The debt Uncle Sam publicly acknowledges — official federal debt in the hands of the public — is now $12 trillion. But the true measure of our debt — the one suggested by economic theory — is the fiscal gap, which totals $222 trillion. The fiscal gap is the present value of all future expenditures, including servicing outstanding official federal debt, minus the present value of all future receipts.
As you know, only the conspiracy theorists discuss these numbers because the man on the street has no comprehension of them. Thankfully, we have the government in place to protect us from ourselves.
In short, it is the words that the government attaches to its receipts and payments, not the economic content of these receipts and payments, that determine what is labeled debt and what is left off the books. Indeed, with the right choice of words, Uncle Sam can report any level of the debt at any time in the past, this year or in the future regardless of the true underlying fiscal policy that he’s running.
The fiscal gap doesn’t suffer from this economic labeling problem; it generates the same present value shortfall of expenditures over receipts no matter what labels are applied. The reason is simple: The fiscal gap measures all future expenditures (all outflows) net of all future receipts (all inflows) regardless of what they are called.
We’ve seen the perfect example of this policy of reporting whatever the Treasury sees fit currently with no increase in the official national debt since May 17.
Fortunately, Senators Tim Kaine, D-Va., and John Thune, R-S.D., introduced in late July a bill called “The Inform Act,” which I helped draft together with Alan Auerbach of the University of California at Berkeley. The bill would compel the Government Accountability Office (GAO) and CBO to do fiscal gap and generational accounting on an annual basis and, upon the request of Congress, for major new fiscal initiatives. Senators Chris Coons, D-Del., and Rob Portman, R-Ohio, are co-sponsors of the bill.
Will this dash of sunlight be enough to finally get people mad as hell about what their elected officials have been doing with their future? I wouldn’t bet on it as it would require unprecedented amounts of self-imposed austerity to even begin to address it.
Who’s up for volunteering to take one for the team? Please, not all at once!