Friday, February 8, 2013
Random ruminations from your resident curmudgeon...
Our elected leaders in Congress rely on, among other things, the data interpretation and projections of the Congressional Budget Office (CBO). The CBO is non-partisan and one of their tasks is doing estimates on the financial impact of proposed legislation. The CBO also provides Congress with projections of economic growth as well the growth or decline in the level of indebtedness of the country and the financial health of various agencies. These are all critically important functions, and while forecasting is an inexact science, one would expect to have the CBO retaining some talented individuals and having a reasonable margin of error with their forecasts. Did I say reasonable? Let's see how the pros at the CBO have done. In 2003, the CBO projected a 10 year budget surplus of $5.6 trillion. We have a budget deficit of 6.6 trillion. Missed it by over 200%. The estimate of GDP for fiscal year end 2012 was $17.4 trillion. It was actually $15.8 trillion, a miss of 25%. The estimate of debt held by the public was $1.2 trillion. It was $11.6 trillion, a miss of 1,000%. Now I know that you are probably saying that it is a 10 year projection and that it will never be too accurate. I agree. Yet Congress often sets the broad policy direction off these long term forecasts, and when they have a wide margin of error, our country can move very far down an undesirable path. By the way, the CBO has just released their 2013 forecast. In it, they project that economic growth will double; unemployment will fall to 5.5% within the next 3 years; that our debt will begin to shrink; inflation will not be an issue; and that labor income ( hourly wages) is going to rise as a percentage of GDP. This is all great if it happens, but given the track record of the CBO in making long term forecasts and projections, I would shocked if these estimates are remotely close to reality. And by making this type of forecast, they have done a disservice to Congress and the country.
A recent survey showed that California had the highest rate of depression and the most married couples that had committed adultery. That is a sad State of affairs.
Speaking of the CBO, the agency on Tuesday released its annual update and projection on the Social Security Trust Fund. I do have much more confidence in a one year forecast by any group than a 10 year estimate, so I tend to put more faith in these numbers. Here are the shocking numbers from the CBO about Social Security: the balance in the trust fund is falling faster and will go to deficit mode much more quickly than expected. Understand that the fund paid out $75 billion more than it took in last year, but made up that difference by using reserves. The amount of claims, especially in the area of disability, have grown exponentially and will exhaust those reserves faster than expected. The CBO projects the first year of deficit to be 2015. The CBO estimates that by 2023, annual deficits in the fund will be $105 billion ( I believe they will be higher). The CBO also projects that the "collapse" date- or the date the fund goes bankrupt, has been moved up to 2032. Look for that to move even closer. The CBO also projects that Social Security spending will skyrocket over the next 10 years to 1.4 trillion because of an aging population that will move more people into eligibility status. Here are the two things that you should take away from this: politicians that tell us that the Social Security program is solvent are lying. It is not solvent or financially healthy by any realistic and practical manner of accounting. Only through the chicanery of government accounting can a politician say the program is solvent. The other takeaway is if you are still employed, you should not count on a retirement benefit from Social Security. That does not mean that you will not get one, but it may be greatly reduced. Your financial security in retirement is going to depend on your efforts and your savings and investment, not a mismanaged government program.
I do lots of charity work: I volunteer my opinion every day.
We heard that the GDP shrank .1% in the fourth quarter of 2012, and many lay the blame at the feet of cuts in defense spending. Want to know something? Defense spending has very little effect on the economy. Let's put it in perspective. A new aircraft carrier costs the Navy $12 billion. That's a lot of money. If you have a carrier, you have to have planes; a carrier typically will have 70 F/A-18 attack bombers at a cost of $60 million each. How about a few B 1 bombers? Manufacture some of those to keep the economy moving. Or the state of the art M-1 Abrams tank. Why do I mention all of this? Again, it is a matter of perspective. Those aircraft carriers that cost $12 billion each? Social Security spent $66 billion in January, the equivalent of 5 aircraft carriers. An F/A-18 attack bomber is about 90 minutes of spending in the social security trust fund; that M-1 Abrams about 3 minutes. I mention this to try to frame the debate that we are having about our budget and specifically entitlements in this country. The CBO has already warned that Social Security is quickly going to move into deficit status and cost taxpayers even more money as reserves are spent. Some will say cut defense spending and other discretionary spending to prop up entitlement programs, but as this example should illustrate, it will take more than that to make those programs solvent. Much more. And until we have an honest dialogue, we will not move toward a solution to these serious problems.
I once went 7 days without sleeping. But boy I did some serious sleeping at night.
And that, my friends, is my view.