General Discussion
In reply to the discussion: This 53 year old has it right.... [View all]cojoel
(958 posts)First off, the $70T number is an the total expenditures estimated between now and at least 2050. In calculus, the integral of the spending growth functions of each area from now until that date. What end date did you used when you calculated $70T?
There is an old saying in modeling which says that for a an interval of sufficiently short duration a linear model is probably adequate. This model uses what is "essentially" a linear extrapolation of recent past trends out over a period of perhaps 40 years. If you look over the past four years as an example, things were quite a bit different in 1972 than now, we went through a period of high inflation (Nixon/Ford/Carter), a "borrow and spend" philosophy of Reagan, the S&L fraud crisis, several expansions and bubbles, the pointless degregulation of banking, and a worldwide economic depression. What did you assume would happen in the next 40 years?
The challenge to NPV modelling is also that you have to assume rates at which currency devalues over a long period, the cost of debt, the return on other investments, and other assorted items from the crystal ball. The further out you go, the less trustworthy the numbers are. When a proper analysis done, you usually get a range of worst-case, average-case, and best-case scenarios. Which type of scenario is yours?
The charts I have seen (you didn't give us any, but something like what is at http://www.fiscalsolvency.com/ is sufficient for this argument) show the growth in these obligations coming from two things:
1) Ever-rising medical costs (Medicare and Medicaid obligations)
2) Ever-increasing interest costs (servicing the debt).
We will cover both of these. Over that forty-year period, social security obligations are flat. Other obligations shrink. Strangely missing from the chart is defense expenditures. Hmmm, I wonder who made that chart? More importantly, what are the big drivers of increased obligations of the next 40 years in your model?
The linear model of ever-rising medical costs is modelled on trends that were true starting in the late 1980s, where costs were rising at 2-3 times the rate of core inflation. That lasted for a long time. Yet in the last two years medical costs rose at a much lower rate. The trend going forward is to provide additional downward pressure on the rate these costs rise. And before that period there was not so much increase. I believe the costs will continue to rise, but more in line with core inflation. If I'm wrong, it would not be the first time. Rising medical costs could continue to be a problem. This is an area of concern, obviously, but just as obvious one that administration has an ongoing focus. What rate of increase in medical costs did you use in your model?
The ever increasing costs of interest is also not really believable. From my perspective we could stop adding to the debt load tomorrow if the politicians would make revenues match outflows. Clinton got us there on budget #1 (balanced by the SS Trust fund of course), but pointless tax cuts, unfunded wars, and unfunded medicare benefits, and with out those things we would have been in complete fiscal solvency now with the government wondering how to invest the social security trust funds. I think a reasonable aim for the administration over the next four years would be to implement the tax increases suggested, as well as possibly an additional temporary millionaire surtax, so get the gap closed significantly to reduce the growth on that curve. It will have to be done gradually, but it isn't hopeless. What rate did you assume the government debt would grow?
I think it will work out in the end. The sooner the Tea Party has left the building the sooner we will get there.