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It Doesn’t Add Up


Stopping along the intertracks in the days since the big election, I’ve noticed a spreading meme. Progressives, Democrats and lefties are being described as innumerate:

marked by an ignorance of mathematics and the scientific approach

This is not a new development decay in Prog theory. They’ve never been able to do math. Arithmetic dispels unicorns. But now more people seem to be recognizing that the era of make-believe budgeting will be brought to an ugly conclusion by the new righty majority:

What progressives cannot grasp - because American progressive thought has been seized by people who cannot add and subtract, and cannot tell the difference between a million, a billion and a trillion - is that if they succeed in blocking repeal of the health care reform legislation, they will force some states to exit Medicaid, and that will force other states to follow suit.

California is dominated by this too-big-to-deal-with-reality agenda, and California is creating an utter fiscal nightmare for itself. Further, loss of the House ensures that California can no longer pretend it is Goldman Sachs and demand a federal bailout for itself. Eventually, California will bust, and with it, this generation of progressives will bust too.

Eventually, you do run out of other people’s money. This is the collapse I see on the horizon. The laws of economics are as real as gravity, although creative financing can make fiscal levitation appear possible for a time.

The net present value of the U.S. Government’s unfunded obligations is $60 trillion dollars. Sixty Trillion. To fund what previous Congresscritters have promised, we would need sixty trillion sitting safe and drawing interest. That’s what net present value means. But the U.S. government doesn’t have anything sitting safe and drawing interest. They’re already about $14 trillion in debt from past anti-gravity legislation.

There’s no way to pay Social Security or Medicare under current rules. It’s not much different from the mortgages given to people without jobs so they could buy houses at twice the recent market value. Underneath all the financing tricks, a house is worth what a house is worth. That buyer can make payments for a while, perhaps by mining equity from property already under water. Everyone thinks they can get out of the dilemma by selling to a bigger sucker down the line.

Individually, this might be true. But on a macro scale, there will be people left holding the bag. The housing and mortgage industries couldn’t get out of the housing and mortgage business; as a collective, they screwed themselves.

There is a common belief that most younger people do not think they’ll ever collect on Social Security as promised. But Lexington Green challenges the idea that such a belief is really that widespread. Isn’t it like the mortgage situation, where most people are really not thinking about what they’re saying, and still believing that it will be somebody else who has to suffer the loss?

I don’t think that “everyone” knows that these trillions of dollars are never going to be paid. People are more likely to persist in a delusion than face a reality that ugly. Denial and whistling past the graveyard will last until the last possible moment. When the millions of people figure out that they are actually, in the aggregate, sixty trillion dollars poorer than they thought they were, some very non-comedic hijinks are likely to ensue. Nor do I think that the prospect of civic unrest when people figure this out is so laughably remote as Mr. Wesbury seems to. Further, he seems to think that an almost automatic political process will lead to an orderly writing down of these unpayable obligations. The opposite is more likely true. Politicians of both parties will kick the can down the road as long as they can, and we won’t get any reform until some kind of catastrophe is upon us, and then it will be a mess that makes things worse, and that makes the already powerful yet more powerful. All the news is bad, and no one wants to be the messenger. The American voter has a habit of responding to bearers of bad tidings with hostility rather than a grateful handshake.

I forecast a brief period of violent upheaval. There is a legislative tightrope that might keep the rioting to a minimum:

In order to survive, we are either going to have to go hard right and almost completely dismantle the social safety net, or go center and dismantle welfare for corporations (which means junking the entire alternative energy subsidy program, crippling the EPA, and legislation passed through Congress that removes the ability of interest groups to sue for environmental reasons) and dismantle welfare for the upper and middle class. We can afford a social safety NET, but not what we have now, and if we try to actually implement health care reform, we will end up destroying the social safety net we have now.

But Congress and the people who elect them have lost their balance.

We are so screwed. The future our current laws offer us involves a progressive series of Bernanke type cuts in real incomes for most of the middle class and the lower class. That is not going to provide the basis for legislative success for either party. If continued much longer, it would push the country hard right as people decided to abandon Eva Pelosi rather than experience the fate of the Argentinian middle class.

To believe that there is a way out that is not ugly and at least a little violent requires the same kind of denial that gives birth to unicorns.