In an article in the Atlantic entitled “My Inflation Nightmare,” Michael Kinsley worries about the future of the economy. He fears that inflation, perhaps hyperinflation, is a likely next stage in the economic crisis. His fears contradict the respected liberal economists Paul Krugman and Larry Summers. They argue that deflation is the likely outcome.
Mr. Kinsley defers to their expertise and exhibits proper liberal loyalty by modulating his position. He apparently trusts these economists more than his own intellect and instincts. He remembers being stigmatized as a “fiscal sado-conservative” (whatever that means) when he strayed from the liberal position once before.
Mr. Kinsley should realize that it was these and similar experts that got us into this mess. Neither of these experts ever saw it coming, despite their expertise and mathematical Keynesian models. One is an ideologue and the other an employee of the administration. Does Mr. Kinsley believe they could publicly speak out against inflation, even if they believed it to be a certainty?
Kinsley’s intuitive conclusion is grounded in “the realm of psychology.” If, by that, he means human behavior and motives, he is on sounder ground than most so-called economists. Proper economics always has been the study of human action. Abstract mathematical models, introduced in the “Keynesian revolution,” banished human and political motivations from consideration. Economics was then reduced to a sterile black-box contraption, at least in the minds of “sophisticated” Keynesians.
The key insight and worry in Kinsley’s article is that “no one in a position to act has proposed a realistic way out of this debt.” Is it possible no one understands the problem? Perhaps they have been too busy to deal with it. He muses about this issue in a way that suggests he may know the answer but not want to reveal it. Quite simply, the issue is ignored because there is no politically palatable solution! It is impossible for the U.S. government to honor its obligations.
To understand the predicament, numbers are necessary. The federal debt, approximately $12.5 trillion, represents funded debt. The unfunded promises associated with Social Security, Medicare, and Medicaid represent an additional liability of $106 trillion, according to trustee estimates.
A $106 trillion cash infusion is required today to make these programs solvent. But the entire net worth of the entire country is only about $55 trillion. If the U.S. government confiscated every single asset in this country, these programs would still be insolvent. And so would every citizen and corporation in the country. Quite simply, these programs promise twice what the country is worth!