In the Telegraph, Liam Halligan, chief economist at Prosperity Capital Management, writes:
America appears to be sleepwalking towards disaster – does no one care?
There is now, according to S&P, “at least a one in three chance” that American debt will be downgraded from its top-notch status over the next two years – which would be a first in modern times.
A New York Times/CBS News opinion poll has also suggested the US public is now more economically pessimistic than at any time since President Barack Obama’s first two months in office in early 2009 – when the country was still caught in the “Great Recession”.
Which means the public is catching on. Halligan doesn’t think the country’s mountain of debt is being portrayed accurately:
Total debts matter even more than annual deficits and on that score America is almost uniquely “in the hole” – with liabilities, including Medicare, Medicaid and social security obligations, amounting to around $75,000bn (£45,000bn), or a stunning five times annual GDP.
It is a testament to the delusion – and plain dishonesty – which surrounds America’s fiscal debate that this figure is not more widely cited. Almost all US politicians and pundits spout the official line that sovereign debts are 59pc of national income, rather than 500pc.
I disagree with that assessment. Entitlement commitments are not debts. Congress can wipe them out simply by repealing Medicare, Social Security and Medicaid. Treasury bonds are debts; entitlement promises are not.
That is what the current debate is largely about. The Ryan plan seeks to preserve entitlement programs by reforming them. Democrats oppose any change and pretend to believe that those programs can continue intact; but no one who can add and subtract actually believes that. If entitlement programs are not reformed so that they become sustainable, they must inevitably be repealed. That is the choice: reform or repeal.
Personally, I would be satisfied with repeal. Medicaid would survive in a more limited form, and Medicare would be folded into Medicaid so that it would be available only to the indigent. Social Security, likewise, would either be eliminated altogether or means tested, in which case it is just another welfare program. It is not clear why it would make sense for a federal welfare program for the elderly to exist alongside existing state and local welfare programs, so complete repeal probably makes more sense.
You may or may not agree that this scenario is optimal, but it is the only alternative to serious reforms of the sort that Paul Ryan and others have proposed.