Earlier this month USA Today splashed a headline on its front page that declared: “U.S. owes $62 trillion.” I wrote a couple blog posts about it — one on the alarming size of the number and another on its juxtaposition with the Anthony Weiner story.
It turns out this number — a staggering debt of $534,000 per household — has caused quite the controversy. James Agresti, president of Just Facts, wrote to me about an editorial from Bloomberg taking USA Today to task for making a miscalculation. That came as a shocker to me. USA Today wasn’t the first to project a number that size. And my colleague Bill Beach and I used that very data point during a presentation last week in Raleigh, NC.
Were we wrong?
Bloomberg’s editorial board thinks it’s absurd for USA Today to draw the conclusion:
Trillions have now joined billions as amounts that are part of everyday conversation, but impossible to make meaningful. News that you thought your country owed $14.3 trillion but it actually owe $62 trillion has less impact than pulling a $20 out of your wallet and discovering that it’s only a $10. The notion that you yourself personally owe half a million dollars is simply unreal — it can’t be processed.
I’d agree the number is hard to process. In fact, I was just asking for better ways to explain the size of one trillion.
But as for the number itself, Agresti, whose nonprofit institute is dedicated to researching and publishing verifiable facts on public policy issues, isn’t buying Bloomberg’s argument. He rebuts three main points for American Thinker:
The first “obvious flaw” in such calculations, the Bloomberg editors tell us, is that “if a government retiree is entitled to a pension of, say, $35,000 a year, that is both a cost to the government and a benefit to that retiree. But only the cost is taken into account.”
Not true. The entire cost of the pension is not taken into account, only the gap between the employee’s pension contributions (money or service) and what the federal government has promised the employee in return. Big difference.
Assume for the sake of argument that Bloomberg offers its employees defined-benefit pensions (like the federal government), and imagine that Bloomberg told its editorial board that they would each have to cough up an extra $481,000 in pension contributions above and beyond their current commitments in order to receive the same pensions they were originally promised. Are we to believe that the editors would slough it off by saying, “It’s not a problem because the money will be used to pay for our benefits”?
Second, the Bloomberg editors claim that such calculations do not account for the fact that a dollar owed in the future is less of a burden than a dollar owed today.
Wrong again. Our calculations and those of USA Today and the Peter G. Peterson Foundation use net present values that account for the time value of money. To quote the U.S Treasury report from which we obtained most of the data used in our calculations, “The [social insurance] estimates are actuarial present values … Present values recognize that a dollar paid or collected in the future is worth less than a dollar today, because a dollar today could be invested and earn interest. To calculate a present value, future amounts are thus reduced using an assumed interest rate….”
It bears noting that the figures used by Just Facts are “closed group present values,” which are calculated in a manner that approximates how publicly traded companies are required to calculate their debts and obligations. In other words, we are using accounting principles that the federal government demands from publicly held corporations.
Third, the Bloomberg editorialists tell us that such calculations are plagued by “false precision” because they “require peering decades into the future.”
Forgive the obvious point, but private pension funds and insurance companies have been performing such calculations for many decades with generally acceptable results. Moreover, are we supposed to ignore the government’s liabilities and unfunded obligations because we cannot specify them with absolute precision? Imagine a corporate executive trying to make that argument to the SEC.
Source material can be found at this site.