fiscal overstretch
Zimran adds context—i.e. the way the government accounts for deficits—to Niall Ferguson's view that the United States is fiscally overstretched: “the government uses cash accounting to measure its deficits -- that is, it looks at the difference between cash coming in (through taxes) and cash going out (through spending) to calculate whether it is running a surplus or not. But it is obvious that this is a useless way of looking at a government's fiscal position because they have made commitments far in the future, and the cost of those commitments should be accounted for. Here, I'm talking about social security and Medicare -- two entitlement programs so large that they dwarf whatever paltry "deficit" or "surplus" that blips around the cash accounting system the government uses today.”
Niall Ferguson and Laurence Kotlikoff [PDF]: “For reasons quite unrelated to federal fiscal policy, there are strong deflationary pressures operating at home and abroad. Overcapacity generated during the 1990s boom, investor pessimism in the wake of the bust, consumer anxiety about job losses—all these factor mean that virtually the only sector of the U.S. economy still buoyant is housing, for the simple reason that mortgage rates are the lowest in two generations. At this writing, the U.S. unemployment rate has just reached a nine-year high. Meanwhile, the unleashing of China's productive energies is filling the global economy with amazingly cheap consumer goods.”
Not particularly argumentative—I'm more interested in arguments than facts, although facts can be presented in a way to make an argument—but this strikes me as a well-written, understandable to the lay-person, economic summary, even if it paints a bleak picture. The article covers some interesting ground, like market psychology (the "mental prisoners" on the 6th page), the "conventional wisdom" of using Congressional Budget Office Numbers simply because they're press-friendly, the advantage (as well as disadvantages) of inflation, a comparison of the Bush Administration to Lenin (!), why lowering taxes lowers revenues (the chain of the reaction happens longer than conventional wisdom suggests), why pension reform in America will not go through as easily as it did in Britain in the late seventies-early eighties. Among the solutions—which the authors hint, if the President is to implement them, they must have his electoral interests in mind otherwise he won't implement them—include vouchers for private insurance which may mean a loss of privacy. (Privacy is effectively a currency these days anyway: the goal is not how to protect it but how to get the most from giving it up.) The authors then draw parallels between pre-Revolutionary French and contemporary American policies and implications. The authors argue that while America is militarily understretched, it is fiscally overstretched and that this may be the ultimate downfall of the empire in everything but name.
