That is the question Boston University economics professor Laurence Kotlikoff asks in this Forbes column.
By his reckoning the federal government has unfunded liabilities of $70 trillion — “the difference between all the government’s projected future spending obligations and all its projected future tax receipts.”
Is that anything to worry about? He thinks so: “The earthquake will come via a collapse in the market for U.S. government bonds as domestic and foreign investors realize that the only way Uncle Sam can meet his future spending obligations is to print massive quantities of money. The result will be sky-high inflation an interest rates and, most surely, a prolonged reduction in output and employment.”
None of this is new, of course. The fact that politicians of both parties have made promises of future goodies that far exceed the economy’s productive capacity has been known to economists since the 1960s. Every time the question comes up, however, the politicians either demagogue it or stick their heads in the sand.
What does the costly mortgage bailout have in common with the coming fiscal train wreck Kotlikoff discusses? The institutions responsible for it (Fannie, Freddie, Social Security, Medicare, etc.) should never have been created. If they hadn’t been, we wouldn’t be looking at these prodigious costs and on the contrary would have a much more prosperous country due to the increased capital that would have been productively invested.
