Fear Mongering with Bad Statistics: NY Times and the Cato Institute Confuse Current and Future Obligations

Friday, The NY Times reported on Greece’s ongoing financial troubles. There is something to be said for discussing whether pensions should begin at age 50–it touches on economics, social values, and so on. But then the reporter refers to some ‘analysis’ by the Cato Institute:

According to research by Jagadeesh Gokhale, an economist at the Cato Institute in Washington, bringing Greece’s pension obligations onto its balance sheet would show that the government’s debt is in reality equal to 875 percent of its gross domestic product, which is the broadest measure of a nation’s economic output. That would be the highest debt level among the 16 nations that use the euro, and far above Greece’s official debt level of 113 percent.
Other countries have obscured their total obligations as well. In France, where the official debt level is 76 percent of economic output, total debt rises to 549 percent once all of its current pension promises are taken into account. And in Germany, the current debt level of 69 percent would soar to 418 percent.
Mr. Gokhale, like many other economists, says he believes that this is a more appropriate way to assess a country’s debt level because it underscores the extent to which the cost of providing for rapidly aging populations, if left unchanged, will add to already troubling debt burdens.

I would like to know who those “economists” are because they’re fucking idiots. Those humungous eleventy gajillion percent of GDP figures are current and future obligations as compared to current and only current GDP (here’s a chart). Any significant budgetary item, when you compare current and future costs, will seem incredibly expensive because you’re taking decades worth of expenditures and dividing them by current GDP*: even science funding looks scary. If you compared 35 years of defense spending at current rates, adjusted with two percent inflation**, is 291% of current GDP. ZOMG!!! No more wars? Since this is from the libertarian Cato Institute which would like to privatize everything, fearmongering with bad statistics, of course, is the entire point.
As a relative measure, the ratio of current and future obligations to current GDP might be of some interest, but it’s still hard to interpret since either the numerator (current plus future obligations) or the denominator (current GDP) can vary yielding different numbers.
If the reporter had bothered to interview someone who isn’t from the far right, he or she would have blown holes in this metric.
*There’s also no mention of tax revenues in any of this.
**Defense spending is actually growing faster than that. Increase the rate of growth to five percent, and it becomes 441% of current GDP. And, of course, we can monkey with the length of time: I picked 35 years, but bump it up to 50 years and ZOMG!!

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3 Responses to Fear Mongering with Bad Statistics: NY Times and the Cato Institute Confuse Current and Future Obligations

  1. Troublesome Frog says:

    And in other news, the amount of food I’m projected to eat over my lifetime probably exceeds my annual income. I’m on the verge of starvation, I tells ya.

  2. Liam says:

    Are you using the numbers correctly, if pension costs stay constant there is no problem, however if western societies need to put 8% of GDP away each year so as to fund the difference in demographics then there is a problem if they dont?
    If every 2 worker in the future will have to support a third before getting out of ben in the morning, then something will have to give?
    not sure why you are dismissing the analysis.

  3. Timothy Underwood says:

    You are completely right, although there is another issue which also should be pointed out on these things. It is absurdly silly to make confident predictions going 50 or 70 years out into the future. I mean seriously, do you think there is any possible way that they could have in 1940 made accurate and detailed projections about levels of pension obligations relative to GDP today in the 1940s? Or predictions about anything for that matter?
    Really the only useful predictions that you can make going that far out are things like “if major programs with lots of stakeholders are ended it will have been due to a major political fight.” — which of course does make it unlikely that medicare or social security will disappear, but still not impossible.

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