In Sunday’s article in the New York Post, Cato scholar Dan Mitchell made an excellent point: it’s not the fiscal cliff that’s the problem. It’s what comes afterwards.
If we go over the fiscal cliff, not much is likely to happen, he says:
If we go over the cliff, it simply means the economy will grow a bit slower and politicians will spend a bit more money. And the sequester actually would be (modest) good news, since it means the burden of government spending would be “only” $2 trillion higher 10 years from now, rather than $2.1 trillion higher.
In other words, nothing much will change. But that also means that no matter how things are sorted out come the first of the year, the real problem underlying today’s crisis won’t been touched:
The real crisis is the ticking time bomb of entitlement programs and the welfare state.
Unfortunately he thinks that things will appear to be normal for a long time, thus putting off for that same long time any chance that any substantive will be done until it’s too late:
This bomb won’t explode this year or next year. It may not even explode for another 20 years. But at some point America will experience a Greek-style fiscal collapse if these programs are not reformed.
It’s a simple matter of math due to an aging population. According to both the Bank for International Settlements and the Organization for Economic Cooperation and Development, the future burden of US spending will climb so high that we’ll be in worse shape than Europe’s welfare states.
He warns that the problem is vastly larger than just a national debt of some $16 trillion.
A lot of people get upset about the national debt, which is somewhere between $11 trillion and $16 trillion, depending on whether you include money the government owes itself.
Those are big numbers — but if you add up the amount of money that the government is promising to spend for entitlement programs in the future and compare that figure to the amount of revenue that the government projects it will collect for those programs, the cumulative shortfall is more than $100 trillion.
I think the number is even larger, but no matter. It’s so vastly beyond anything even being admitted to in Washington that it might as well be a quadrillion. Those promises won’t be paid. They will be broken. And people depending on them will have to make major painful readjustments to the new reality. But not just yet:
When the status quo [becomes] unsustainable, the “bond vigilantes” will be the ones in charge. And when they cut up Washington’s credit card, it won’t be a pretty situation — especially since there won’t be anybody left to bail us out.
Compared to that scenario, the fiscal cliff is a walk in the park.