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Going Off the Deep End With David Walker

Thursday, 22 August 2013 05:58

Yesterday the Associated Press fielded its entry in the classics in bad reporting on economic policy contest: a profile it did of David Walker, the former head of the Government Accountability Office and also former president of the Peter G. Peterson Foundation. The piece presented everything that Walker said at face value, making no effort to put his scare story in any context nor to verify his assertions.

The AP entry starts out strong with the third paragraph telling readers:

"Next month, he will present a major report for the nonprofit he founded, the Comeback America Initiative, whose purpose is to raise awareness about the federal government’s swelling debt. It’s a chasm that isn’t top of mind for most Americans, he knows. But Walker, 61, wants it to be."

Note the use of "swelling" instead of a more neutral term or maybe no adjective at all. Then we get the term "chasm" as opposed to a term like "issue."

Then we are told that Walker passes around fake trillion bills because, quoting Walker:

“Washington spends a trillion dollars like it’s nothing.”

Is that true? I recall big debates in the last few weeks over spending $40 billion on food stamps over the next decade. We've had big debates over the $250 million (1/4,000th of a trillion) [number corrected] spent each year on public broadcasting. In fact, John McCain made a big issue in his 2008 presidential campaign over spending $1 million (one millionth of a trillion) on a Woodstock museum. There seem to be lots of very big debates in Washington on spending sums that are way smaller than $1 trillion.

Next AP tells readers:

"The government estimates the national debt at about $17 trillion, but Walker argues it is closer to $73 trillion, once all the unfunded promises for future Social Security benefits and other obligations are added in. And he envisions a bleak future if the U.S. does not stem the financial sinkhole...."

Okay boys and girls, does anyone have any idea what the $73 trillion refers to and how big a problem it poses? Yes, $73 trillion is a really big number. Are you scared?

News reporting is supposed to inform people. It's difficult to see much information being provided here. 

For anyone who cares, Walker's number is the national debt, plus projections of what must be paid in Social Security and Medicare taxes by people who are not currently part of the system to provide the benefits for those who are. Will this be a huge burden? National income over the relevant time horizon is projected to be well over $1000 trillion. And the vast majority of this $73 trillion will be paid through taxes being kept at their current level. 

The piece then gives the bad outcomes that Walker says we can get from this situation:

"painful inflation, larger gaps between the rich and the poor, even threats to national security."

It's not clear why we would be faced with the first or third problem, but we have been seeing a growing gap between rich and poor for the last three decades for reasons that have nothing to do with the debt. It is a bit bizarre that Walker would include this on his list of bad things that could happen when it has been going on in such a big way for so long. It sort of like warning someone whose house is burning down that the proximity of a wood pile to their house could pose a fire hazard.

Then we have Walker complaining about the quality of the U.S. education system:

"So the answer is not to spend more money. The answer is you’ve got to dramatically reform the system.'

Walker must have missed it, but our presidents have been committed to dramatically reforming the school system without spending money for more than two decades. If he has some secret plan, there is a huge audience of people in government and private foundations who would love to hear it.

Then we get a line that leaves arithmetic fans baffled:

"In 1950, we had about 16 people working for every person drawing Social Security. Today, it’s 3 to 1, and by 2035, it’s going down to 2 to 1. Every couple will have their own retiree to take care of."

Let's see, we saw the ratio of workers to retires fall from 16 to 1 in 1950 to just 3 to 1 today (actually it's 2.8 to 1), yet both workers and retirees enjoy far higher living standards today than they did in 1950. Why should we be worried about the further drop in this ratio from 2.8 to 1 to 2.0 to 1? Any remotely plausible projection of productivity growth will lead to increases in living standards that will on average swamp the impact of the drop in the ratio of workers to retirees. There is a problem that the gains from productivity growth will not be broadly shared, but that is a different discussion, and one from which Walker is trying to distract us with his scary stories about demographics.

Then we get a last couple of shots at scary numbers:

"That’s (Walker's $73 trillion debt calculation) over $250,000 per person. People have a second or third mortgage that they didn’t know they had, and no house to back it.

"Now the biggest risk that we have fiscally is interest. We’re spending (more than $200 billion) a year on interest. The president’s own budget projections say we’ll be spending (almost) $800 billion on interest (per year) in 10 years. And what do you get for interest? Nothing. I say shinola. I’m from the South."

Okay, both these numbers could use a little context. Most homeowners know the period of time over which they have to pay their mortgages. Walker's $250,000 will be paid out over roughly 75 years. As noted before, most of the mortgage payments are in form of the social security and payroll taxes that people are already having deducted from their paychecks every month. Average income per person over this period will be more than $3 million.

The $200 billion a year on interest comes to about 1.3 percent of GDP. If that sounds scary then people better not look back. The interest burden on the national debt was over 3.0 percent of GDP in the early 1990s.

So AP clearly has a solid entry in the classics of bad reporting on economic policy contest. It will be hard to top this one.

Comments (14)Add Comment
written by Grouch O., August 22, 2013 9:30
That is government by shinola manufacturers like Walker, who passes out $3 bills at only a dollar each.
written by TK421, August 22, 2013 9:47
once all the unfunded promises for future Social Security benefits and other obligations are added in

It's a shame that US dollars fall from the sky, instead of being created by decree. Otherwise we would never have any difficulty with paying our obligations. Oh we'll, better cut Social Security so we don't have to cut Social Security.
written by Dave in Glenshaw, August 22, 2013 10:41
"We've had big debates over the $250 million (1/400th of a trillion) spent each year on public broadcasting. "

Unless I'm mistaken, that's 1/4000 which is even worse.
An Ode to Comeback America Initiative
written by Last Mover, August 22, 2013 11:09

Oh say can you see by the dawn's early light
The accumulated debt in just one night

So proudly it's hailed as full employment spending
Broad stripes and bright stars yet it is ending

Thru perilous fight the ramparts we watch
So gallantly streaming the deficit's red glare

Bombs bursting in air gave proof through the night
The debt was still there with a single job nare

Oh say does that banner yet wave with star spangle
O'er the land of the free and brave it has mangled

Come back America, to what you once were
A budget of balance and bright star candles

Unfunded mandates are big commies lies
Like David Walker, pound foolish penny wise
written by Ryan, August 22, 2013 12:38
You know you follow this stuff too closely when you tune out after the words "David Walker." But seriously, this is pretty egregious, even for our current standards. I get Walker not portraying the situation honestly, but what is AP's excuse?
written by jim, August 22, 2013 2:23
this was lol funny takedown.
written by widgetmaker, August 22, 2013 2:35
I don't get Walker. Not at all. I think that a man who gotten in far in life as he (former head of the GAO) is very intelligent, but now he devotes his life to spouting off such nonsense.

Publicly held debt to GDP is far less now than it was immediately following WWII (83% now vs 119% in 1946). Surely he must know that. And the debt to GDP ratio is stabilizing. And I appreciate how Dr Baker repeatedly reminds us that interest payments on the debt is only 1.3% of to GDP. And I've heard many times about our "unfunded $73 trillion dollar liability", or whatever the number du jour happens to be, but he is the first to put it into context - $1,000 trillion of projected national income over that same period.

Debt is not the problem. Massive unemployment in our population and the damage this causes to our work force is, and if someone truly cared about the health of our nation, then that is what we'd be hearing about. What is with this obsession from someone who should know better, but whose life's work it to promulgate this bullshit? I just don't get it.

And one other item - I disagree w/ Dr Baker's assertion about paying off this debt. We won't and we shouldn't. Almost none of that post WWII debt was ever paid off, although debt to GDP went from 119% to 32% in 1980. The growth in the economy exceeded the nominal growth in the debt. Government finances should not be compared to that of a household. Sovereign governments are perpetual and can issue currency to pay their debts. And the financial system needs these supersafe assets. Where else can large companies and institutions park $100 million dollars and absolutely KNOW that it will be there when they need it? I look at US government debt as another component of the money supply, and our financial system needs a robust supply of government debt to continue functioning smoothly.
About the ratio of Social Security workers
written by rationalrevolution, August 22, 2013 4:46
Good overall analysis of his comments, but I just want highlight the Social Security comment, because its one that many conservatives use.

The reality is that in 1950 Social Security had barely been implemented. By 1960 the ratio of workers to retirees had already dropped to 5 to 1 and it has been steady at close to 3 to 1 since 1970.

See my article here for more details (and a graph!):
written by mikefork, August 22, 2013 4:57
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It has a financial data analysis engine which brings the functionality traditionally found on wall street proprietary trading desks to an open platform. You can visualize, save and share data. This tool is similar to PlotTool at Goldman Sachs or DataQuery at JP Morgan. Check it out, You may like it!
written by keith johnson, August 22, 2013 6:25
Walker counts as part of our debt the benefits we've promised to Social Security recipients, and his solution is to reduce the benefits. If those benefits have already been PROMISED to anyone, then Walker's solution is to break the promise. Does anyone else think this shouldn't count as a SOLUTION?
written by watermelonpunch, August 22, 2013 10:08
"painful inflation, larger gaps between the rich and the poor, even threats to national security."

It's not clear why we would be faced with the first or third problem, but we have been seeing a growing gap between rich and poor for the last three decades for reasons that have nothing to do with the debt.

I don't know who this David Walker is, I admit.
But his storyline makes sense if he believes the things I've heard people say they believe like...

The working middle class people have lost out on income because Muslim immigrants who simultaneously steal American jobs and live off welfare paid by regular working people paying outrageous taxes even while it balloons the nation's debt, and allowing the threat of Sharia Law, while people propose raising the minimum wage which will make the rest of the working saps lucky to have jobs see huge cost of living increases because people slightly poorer than them will be showered with extra income & Obamacare.

Or something along those lines as near as I can make out.

If I had a dollar for every time I heard part of the above, or all of it from the same person, I could afford to import a 12 week old pure bred Turkish Van from the same lineage of Shiro the Basket Cat, and throw in a lobster dinner.

Previously I'd thought that the various people who tell me these things were just getting bits of information as well as bits of misinformation, a la carte, and kluging them all together themselves to fit their own experience & fears & politics together to make some kind of sense. But now I'm wondering if David Walker, or someone else, is actually presenting this as an all inclusive frenzied buffet of fear & hatred.

Either way... Divided we fall.
The Buffet is served daily
written by jumpinjezebel, August 22, 2013 11:43
"But now I'm wondering if David Walker, or someone else, is actually presenting this as an all inclusive frenzied buffet of fear & hatred." Where have you been?? No radio or TV? Just turn on either to a Fox Station and you'll know who is serving up the buffet.
unfunded portion....
written by pete, August 23, 2013 4:05
I think you might have erred in stating that the $73M is not accurate as being the unfunded number because it does not include the present value of future taxes at current rates. I think it does include the future payroll taxes but not future other income taxes. Regarind SS and medicare, clearly the income taxes will be used to cover the "unfunded" portion. Regarding SS, I prefer the flat tax, it is less distortionary. So raising the income limit on the 12.5%, or raising this to 20% (Forbes/Dupont), or whatever, makes economic sense, rather than raising top income tax rates (maybe even lowering them). Of course this is yet again defaulting on SS as they did in the 1980s (i.e., rewriting the contract). OK for SS members, but not for Detroit.
written by Tom, August 23, 2013 8:47
Trillions of unfunded liability. What a load of crap that is. I have 22 years left on my mortgage which is at $169,000. It's unfunded, but as long as I work and get paid, the money is there. As long as the government can tax, then it's not unfunded. DUH!!!!

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.