IS THE UNITED STATES BANKRUPT?
August 11, 2006
Is the United States bankrupt? Many would scoff at this notion. Others would argue that financial implosion is just around the corner. Economist Laurence J. Kotlikoff concludes that countries can go broke, that the United States is going broke, that remaining open to foreign investment can help stave off bankruptcy, but that radical reform of U.S. fiscal institutions is essential to secure the nation's economic future.
Kotlikoff offers three policies to eliminate the nation's enormous fiscal gap and avert bankruptcy: a retail sales tax, personalized Social Security and a globally budgeted universal healthcare system:
- There are 77 million baby boomers now ranging from age 41 to age 59.
- All are hoping to collect tens of thousands of dollars in pension and healthcare benefits from the next generation.
These claimants aren't going away:
- In three years, the oldest boomers will be eligible for early Social Security benefits.
- In six years, the boomer vanguard will start collecting Medicare.
Our nation has done nothing to prepare for this onslaught of obligation. Instead, it has continued to focus on a completely meaningless fiscal metric -- the federal deficit -- censored and studiously ignored long-term fiscal analyses that are scientifically coherent, and dramatically expanded the benefit levels being explicitly or implicitly promised to the baby boomers, says Kotlikoff.
Countries can and do go bankrupt. The United States, with its $65.9 trillion fiscal gap, seems clearly headed down that path. The country needs to stop shooting itself in the foot. It needs to adopt generational accounting as its standard method of budgeting and fiscal analysis, and it needs to adopt fundamental tax, Social Security and healthcare reforms that will redeem our children's future, says Kotlikoff.
Source: Laurence J. Kotlikoff, "Is the United States Bankrupt?" Federal Reserve Bank of St. Louis Review, July/August 2006.
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