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Raving About Debt

Kevin Williamson, a crafty and talented writer for the National Review has recently presented a case for fear and dissention in his article The Other National Debt. Citing the currently published (but estimated) federal debt, amounting to $14 trillion, he piles on more numbers until the sheer numeric weight encourages flight to the hills and a simpler life in the deep woods.

Adding another $2.5 trillion for state and local government debt and up to $3 to $4 trillion to bail out bankrupt state pension funds, (which, in 31 states will be upside-down by 2025 even with six percent annual returns) the negative numbers accrue pretty fast. Professor Joshua Rauh of the Kellogg School of Management at Northwestern University offers additional insight in his recent paper, Are State Public Pensions Sustainable?

We all understand that Social Security and Medicare are the big ticket items, having a combined liability of $106 trillion, based on numbers presented by Williamson. Even if less, the number is staggering. The most chilling aspect of this massive combined liability is that the Social Security trust fund actually has no money to back liabilities. It is pledged money; it is not a fund that holds assets or resources of any kind. Bruce Bartlett of Forbes has noted that an 81 percent tax increase would be necessary to meet these obligations alone.

Before you depart for the hills, please understand that many pundits forecast ‘doom for affect.’ Many of the TARP funds have been repaid and acquired assets alone have already returned over $21 billion in fees and dividends. Not to say the situation is not troubling, but there are other variables to consider. Even from a conservative perspective, there will be some growth. Foreign trade driven by global economic development will strengthen the national economy. There will be tax increases, but, based on other developed Western countries, our tax standards are low. Even small increases would begin to balance obligations…paying for updated infrastructure and desired services that otherwise would drain state and local coffers even further. There will be service consolidations and new efficiencies conceived by talented public employees and new collaborations with area businesses and non-profits. We will see more integrated planning and wiser use of available funds and, hopefully a reduction in the cost of foreign wars. In many ways, the current situation is good because it forces innovation, creativity and clear choices.

Debt is debilitating. It is a sign of profligate living and an unsustainable American lifestyle. We all know it has to change…so let’s change. I have surmised in this Blog that we can have superior quality of life for a lot less money – both at home and in our communities. It is a matter of recalibration. But that takes time and careful planning. Strategic thinking has never been more critical…

With over three decades working in and with federal, state and local government, John Luthy understands public agencies.  Known for his real world, straight talking style, he is a leading futurist specializing in city, county, state, and federal long-range thinking and planning. John is the author of Operations Planning: A Guide for Public Officials and Managers in Troubled Times, and The Strategic Planning Guide, both published by the International City/ County Management Association (ICMA). His new book, Planning the Future – A Guide to Strategic Thinking and Planning for Elected Officials, Community Leaders and Public Administrators, will be available in fall 2010. An innovative and dynamic presenter, John is frequently asked to speak and consult on how to prepare public organizations and communities for emerging challenges (public futures at http://www.futurescorp.com).

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