Dr Laurence Kotlikoff , professor of economics at Boston University and a research associate at the National Bureau of Economic Research, was recently interviewed by the Financial Sense Newshour about the true state of fiscal affairs in this country. He explains how the government uses accounting tricks to hide the truth and keep everyone in the dark about the US’s actual debt-load, which runs $205 trillion versus the $17 trillion you often here in the news.
Kotlikoff also details the ongoing pattern of obfuscation, censorships, and firings of government personnel attempting to disclose budgets of prior Presidents when doing so is deemed politically inconvenient. This is a must-listen interview. Here we present a few key excerpts:
Jim Puplava: Professor, officially we’re in debt over $17 trillion but underneath it there’s a bigger problem. I wonder if you might explain to our listeners what that bigger problem is?
Professor Kotlikoff: The liabilities the government owes are mostly off the books. We have a true debt picture which is about $205 trillion. This is recording all the future obligations the government has, whether they are official obligations or not, such as paying for your social security benefits, mine, or your mother’s Medicare benefits, defense spending, etc. All of these things are really obligations that aren’t recorded on the books as debt, whereas paying off future principal and interest payments on Treasury bills and bonds are recorded. So, anyway, if you take the value of all of those commitments and subtract all the taxes coming to pay those commitments, the difference is what’s called the fiscal gap; and that fiscal gap in the U.S. is now $205 trillion. So, the true debt is $205 trillion; the official debt is only $17 trillion. So, most of the problems we’re facing, most of the debt we have, the vast majority of it is off the books and Congress has done bookkeeping to make sure the public doesn’t see it. So, when we have these big fights over the debt ceiling, it’s really laughable because at the same time we may not be expanding our official debt at a very rapid rate, we are expanding our unofficial debt or off-the-book debt, unrecorded debt, at a very high rate.
Jim Puplava: Professor, when the CBO publishes its projections they use something called the extended baseline forecast. They also have something called the alternative fiscal scenario, which is basically more realistic. This year they reported only the extended baseline forecast. Why did they do that?
Professor Kotlikoff: I don’t know. They claim it wasn’t for political reasons and I believe them. There are very good economists at the CBO. The director is a very good economist, but you have to wonder why is it that for the last 6 or 7 years they put out the extended baseline as well as the alternative fiscal scenario at the same time so everybody could see what they really project versus what really amounts to a lie about the fiscal future of the country.
I sent him [head of the CBO] an email and asked whether he was under some sort of political pressure to withhold this information and he said that was a big insult, and he was very upset with me for suggesting that. But then he said that the reason he hadn’t released it was because they didn’t think anyone was interested. I said, well obviously we’re interested—it’s the only thing worth looking at.
Everybody should be calling the CBO and asking why they’re doing this. This is a pattern, you know. The Clinton administration—we put out the fiscal gap studies for a couple of years on the President’s budget. The Clinton administration then censored it. The guys who’s now head of the National Economic Council, the Chief Economic Advisor to President Obama, was the one who did the censorship back in 1994. President Bush’s Treasury Secretary O’Neil wanted us to do a fiscal gap accounting for the President’s budget in 2003 and he was fired in December 7, 2002, and that study was censored two days after he was fired. So, this is not accidental. This is more or less a conspiracy to hide the truth to keep ourselves and our kids in the dark about what the politicians are really doing, which is trying to garner the votes of older people and then get reelected and leave a bigger mess for our kids to handle.
Reprinted with permission from Economic Policy Journal.