So, in the fight over Wisconsin and the focus of protesters' ire against the Koch brothers, Charles Koch has written an op-ed for the Wall Street Journal, which you can find here: http://online.wsj.com/article/SB10001424052748704288304576170974226083178.html?mod=googlenews_wsj

 

I'm very concerned with numbers and economics, personally, so let's evaluate some of the claims half of the dynamic duo has put into his op-ed:

 

Koch: "Federal data indicate how urgently we need reform: The unfunded liabilities of Social Security, Medicare and Medicaid already exceed $106 trillion."

 

I haven't the slightest what "federal data" indicates anything in the slightest. However, I do know of a National Center for Policy Analysis article claiming this:

 

NCPA: "The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion in today's dollars!  That is about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt." http://www.ncpa.org/pub/ba662

 

So, what does the 2009 Social Security and Medicare Trustees Report actually say? Well, it says the unfunded liability is only $5.3 trillion:

 

Trustees Report: "For the 75-year projection period, the actuarial deficit is 2.00 percent of taxable payroll, 0.30 percentage point larger than in last year’s report. The open group unfunded obligation for OASDI over the 75-year period is $5.3 trillion in present value, and is $0.9 trillion more than the measured level of a year ago."

 

Furthermore, the Trustees Report notes that even if you extend the horizon out to infinity, the deficit is only $15.1 trillion:

 

Trustees Report: "The values in table IV.B6 indicate that extending the calculations beyond 2083 adds $9.9 ($15.1 - $5.3) trillion in present value to the amount of the unfunded obligation estimated through 2083. That is, over the infinite horizon, the  OASDI open group unfunded obligation is projected to be $15.1 trillion."

 

And the final kicker? The report notes that the rather large jump in unfunded liability occurred largely because of the economic downturn:

 

Trustees Report: "The worsening of the long-range actuarial status of the OASDI program indicated in this report is principally the result of projected lower levels of economic activity that reflect the recent economic downturn and updated data, and faster reductions in mortality assumed in the longer term."

 

So, all in all, Koch's NCPA factoid overestimated unfunded liabilities by 2,000%. I'm not sure Koch knew his source was inaccurate, but for the time being I'll give him the benefit of the doubt.

 

Koch: "The Congressional Budget Office has warned that the interest on our federal debt is "poised to skyrocket.""

 

Ahh, a direct quote! This makes my job easy, since he isn't citing his sources! Let's take a look at the quote straight from the horse's mouth:

 

CBO: "The deficits that will accumulate under current law will push federal debt held by the public to significantly higher levels. Just two years ago, debt held by the public was less than $6 trillion, or about 40 percent of GDP; at the end of fiscal year 2010, such debt was roughly $9 trillion, or 62 percent of GDP, and by the end of 2021, it is projected to climb to $18 trillion, or 77 percent of GDP. With such a large increase in debt, plus an expected increase in interest rates as the economic recovery strengthens, interest payments on the debt are poised to skyrocket over the next decade. CBO projects that the government's annual spending on net interest will more than double between 2011 and 2021 as a share of GDP, increasing from 1.5 percent to 3.3 percent." http://www.cbo.gov/doc.cfm?index=12039

 

So, to reiterate, the claims that interest payments are "poised to skyrocket" depend on the economic recovery strengthening. What Koch fails to mention is that so do tax receipts. In fact, that's the main source of continuing deficits, now that the stimulus package has been pinched off by Congress.

 

Let's take a look at what happens to tax receipts during a recession. Here's federal tax receipts on corporate income: http://socioecohistory.files.wordpress.com/2009/05/usa-tax-receipts-2009.jpg

 

Here's state personal income tax (PIT), sales tax, and total taxes: http://www.topgunfp.com/wp-content/uploads/2009/05/1q-state-tax-receipts.bmp

 

My point is, while there were serious long-term budget problems looming before the fall of 2008, the banking crisis and the subsequent Great Recession is the direct and immediate cause for the current budget deficits. I know the Wall Street Journal doesn't like to admit that, but the rest of America knows it as the banks are making American homeowners pay for the economy the banks broke.

 

Koch: "Plenty of compelling examples indicate just the opposite. When Canada recently reduced its federal spending to 11.3% of GDP from 17.5% eight years earlier, the economy rebounded and unemployment dropped. By comparison, our federal spending is 25% of GDP."

 

Correct, in large part. However, correlation does not imply causation. The economist Paul Krugman notes that Canada's success largely dependend on devaluing the currency and boosting exports... to America.

 

Krugman: "As he points out, Canada was able to offset the contractionary effects of fiscal austerity through increased exports to a booming US economy. What he doesn’t point out is that this export boom had a lot to do with this:

 

http://goo.gl/k6FP6

 

"Yep, you can have fiscal austerity without contraction if you have a massive devaluation against your main trading partner. So we can have austerity without a new depression as long as all the world’s major economies devalue against … oh, wait." http://krugman.blogs.nytimes.com/2010/06/10/oy-canada/

 

The premise that cutting government spending boosts economic output implies that the government spending is a fundamental drag on the economy. However, one can make an argument that at least some spending, such as education, has an enormous economic effect for long-term growth rates. As such, government cuts in education spending has the effect of selling our seed corn, so to speak.

 

Koch: "Recent studies show that the poorest 10% of the population living in countries with the greatest economic freedom have 10 times the per capita income of the poorest citizens in countries with the least economic freedom."

 

Once again, there's reason to believe this "recent study" cited was from the National Center for Policy Analysis:

 

NCPA: "In 2002, the average per capita income of the poorest tenth of the population in the least free countries was around $823. By contrast, the poorest tenth of the freest countries' populations earned about $6,877."http://www.ncpa.org/pub/st268?pg=3

 

There's very serious methodological concerns with this study because it doesn't control for wealth as a mitigating factor. Each and every one of these "findings" have the same validity when you replace the "economic freedom" with "high GDP," sometimes tautologically so.

 

In summary, dig into the sources, find out the basis of the claims, and don't believe what you hear until you see pics. As the adage goes, "Pics or it didn't happen." And, unfortunately, some of Koch's claims rely on echo-chamber misreported facts, rather than actually dealing with real issues.

 

So, next time you submit an editorial, Mr. Koch, please cite your sources. At least, that's what they taught me in public school.