Who Will Pick Up the Tab After the Great Default?
I have discussed in another article today the possibility that there will be a piece of legislation enacted into law that will enable Congress to force the Congressional Budget Office to report on the estimate of the present value of the unfunded liabilities of the United States government.
I have followed one or another version of this statistic for over 20 years. It is very difficult to find estimates of it. Only specialists know anything about it. The major specialist is Prof. Lawrence Kotlikoff of Boston University. His estimate in 2012 was that the United States government has an unfunded liability whose present value is $222 trillion. This figure is essentially incomprehensible. This is why it is easy to ignore it.
I do not think the average American has ever heard of this figure. Even if he has, it is easy to ignore, because it is so inconceivable. Where would the United States government obtain $222 trillion to invest today in profitable investments that will enable the government to make payments on all of its official liabilities to the general public, especially for Medicare? The total output of the United States economy is estimated as being in the range of $16 trillion. Where would the government get $222 trillion to invest? Where would the government invest it?
These questions indicate the magnitude of the problem. We cannot grow our way out of this problem. Nobody suggests that we can. The best that any of the critics of this figure can muster is that the obligation is really only around $70 trillion or $85 trillion. Again, this is the present value of the future obligations.
Once we see this, we know that there will be a Great Default. There is no way that the government can make payment on these promises, so the government will default. It may not default in one fell swoop, but it will default. Somebody is going to get hurt. The people who get hurt the most will be people who are dependent on the government the most. That means most older Americans. When they reach retirement age, they will find that retirement is not what they had been promised.
The great question at that point will be this: Which social institutions will come to the rescue of these tens of millions of all people, who will find that Medicare and Social Security are not there to support them? The family will be the primary agency, of course. Historically, it always has been. But there will be families that do not have the resources to take care of their aged parents. Then what?
Younger people have not factored this into their expenditures. They have not sat down with a spreadsheet or a budgeting program to estimate what the expense of their parents will be. This expense is inevitable. It has been inevitable in all societies. But in former societies, individuals have known from an early age that they would become responsible for their parents, when their parents were no longer able to take care of themselves. Societies prepared for this. Institutions prepared for this. It did not hit them unawares.
In our society, this is going to come as a great shock. It will come as a shock to the parents; and it will come as a shock to the children.
Which institutions will come to the rescue of those families that cannot afford to take in sick parents?
I am convinced that this issue will become the most widely acknowledged social and political issue of the 21st century. I think this will be the #1 issue which will not be able to be swept under the rug. There are too many people involved. I believe this issue is the most important issue that we face that the vast majority of voters do not understand. They do not understand that this issue cannot be deferred indefinitely.
Several years ago, a nationally known financial journalist got a book contract. He was asked to get various authors to write an article on what they believe to be the #1 economic issue of the American future. I sat down and wrote my article on this issue: the unfunded liabilities of the federal government. I sent it to him. I was the first person to get an article in to him. His editor suppressed it. He apologized later to me for the fact that his editor had suppressed it. He could have demanded that it be published, but he meekly conformed. There's no doubt in my mind why the editor suppressed it. This is the #1 issue that is obviously inevitable statistically, and it will be the most negative single economic issue facing our society. The editor wanted happy-face articles, and my article was not a happy-face article. It offered no solution that is acceptable to Keynesian economists and incumbent politicians.
In the first week of September, I will be speaking to a group of about 150 pastors at a special meeting of pastors who represent large churches and large groups of churches, including churches outside the United States. Attendance is by invitation only. It is not going to be reported to the public. I don't think the public would care one way or the other, but the organizer is very careful about not getting this information out prematurely.
He has assigned this topic to me: the unfunded liabilities of the United States government, and their implications for churches. I will tell them what you already know, and which they have not thought about. I will tell them that this will be the #1 unplanned-for expense facing families in the future, and there will be millions of families that find themselves incapable of dealing with the problem.
Then what will they do? One of the things that church members will do will be to go to the deacons and ask for aid. This will not be minimal aid. This will be expensive aid relating to parents who are slowly dying, and whose diseases are very expensive to control. Medicare will default. These will be ongoing expenses facing families. The families will not be able to make the payments to the medical establishment. Then what will they do?
In a society in which technology enables families to extend the lives of the oldest members, the decision of a family not to spend the money to extend the life of an older person will create enormous guilt. Because something can be done, it must be done. This is the technological imperative. The problem is, just because it can be done technically does not mean that it can be done economically. In between is a gap. That gap will produce enormous guilt among millions of Americans. The ethical establishment of this civilization is unwilling to deal with this problem.
There will be calls for euthanasia. There will be calls for the state to intervene and painlessly execute old people. We can be sure of this. To stop this, there will have to be organized political resistance. But is prohibiting euthanasia by law different from saying that families that cannot afford to keep old people alive may legitimately allow the old people to die? Is allowing somebody to die, ethically speaking, the same as killing somebody? I don't think it is. I don't know of any society that says it is. But the moment that we accept the possibility that the state is the lawful agency to remove this responsibility from the family, we face a problem. There's a phrase for this problem: death panels. It is a political hot potato. Every defender of Medicare insists that it is illegitimate to use the phrase. But it is not illegitimate, because there is an inevitable allocation decision to be made. It comes back to triage. First, some people cannot be saved, no matter what the physician does. Second, some people may be able to be saved. Third, some people will survive, no matter what the physician does not do. It costs money to care for all three groups. Who is going to make a decision to take away care from two of the three groups? On what ethical basis? With what social implications?
Pastors are supposed to have ethical answers. It is my belief that pastors have not begun to think about these issues. They will be called upon to make ethical judgments, and they are not prepared to make these judgments. This is the problem that America will face some time over the next two decades. It will not go away. The problem is simple to state: nobody is giving much thought to this problem. By the time it hits, it will be immense. There will be few organized efforts to deal with it.
Here's a rule of politics: power flows to those who take responsibility. Who is going to take responsibility for this issue?