government services (we’re not about to eliminate our armed forces). In addition … the national balance sheet must be reckoned in dynamic terms, with due regard for likely increases both in GDP and in liabilities, especially increases in entitlement spending that are likely to result from the continued ageing (sic) of the population.”
“Because American tax rates are low by international standards and resistance to increasing them is fierce, … the ratio of current U.S. public debt to realistically realizable tax revenues is 3.58 to 1, which is the highest by a large margin of the countries in the report’s list.”
If you’re looking for the usual pacifier—European countries are way worse off than us in terms of profligacy—DON’T. Only Greece comes close to the Us’s “ratio of current public debt to realistically realizable tax revenues. … because of the uncertainty of the future), America’s net worth is negative, and this negative net worth is eight times larger than our GDP. This means that the net present value of the government’s liabilities, minus assets, is approximately $120 trillion.”
Another theme on these websites of mine: The political resistance from the oink sectors is too intense to effect change (were it not already too late).
The Becker-Posner blog reckons that “the bondholders and holders of other contractual rights against the government have to start worrying about the prospects for outright default or default through inflation. These are possibilities in our future, just as in the future of Greece.”
But if you were reading this space (including the regular posters in the Comments Section), you already knew that.