II. ENTITLEMENTS AND THE ECONOMY

Table of Contents/Entitlement Report/Introduction/Foreward/I/II/III/IV/V/VI

Chart 2-1. Federal deficits: what happens when outlays exceed revenues.

Increases in outlays and revenues since the 1960s are the differences between average outlays and revenues for1960-1969 and 1990-1993. Source: FY 1995 Budget: Historical Tables (OMB; 1994).

Chart 2-2. With the red ink flowing...

See chart 2-1 for source.

Chart 2-3....and the national debt soaring,...

"Net" federal debt is the debt held by the public. "Gross" debt adds to the publicly held debt money borrowed intragovernmentally by Treasury from other federal agencies. It includes, for example, the surpluses borrowed from the Social Security trust funds. Source: FY 1995 Budget: Historical Tables (OMB; 1994).

Chart 2-4....we have been indulging in a profligacy inconceivable to earlier generations of Americans.

See charts 2-1 and 2-3 for source and definitions.

Chart 2-5. Above and beyond our official national debt, we have accumulated a $14 trillion mountain of unfunded entitlement liabilities.

Assets and liabilities are calculated according to "Generally Accepted Accounting Principles." Property, plant, and equipment are valued at cost. Unfunded benefit liabilities are defined much as they are for private pension programs--i.e., as the amount by which all future benefit promises to today's working-age or retired program participants (discounted to today's dollars) exceed the value of current trust-fund assets plus all future contributions (also discounted to today's dollars) payable by these same participants. Thus, unfunded benefit liabilities are a measure of the extent to which today's adults are counting on future income in the form of transfer payments from their children as opposed to economic returns on their own deferred consumption. Assets and liabilities are OMB tabulations, except for Medicare unfunded liabilities, which are based on estimates by A. Haeworth Robertson (re-estimated at 1991 values). The balance sheet in chart 2-5 does not include contingent federal liabilities for loan guarantees, deposit insurance, federally sponsored enterprises, or environmental clean-up costs.

Source: Budget Baselines, Historical Data, and Alternatives for the Future (OMB; January 1993), Chapter 11 and Appendix E; and A. Haeworth Robertson, Social Security; What Every Taxpayer Should Know (Retirement Policy Institute; 1992).

Chart 2-6. Meanwhile, only a small and shrinking share of federal outlays pays for public investments.

Federal investment is gross outlays for nondefense equipment and structures, and includes both direct federal outlays and grants to state and local governments. Research and development is also nondefense. Source: FY 1995 Budget: Historical Tables (OMB; 1994).

Chart 2-7. Undermined by widening federal deficits and an erosion in private thrift, the U.S. national savings rate has plummeted,...

Net national savings equals net private savings plus public-sector savings. From 1990 to 1992, U.S. net private savings averaged 5.3 percent of GDP, public-sector savings -3.5 percent of GDP, and the resulting net national savings 1.8 percent of GDP. The National Income and Product Accounts (NIPAs) do not include public investment. NIPA public savings (or dissavings) is the combined public-sector (federal, state, and local) surplus (or deficit). Source: National Income and Product Accounts (BEA).

Chart 2-8. ...requiring us to borrow abroad to prop up our flagging rate of net domestic investment.

Net domestic investment equals net national savings plus net foreign investment in the United States. From 1990 to 1992, U.S. net national savings averaged 1.8 percent of GDP, net foreign investment in the United States 1.0 percent of GDP, and the resulting net domestic investment 2.6 percent of GDP. (The addition is not arithmetically exact due to BEA's "statistical discrepancy.") Source: National Income and Product Accounts (BEA).

Chart 2-9. During the early 1970s, the postwar boom in living standards came to an abrupt end.

Workers are BEA "workers engaged in production" (i.e., full-time equivalent employees plus self-employed individuals). Constant dollars are calculated with the national income deflator. Source: National Income and Product Accounts (BEA).

Chart 2-10. As U.S. rates of savings and investment sank to the lowest among industrial nations...

Unlike net national savings and net domestic investment in BEA's National Income and Product Accounts, these measures include investment by the public sector. Source: National Accounts: Main Aggregates (I): 1960-1990 (OECD; 1992).

Chart 2-11. ...so too did our rate of productivity growth.

Source: Comparative Real GDP, Real GDP per Capita, and Real GDP per Employed Person: 14 Countries, 1960-1990 (BLS; January 1992).

Chart 2-12. Stagnant productivity has inevitably meant stagnating wages and incomes.

Note that the relatively faster growth in measures of average compensation compared with average wages reflects the rising cost of noncash fringe benefits, especially health care. (Since 1964, noncash compensation as a share of total compensation has risen from 4.7 to 10.0 percent.) Hourly compensation in the business sector is BLS business-sector compensation. Yearly compensation and yearly wages for the total economy are, respectively, NIPA compensation per full-time equivalent employee and NIPA wages and salaries per full-time equivalent employee. Hourly earnings and weekly earnings of production (or nonsupervisory) workers are BLS measures. Constant dollars are calculated with the PCE deflator. Source: National Income and Product Accounts (BEA); and BLS data on compensation and earnings published in various issues of the Economic Report of the President (Council of Economic Advisers).

Chart 2-13. While it once took a few decades for living standards to double, it will now take a few centuries.

See chart 2-9 for source and definitions.

Table of Contents/Entitlement Report/Introduction/Foreward/I/II/III/IV/V/VI