The Big Picture Part II

Struggling to keep up with the Manhattan Contrarian, the Wall Street Journal this morning has an excellent op-ed piece by former congressmen Chris Cox and Bill Archer in which they try to get some kind of handle on the government's real debt and deficit numbers, as opposed to the fake numbers that everyone else discusses.

Let's start with defining the fundamental problem here.  The Federal government reports numbers on what is essentially a cash in cash out basis.  The so-called national debt is the difference between the cash receipts of the government since inception in 1789 and the cash expenses inception to date.  That type of accounting made reasonable sense when the government was mainly in lines of business that can be fairly described by cash receipts and expenses, like running the Defense Department, State Department, and Justice Department.  Today this is no longer applicable, not even close.  The best description of the Federal government is a gigantic insurance company, representing over 80% of its activities, with the appendage of relatively small and insignificant basic government enterprise, representing under 20% of the total business.  The idea that this massive insurance business can be fairly represented from a financial point of view by cash in cash out accounting is completely preposterous.

And yet the cash in cash out numbers are everywhere, and cited by all kinds of seemingly smart people as if they mean something.  Deficit exceeds $1 trillion!  Debt approaching $16 trillion!  It's hard to blame them, since these are the numbers that the government publishes, and it's very hard to find real numbers.   Frankly, even the idea that the cash numbers get published at all is just total deception.

I have made some previous efforts at estimating the real financial picture of the Federal government., here in "It's Good To Have An Infinite Credit Card," and here in "The Big Picture."

Cox and Archer are on the same trail.  What would a financial statement of the Federal government look like if actually prepared in accordance with generally accepted accounting principles, or some reasonable semblance thereof?  Cox and Archer accept the number of the Medicare trustees that the unfunded liability there is $42.8 trillion, and of the social security trustees that the comparable number there is $20.5 trillion.  I pointed out in "It's Great To Have An Infinite Credit Card" that independent estimates put these numbers at double or more; but, whatever.

There is one important number in Cox and Archer that I had not previously been able to find elsewhere:  "the average annual accrued liabilities for just the two largest entitlement programs."  They give a figure of $8 trillion, but after adding in the cash deficit, which is now around $1 trillion.  So the annual accruals for social security and Medicare are $7 trillion!  And they don't mention the many, many other commitments out there, from Medicaid, to Obamacare, to deposit insurance, to pension insurance, to flood insurance, to terrorism insurance, etc., etc., etc.

As Cox and Archer point out, the $8 trillion (on top of the $2.7 trillion annually currently produced by the tax system) is more than any conceivable tax system for the U.S. could potentially produce.  Obama is talking about soaking the high earners for $1.5 trillion over 10 years, while the government will be running up additional liabilities of at least $80 trillion.  The $8 trillion per year is more than the total annual income of not just the millionaires and billionaires, but also the entire middle class, and also of all corporations.

I'm sorry, but to get any kind of rational discussion going here, we need to stop talking about the $1 trillion deficits, and start talking about the real deficits of at least $10 trillion (Cox and Archer's number, plus estimates for all the other insurance programs that they omit).

Can anyone in the government -- administration or Congress, I don't care which -- kindly state how they plan to address this issue?