America’s Bad Books

The Economist has an article (registration required) about the US government's books that is pretty shocking, I think. For one thing, I had no idea the books were kept on a cash basis. That makes absolutely no sense to me, because it doesn't accurately reflect the economic situation of the government.

The results are staggering. The authors estimate that the money the government is promising to spend outstrips the taxes it can expect to collect by $44 trillion—20 times today's federal budget, and more than four times America's GDP. Their estimate of the GI is also enormous. Medicare (a health-care programme for old people) alone represents a net transfer of more than $20 trillion from future generations to those now alive. Mr Boskin's deferred tax assets are not likely to be much help. In their paper, Messrs Auerbach, Gale and Orszag reckon that any benefit from them is largely already included in the FI and GI calculations.

Like any private company teetering on the verge of insolvency, the American government must either find more revenue or cut spending. And the sooner the better, not just because it is unfair to hand the bill for today's spending to future generations, but also because the later that changes are made, the bigger they need to be. Mr Gokhale and Mr Smetters calculate that waiting until 2008 to repair the imbalance will turn the $44 trillion into $54 trillion.

When someone compares the government's books to Enron's, that is a bad sign. It is definitely time to vote for a presidential candidate who supports smaller government, but I am not sure there is such a person. Some may say it, but is anyone really willing to do it? Cutting out the various government giveaways is not a good strategy for re-election.