The US budget season is nigh and as usual the biggest budget drivers are largely, if not wholly, ignored. Entitlements have been taking up a growing portion of the budget and are crowding out other spending. They consist of Social Security, Medicare/Medicaid, interest payments, and other pension programs and they take up over 2/3 of the budget. The demographics of these programs have shifted dramatically over the years and show no sign of reversing for the better. Instead we see a continuing decline in the ratio of workers to recipients, straining the economics of these programs. At this point it should be mentioned that Medicare and Social Security taxes are political lies. These are general revenues and there is no legal requirement that the funds be directed towards those programs, and lo behold, they haven’t been. Instead the government has racked up internal debt, promising to pay these programs back later. There is a reason debt to GDP ratios largely ignore internal debt, you can’t owe money to yourself.

In addition to entitlement spending dealing with a demographic bomb, a spike in interest payments looms. The full extent of the borrowing binge from the past decade has been masked by historically low interest rates. The Federal government currently pays around 2% on its debt,

well under its historical rate. As a comparison, fifteen years ago they paid about 6%. Now interest rates might be depressed for a while, but with the Federal Reserve beginning to increase the Fed funds rate, interest rates should see a noticeable uptick. In recent years the US treasury has weighted its portfolio towards longer term securities, but a great deal of debt is very short term meaning any rise in interest rates will make an immediate impact on the budget. Long term implications of rising interest rates in an era of low growth are even more daunting.

The two parties instead snipe over relatively minor budget line items that carry varying levels of importance. Republicans have made a nod toward reducing Medicaid spending in their healthcare bill, but this is a just a pullback from the very recent expansion. Trump seems to be getting behind the deal pretty strongly and it will be an early test of his presidency. Beyond that however, entitlements have been either ignored or defended by Trump and Democrats and the few Republicans who have historically spoken up have remained subdued. Sooner or later the harsh reality of actuarial tables will catch up with the US and people may soon understand that no one is entitled to anything. That’s not just an aphorism, but the legal basis for the law.