When the senior editor of The Atlantic, Derek Thompson, tried to explain away concerns over the massive unfunded liabilities facing the U.S. government repeatedly pointed out by experts, such as Peter Peterson (the former chairman of the Council on Foreign Relations), Boston University economics professor Laurence Kotlikoff, and James Hamilton of the University of California, he used a combination of false assumptions, simplistic reasoning, and frivolous complacency to do so.
It was Peterson’s incisive and persuasive book Gray Dawn, published in 1999, that first attempted to warn of the impending crisis. Without immediate and drastic changes to entitlement programs such as Medicare and Social Security, those programs would face bankruptcy, declared Peterson. Declining fertility rates and low tax revenues would exacerbate the problem, according to Peterson. In re-reading Gray Dawn in May 2013, professor Doug Erlandson said:
The problem has become worse since Peterson wrote his book. The predicted date of Social Security’s insolvency has been pushed up from 2040 (per Peterson’s projections) to the mid-2030s. The date that Medicare is projected to become bankrupt is even sooner.
Professor Kotlikoff presented his findings in a paper published by the International Monetary Fund in 2010 in which he stated: “The world’s largest economy faces a daunting combination of high and rising costs for health care and pension benefits and constrained sources of revenue that will put enormous pressure on its fiscal soundness.” One of Kotlikoff’s solutions was the immediate doubling of current income tax rates in order to make those two programs solvent. When such a draconian hike was simply ignored as fantasy, the reality of the government’s problems was reflected less than a year later when Standard and Poor’s downgraded America’s sovereign debt for the first time in history.
All of this was just a bit too much for Thompson, who decided to question these conclusions by doing some parsing of definitions. First of all, said Thompson, all that’s owed is “not our debt.” Part of what is owed is what the government has already spent using borrowed money. That’s “real” debt and must be paid back: “Failing to do so would be an illegal and disastrous default.”
On the other hand, the “unfunded liabilities” that Peterson and Kotlikoff are concerned about aren't “as real” because “we can change them whenever we want.” Fixing Social Security would be easy, said Thompson: "For example, raising the taxable income ceiling and slowing down the growth of benefits could reduce the Social Security gap to zero tomorrow."
