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Friday, May 25, 2007
The unfunded mandates facing this country are mind-numbing to contemplate. It is obviously very difficult for the folks in Washington to deal with the issues as well and they would rather debate other things.
The April Economic Letter from the Dallas Fed has some interesting comments concerning the unfunded mandates and their likely solution:
The infinite-horizon discounted present value of unfunded liabilities from Social Security and Medicare—the gap between what we take in and what we’ve promised to pay—is now $88.2 trillion. That’s six times the nation’s GDP.
What about the possible solutions? The letter goes on:
A drastic, across-the-board reordering of government priorities doesn’t seem likely. To the extent people think about the unfunded liabilities at all, they assume we will eventually address the issue by spending less or raising new revenue. After all, that’s how any one of us would resolve a shortfall in our personal finances. But either approach is likely to reduce the economy’s growth rate.The threat to monetize the unfunded liabilities may not seem real today, but in twenty years I would not be so sure.
The Letter goes on to suggest that the politicians are not likely to step up to the plate:
Pres. Bush, for good or for ill, attempted to initiate a discussion about Social Security reform even while planning to implement the drug benefit which ultimately will cost more. Nevertheless, his attempt went over like a lead balloon and no one wanted to help even get a discussion started. The result is another four years lost on the ticking alarm clock which is the unfunded mandate.
It will be interesting to see how the current crop of presidential wannabes will deal with this problem - especially whether any single candidate is willing to provide a specific plan for any entitlement reform.
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