Niall Ferguson and Laurence Kotlikoff paint a dire picture of the fiscal outlook in the U.S. Much of the material is a recital of the prospects for Social Security and Medicare, with which readers of this blog are familiar. One insight that was new to me was this:

During the Clinton Administration, the CBO routinely projected that, regardless of inflation or economic growth, the federal government would spend precisely the same number of dollars, year in and year out, on everything apart from…entitlements. At the same time, the CBO confidently assumed federal taxes would grow at roughly 6 percent each year. As a result, it was able to make dizzying forecasts of budget surpluses…These phantom surpluses were the money Al Gore promised to spend on voters and George W. Bush promised to return to them during the 2000 election.

In their view, our politicial leaders, the public, and bond market investors are all in denial about the large future liabilities that the government faces.

UPDATE: Greg Ransom links to a statement from Kotlikoff.

Greenspan’s proposed cuts in Social Security are trivial relative to what’s needed and perpetuate the myth that we can finance the baby boomers’ retirement with minor fiscal adjustments…What’s needed are real statesmen to propose and enact the radical and extremely painful reforms required to ensure our nation’s fiscal solvency.”

For Discussion. If the fiscal crisis is real, how will it first manifest itself?