Wednesday, August 22, 2012

“Somewhere between Critical and Too Late to Deal with It”

Following the bankruptcies of Stockton, San Bernardino, and Mammoth Lakes earlier this year, Moody’s says it expects more California municipalities to go insolvent. The credit rating agency notes that more than 10 percent of the state’s cities have declared fiscal crises. 
I’m not sure why so many politicians believe their budgets are exempt from the laws of mathematics. But when you pay out unaffordable benefits to public employees – including lavish pensions found almost nowhere in the private sector – eventually, those costs have to be paid off. Budget tricks, accounting gimmicks, and low-ball cost projections – the methods used by the Obama administration (ObamaCare) and the California Governor’s office (high-speed rail) – can fool people for a while. But in the end, bills have to be paid, one way or another.
What’s disturbing is that in some respects, the main thing that distinguishes the federal government’s budget from those of California’s failing municipalities is simply the scale of the irresponsibility.  
Consider Social Security. In their latest 75-year budget projection, the Social Security trustees estimate the total Social Security shortfall at an unbelievable $134 trillion. Even adjusted for inflation, the figure is $30.5 trillion in today’s dollars, which the Associated Press notes is eight times bigger than the entire 2012 federal budget. 
Social Security trustee Chuck Blahous comments, “To me, urgent doesn’t begin to describe it. . . . I would say we’re somewhere between critical and too late to deal with it.”
A shortfall of trillions of dollars in a single entitlement program is not something our nation can afford. When you combine this shortfall with the trillions in unfunded liabilities in Medicare and Medicaid, and join that with the trillion-dollar deficit the federal government now posts every year, and add that to our current national debt of $16 trillion – you get a level of indebtedness that will shatter the United States.   
Nothing can protect us once we accumulate this kind of ruinous debt – not our military, not our scientists, and not our politicians. The only solution is to make tough decisions to restructure our entitlements today so that we don’t saddle our children with this disastrous debt tomorrow.