Every year on Veterans Day, we baby boomers look around and see fewer and fewer members of the Greatest Generation--our parents and grandparents who rose en mass to fight a terrible war and keep us safe. The memory of their service provokes guilt as well as pride. As a group, we baby boomers have made no comparable sacrifice. Most of us spent our youth and middle age looking out for No. 1. And we are about to enter old age with a singular goal in mind, namely, extracting as much as possible from our kids and grandkids.  Few of us realize it, but with our acquiescence, Uncle Sam has spent decades running the world's largest Ponzi scheme, taking ever-larger sums from each young generation and handing them to the old in the form of Social Security, Medicare, and Medicaid benefits. In so doing, Sam has told each set of young people, "Not to worry, I'll more than take care of you when you're old."  Since the old, who have shorter time horizons, have larger propensities to consume than do the young, this transfer has fueled a huge increase in personal consumption, reducing our national saving rate (saving as a share of national income) from 10 to 15% in the 1950s and 60s to a negative 1.5% last year. Because we aren't saving, we aren't investing. Our rate of domestic investment was also in the 10 to 15% range in the '50s and '60s. For 2009 it would be negative 1.5% were it not for investment in the U.S. by China and other countries. As it is, the rate of U.S. domestic investment was only 1.9 percent last year! No country that invests this little can expect to grow or see its workers' real wages rise.  But our worst economic bequest is the fantastic fiscal liability we're leaving our kids. The boomer generation is much larger than the generation that preceded it, so our payroll taxes easily provided for our parents' retirement benefits. It was a case of the many supporting the few. But the next generation is much smaller than ours, so very soon it will be a case of the few supporting the many. That's a formula for disaster. When we boomers fully retire, our kids will need to pay each of us, on average, $50,000 in today's dollars to cover our retirement benefits. The annual costs of this largesse will total close to $4 trillion!  These future liabilities aren't captured by the official debt measure, which receives all the press attention. Congress has been very careful to make these I.O.U.s "unofficial."  But a Social Security, Medicare, or Medicaid I.O.U. is no less economically burdensome than an I.O.U. stamped U.S. Treasury Bond. Indeed, they are more burdensome, because Congress has, explicitly or implicitly, promised to pay these benefits off in real (purchasing power) terms. It's made no such promises for most of its official Treasury bills and bonds. A good dose of inflation caused by printing money (and the Federal Reserve is printing lots of money these days) can quickly wipe out much, if not all, of the real value of the official obligations.  This ability to freely label government receipts and payments in alternative internally consistent manners renders the government's cash flows meaningless from the perspective of economic theory and is called the labeling problem in economics. The only way to assess a country's fiscal condition that is free of this problem is by forming the country's fiscal gap--the present value total of all the official debts and unofficial current and future spending obligations after netting out all the current and future taxes everyone is currently slated to pay. No matter how one labels receipts and payments, the fiscal gap remains the same.
Chairs of deficit panel understate the problem. Deep cuts in Medicare and Social Security are needed to rescue our children's future.