Wednesday, August 30, 2006

MEGO numbers (My Eyes Glaze Over)

Years ago I volunteered to teach classes for Junior Achievement, where they send business people into the classroom to teach kids about finance and the economy. About that time the national debt had been in the news and the teacher asked me to explain it to her class.

Back then it was a staggering $4.5 Trillion.

Don't know why, but I thought it would be fun to write it on the board in big letters.

$4,500,000,000,000

Took up the whole wall... but all I got were blank stares.

So I wrote the amount each of them owed.

$16,000

For the first time those kids were sitting straight up in their chairs, arms and hands reaching for the ceiling, pleading, "pick me! pick me!" Nothing we'd covered, including the popular stock market game, ever got that sort of response.

Meanwhile, Julio sat on the front row with his arms crossed staring at the board the entire time. Julio was in deep serious thought.

As my time ran out I asked if anyone else had any questions.

Up goes Julio's hand.

"So you're sayin' America owes all this money?"

"That's right."

"And you're sayin' each of us have to pay $16,000, or you sayin' my mom and dad have to pay that?"

"That is the amount all of us owe right now. $16,000 is yours, mine, your mom's and your dad's. We don't have to pay it right now, but..."

"You're saying I owe $16,000?"

"Yes, that's your share."

"Sheee-it. I ain't payin that!"

The school bell rang, but was drowned out by the bell ringing in my head. I drove back to the office stunned. I knew at that moment that some day that kid will be United States Senator Julio. And some day Senator Julio is going to introduce a bill. And when he and his classmates get together, Social Security and Medicare will no longer be the "third rail of politics".

I was reminded of that story recently when David Walker, Comptroller General of the US, gave a speech explaining that we still don't get it. In fact, we aren't even using the right numbers.

What used to be $4.5T... is now $8.5T. But that is just the national debt on the books.

Terry Savage's article in TheStreet.com (where I shamelessly stole that great headline) quotes a study done for the St. Louis Fed:

...economist Lawrence Kotlikoff pointed out that the U.S. is responsible for $80 trillion in future entitlement promises -- a figure about six times larger than the U.S. economy. To make good on those promises, future workers would have to pay tax rates ranging from 55% to 80% of their incomes!

The same week that Kotlikoff's study ran in the Federal Reserve Bank of St. Louis bulletin, the comptroller general of the U.S. said, "Current fiscal policy is not sustainable, and hard choices must be made ... we're mortgaging the future of our children and grandchildren and creating a shameful legacy."


Using those numbers Senator Julio now owes $156,000.

1 Comments:

Anonymous Anonymous said...

Great commentary, keep it up.

12:11 PM  

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