Last week, the White House announced that the U.S. budget deficit has fallen to a tiny 2.3 percent of GDP. Also last week, Professor Kotlikoff made headlines when he came out with yet another of his projections showing that the country is deeper in the hole than ever. Some readers may wonder who is right.

The short answer is that what Bush and other politicians call “the deficit” is really only a measure of short-term cash flow. All it tells you is the difference is between what the government takes in, and pays out, in any given quarter or year. That’s not a meaningless number, but it fails to account for the biggest ways in which we borrow from the future.

The real deficit consists mostly of “unfunded liabilities.” These are claims on future tax payers incurred when the government promises to pay benefits to people in the future without putting aside any resources to pay for those benefits.

The scariest example is Medicare. Everyone who pays taxes into the system is promised health care benefits in the future. But the system immediately spends every cent it takes in just to cover the cost of current beneficiaries. Meanwhile, the rate of medical inflation, as well as the range and intensity of care Americans expect to be covered by Medicare, increases year after year.

First result: people who are today paying into Medicare will become entitled to care that future taxpayers will have to fund. Second result: the cost of that care will vastly exceed the amount contributed to Medicare by today’s taxpayers.

This annual gap between taxes received and the cost of benefits promised is the true “deficit.” And the accumulation of these accrued deficits is the true national debt, according to accounting standard used every where except in official projections of the government’s finances. Ironically, if Enron kept its books the same way as the federal government does– this is, without making any account for long-term liabilities—the Feds would have shut the company down for that fact alone.

Does this means that America is “bankrupt” as Professor K puts it. Hardly. Most of the problem would go away if the U.S. simply reformed its health care system. People in other countries, such as the United Kingdom, pay only about half what the U.S. does per person and still live longer, healthier lives.

Similarly, the unfunded liabilities in Social Security would simply disappear if the system simply adjusted benefit levels so that each new generation of retirees didn’t receive ever higher benefits. Put another way, we don’t have to “cut” anyone’s Social Security to keep the system solvent. We don’t even have to do away with Cost of Living Adjustments. We just have to adjust benefit formulas so that they don’t wind up increasing benefits year after year.

So the problem is really more about politics than finance. Until we find the political will to reform our health care system and to stop raising Social Security benefits, the problem will get worse. But the right politics and policies can also cause the problem to go away without much pain. The threshold question is: when will Americans realize this and hold their politicians accountable?

Phillip Longman, a Bernard L. Schwartz Senior Fellow at the New America Foundation, is the author of numerous articles and books on demographics and public policy. His most recent book, The Empty Cradle: Freedom and Fertility in an Aging World, was published by Basic Books in March 2004. The book examines how the rapid yet uneven fall in birth rates around the globe will affect the balance of power between nations and influence the global economy. Mr. Longman is also the author of Born to Pay: The New Politics of Aging in America (1987) and The Return of Thrift: How the Collapse of the Middle Class Welfare State will Reawaken Values in America (1997).

Mr. Longman’s work has appeared in such publications as The Atlantic Monthly, The New York Times Magazine, The New Republic, and The Wall Street Journal. Formerly a senior writer and deputy assistant managing editor at U.S. News & World Report, he has won numerous awards for his business and financial writing, including UCLA’s Gerald Loeb Award, and the top prize for investigative journalism from Investigative Reporters and Editors.