Investor’s Business Daily We Cant Solve Our Problems If We Deny We Have Them By: Ron Johnson How do you solve a problem if you refuse to admit you have one — or if you delude yourself into thinking its not as bad as it actually is? The answer: You dont. You might minimize symptoms and make some progress. But unless you address the root cause, you will not find a real long-term solution. Unfortunately, far too many politicians in Washington refuse to acknowledge — and as a result, never accurately describe — the challenges currently facing America. Im not sure why so many choose to keep their heads in the sand, but their state of denial is proving to be a significant impediment to developing solutions. In his first dinner with Senate Republicans, President Obama accurately identified our top fiscal problem — health care spending and, in particular, Medicare. In private, he was willing to admit that Americans will pay $1 into Medicare for every $3 they receive in benefits — and, further, that most Americans dont understand this. In public, however, all Ive ever heard the president say is that Medicare needs only modest reforms. Well, which is it? The weekend after, I was on a talk show with liberal Keynesian economist Paul Krugman. I mentioned Obamas comments on Medicare and also talked about the pending insolvency of Social Security. Mr. Krugman claimed what I said was false. He was wrong. What I said is entirely true. Over the next 20 years, Social Security will pay out $4.7 trillion more in benefits than it will bring in through the payroll tax. Americans have been misled into believing this system is solvent because of the fiction of the Social Security Trust Fund — the lockbox. Now, to be truthful, the lockbox does exist — a four-drawer filing cabinet located in West Virginia that holds $2.8 trillion in U.S. government bonds. The figure represents the accumulated surplus of payroll taxes over benefits, plus interest paid on those balances. But those funds were spent by Washington politicians of both parties on other politically popular goodies. That money is long gone. The problem with the bonds that replaced it is they have absolutely no monetary value to the U.S. government. Its as if you had $20, spent it, wrote yourself a note that said, IOU $20, stuffed it in your pocket, then claimed you had 20 bucks. No, you dont. You have a note you will have to persuade someone else to take as a promissory note in exchange for a real $20. Something similar must happen when the Social Security Administration cashes in the bonds to pay benefits. When those bonds are presented for redemption, the U.S. Treasury will have to sell new bonds or collect taxes to pay off the trust fund bonds. That is why the Office of Management and Budget reports that this transaction has a value netting to zero. For the American people, here is the bottom line: According to their trustees, Medicare and Social Security have a combined unfunded liability of $66 trillion. Add on the national debt of $17 trillion and federal worker pension liability of $6 trillion, and Americas liabilities total $89 trillion. To put this in perspective, its only $7 trillion less than our entire net private asset base (all assets held by households and businesses) of $96 trillion. In light of the recent kick the can down the road suspension of the debt ceiling without enacting any additional fiscal discipline or entitlement spending reforms, those frightening numbers are destined to grow relentlessly. This is a real and present danger to our economic future that Washington must come to grips with — the sooner, the better. When it comes to tackling our nations problems, I hope we can all agree we share the same goal. We all want a prosperous America. We are all concerned about every American and want all people to have the opportunity to build good lives for themselves and their families. So lets stop questioning each others motives — its not helpful and solves nothing. What would be helpful is a rigorous bipartisan process to achieve agreement on a more useful description of the problem. A 10-year budget window dramatically understates what is really a 30-year baby boom-generation demographic problem. This should be the first priority of the newly formed Budget Conference Committee. It is a first step that is absolutely necessary. Once we reach agreement on the depth of the problem, the next bipartisan act would be to go to the American people to fully inform and prepare them to consider proposed solutions. They need to know. It is their money, their nation and their future. Without honest agreement on the extent of the challenges we face, solutions will remain elusive and Americas financial future imperiled.
Posted on: Wed, 30 Oct 2013 15:45:28 +0000