USA Today's Deficit Hysteria

by Greg Anrig

The USA Today’s hyper-alarmist front pager about the federal debt conveys the misleading impression that projected government shortfalls have suddenly become much worse and have reached overwhelmingly high levels that we will never be able to repay. Reporter Dennis Cauchon, whose past reporting has perpetuated discredited right-wing bromides, makes three basic errors that are common among those who have an ideological hostility toward government:

Combining federal debt held by the public with intra-governmental debt. The trillions of dollars worth of U.S. Treasury securities held by the Social Security, Medicare, and other federal trust funds are assets as well as liabilities to the government as a whole. As former Congressional Budget Office and Office of Management and Budget Director Peter Orszag explains, “when I tell my daughter and son that I owe them each $10 for their allowances, I am poorer and they are richer—as a family, though, there is no change in our overall finances. That’s why the Congressional Budget Office, the Office of Management and Budget, and the Government Accountability Office all agree that gross debt is not a meaningful metric for assessing the government’s current fiscal position.” Yet, the USA Today repeatedly refers to federal trust fund assets as if they were only liabilities to the government.

Using infinite time horizons to calculate cumulative debt obligations. By assuming debts will compound not only over decades into the future, but forever, the USA Today concocts enormous “unfunded liability” numbers. To understand why that approach is misleading, think of how much a baby born today might spend over the course of a lifetime – and then compound that unfunded liability indefinitely after his or her life ends. Would that figure reasonably convey anything about how “affordable” that individual is? The amount Social Security has already paid to all of its beneficiaries since it was created in 1935 is also a huge number, but the program always been fully financed through taxes and has greatly reduced the poverty rate among the elderly. Indeed, the American Academy of Actuaries issued a statement to Social Security’s Trustees strongly objecting to the use of infinite time horizons, and most mainstream media outlets join the Trustees in adhering to specified time frames.

Failing to provide perspective. Dollar amounts in the trillions sound too big to even comprehend and therefore are inherently disturbing. But the overall U.S. economy, which creates the output from which government programs are financed through taxes, also is calculated in trillions of dollars. As a share of the economy, current debt levels are still substantially below what they were in the aftermath of World War II. If all of the Bush era tax cuts were to be rescinded, the projected escalation in future debt would flatten out at a manageable level for an extended period as a share of the economy. As for Social Security, it will grow very gradually from about 5 percent of the economy now to 6 percent by 2030 and then remain at that level indefinitely – an entirely affordable prospect.

The prospect of high and rising federal debt in the next decade, which is primarily driven by the expectation that health care costs will continue to rise rapidly as the population ages, is a legitimate cause for concern – though less of one than the ongoing joblessness crisis. Media outlets reporting about such important and complicated issues poorly serve their readers when they rely on wildly misleading and discredited ways of presenting information.

Posted by Greg Anrig on June 7, 2011