The Government Debt Iceberg

Barb Wire

From title pages to footnotes, Cato Institute senior fellow Jagadeesh Gokhale has published a 172-page report with the aid of the Institute of Economic Affairs in Great Britain. With foreword, introduction, twelve chapters, and charts and graphs, the document is a monster too few people will bother to wrestle with. No doubt many in politics and government will at least scan it and take in the main points. We can only hope that unlike most of the materials produced by supporters of limited government, this one might have at least a little impact.

Here is how the Cato Institute summarized the report:

Nobody who has even a passing acquaintance with economics could fail to realize that Western governments are highly indebted. Current generations have been consuming at the expense of future generations. However, just how indebted are we? The government measures how much it has borrowed to meet past spending commitments, but it does not measure how much money it needs to meet all the future pensions and healthcare promises it has made to tomorrow’s older generations. Furthermore, no funds have been set aside to provide for these costs.

In The Government Debt Iceberg, Jagadeesh Gokhale reveals the extent to which western governments are keeping taxpayers in the dark about true levels of debt by hiding the magnitude of future spending commitments that cannot be met by future tax receipts.

The National Center for Policy Analysis produces excellent summaries of reports like Gokhale’s, and it opens with this strong statement:

Europe and the United States will soon begin to encounter fiscal constraints the likes of which we have never seen before…

Here is more from the NCPA summary:

  • Europe and the United States will soon begin to encounter fiscal constraints the like of which we have never seen before, says  Federal debt as a percentage of gross domestic product (GDP) more than doubled between 2000 and 2012.
  • According to the U.S. Congressional Budget Office, total national debt is expected to remain close to 100 percent of GDP during the next decade and begin to increase thereafter as the baby boomers fully enter retirement.
  • Debt levels in European Union countries have surged similarly, from 60 percent of national income during the mid-2000s to 85 percent of national income today.

An aging population alone does not create greater government indebtedness as long as each generation sets aside adequate funds to meet their own future pensions and health care costs. Instead, however, Western governments have developed unfunded social insurance programs where retiree benefits are paid for from the taxes of the working-age population. Politicians have known about population aging for around 50 years but ignored the problems it will create for public finances.

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Read more: National Center for Policy Analysis

Read Jagadeesh Gokhale’s entire report here through a free downloadable pdf.

Purchase a copy of the report here.

The opinions expressed by columnists are their own and do not necessarily represent the views of Barb Wire.

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