Kotlikoff Research Articles

RECONSTRUCTING THE FAIRTAX'S DECONSTRUCTION

Journal of Policy Analysis and ManagementEarly View Point/Counterpoint RECONSTRUCTING THE FAIRTAX'S DECONSTRUCTION Laurence Kotlikoff, Laurence Kotlikoff Co-EditorsSearch for more papers by this author Laurence Kotlikoff, Laurence Kotlikoff Co-EditorsSearch for more papers by this author First published: 13 May 2023 https://doi.org/10.1002/pam.22491Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL No abstract is available for this article. Early ViewOnline Version of Record before inclusion in an issue RelatedInformation

FUNDAMENTAL TAX REFORM IS URGENTLY NEEDED

Journal of Policy Analysis and ManagementEarly View Point/Counterpoint FUNDAMENTAL TAX REFORM IS URGENTLY NEEDED Laurence Kotlikoff, Laurence KotlikoffSearch for more papers by this author Laurence Kotlikoff, Laurence KotlikoffSearch for more papers by this author First published: 13 May 2023 https://doi.org/10.1002/pam.22489Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Early ViewOnline Version of Record before inclusion in an issue RelatedInformation

A burden on future generations? How we learned to hate deficits and blame the baby boomers

The idea that public borrowing places an intolerable burden on posterity is as old as the institution of public debt itself. But the debate over deficit-spending assumed an entirely new scope and import with the rise of the fiscal state in the early twentieth century, as governments assumed greater responsibilities with regard to public welfare and found themselves subject to a new kind of conflict concerning the uses and distribution of public income. In this context, the intergenerational argument against social welfare spending became an important tool in the fight against class redistribution. With a focus on American debates, this article provides a historical sociology of the idea that deficits constitute a burden on future generations, identifying the key historical turning points when this idea acquired new political resonance. In particular, the article investigates how we learned to blame baby boomers for the alleged ills of government deficit-spending and how this now ubiquitous motif of public discourse was reintroduced by the Virginia school public choice theorist James M. Buchanan and later refined by the chief proponent of generational accounting, Laurence Kotlikoff.

The clash of generations: saving ourselves, our kids, and our economy

The United States is bankrupt, flat broke. Thanks to accounting that would make Enron blush, America’s insolvency goes far beyond what our leaders are disclosing. The United States is a fiscal basket case, in worse shape than the notoriously bailed-out countries of Greece, Ireland, and others. How did this happen? In The Clash of Generations, experts Laurence Kotlikoff and Scott Burns document our six-decade, off-balance-sheet, unsustainable financing scheme. They explain how we have balanced our longer lives on the backs of our (relatively few) children. At the same time, we've been on a consumption spree, saving and investing less than nothing. And that’s not to mention the evisceration of the middle class and a financial system that has proven it can’t be trusted. Kotlikoff and Burns outline grassroots strategies for saving ourselves—and especially our children--from what could be a truly catastrophic financial collapse. Kotlikoff and Burns sounded the alarm in their widely acclaimed The Coming Generational Storm, but politicians didn’t listen. Now the need for action is even more urgent. It’s up to us to demand radical reform of our tax system, our healthcare system, and our Social Security system, and to insist on better paths to investment return than those provided by Wall Street (mis)managers. Kotlikoff and Burns's Purple Plans (so called because they will appeal to both Republicans and Democrats) have been endorsed by a who’s who of economists and offer a new way forward; and their revolutionary investment strategy for individuals replaces the idea of financial capital with life decision capital. Of course, we won't be doing all this just for ourselves. We need to fix America’s fiscal mess before our kids inherit it.

Introduction

Introduction

Show-Me Banking

“There is a way to have a financial system that doesn’t endanger the economy every so many years,” says economist Laurence Kotlikoff.

Laurence Kotlikoff, Jimmy Stewart is Dead: Ending the World's Ongoing Financial Plague with Limited Purpose Banking

Laurence Kotlikoff, Jimmy Stewart is Dead: Ending the World's Ongoing Financial Plague with Limited Purpose Banking

Samuelsonian Economics and the Twenty‐First Century

INTRODUCTION Ten Ways to Know Paul A. Samuelson ANALYSIS OF SAMUELSON'S SPECIFIC CONTRIBUTION Overlapping Generation Models 1. Overlapping Generations 2. Paul Samuelson's Amazing Intergenerational Transfer 3. Social Security, the Government, and National Savings Public Goods 4. Paul Samuelson and Global Public Goods Preference and Consumer Behavior 5. Revealed Preference 6. Samuelson's "Dr. Jekyll and Mrs. Jekyll" Problem: A Difficulty in the Concept of the Consumer Marx 7. Paul Samuelson on Karl Marx: Were the Sacrificed Games of Tennis Worth It? Stability 8. Paul Samuelson and the Stability of the General Equilibrium Keynes & Post-Keynesians 9. Paul Samuelson and Piero Sraffa- Two Prodigious Minds at the Opposite Poles 10. Paul Samuelson as a "Keynesian" Economist 11. Samuelson and the Keynesian/Post-Keynesian Revolution International Economics and Finance 12. Paul Samuelson and International Trade Theory Over Eight Decades 13. Paul Samuelson's Contributions to International Economics 14. Protection and Real Wages: The Stopler-Samuelson Theorem Finance and Portfolio Theory 15. Samuelson and the Factor Bias of Technology Change 16. Samuelson and Investment for the Long Run 17. Paul Samuelson and Financial Economics SAMUELSON'S RELEVANCE Relevance to Mathematical Economics 18. Multipliers and the LeChatelier Principle Relevance to the Natural Sciences 19. The Surprising Ubiquity of the Samuelson Configuration 20. Paul Samuelson's Mach

The healthcare fix: universal insurance for all Americans

The shocking statistic is that forty-seven million Americans have no health insurance. When uninsured Americans go to the emergency room for treatment, however, they do receive care, and a bill. Many hospitals now require uninsured patients to put their treatment on a credit card which can saddle a low-income household with unpayably high balances that can lead to personal bankruptcy. Why don't these people just buy health insurance? Because the cost of coverage that doesn't come through an employer is more than many low- and middle-income households make in a year. Meanwhile, rising healthcare costs for employees are driving many businesses under. As for government-supplied health care, ever higher costs and added benefits (for example, Part D, Medicare's new prescription drug coverage) make both Medicare and Medicaid impossible to sustain fiscally; benefits grow faster than the national per-capita income. It's obvious the system is broken. What can we do? In The Healthcare Fix, economist Laurence Kotlikoff proposes a simple, straightforward approach to the problem that would create one system that works for everyone and secure America's fiscal and economic future. Kotlikoff's proposed Medical Security System is not the socialized so feared by Republicans and libertarians; it's a plan for universal health insurance. Because everyone would be insured, it's also a plan for universal healthcare. Participants -- including all who are currently uninsured, all Medicaid and Medicare recipients, and all with private or employer-supplied insurance -- would receive annual vouchers for health insurance, the amount of which would be based on their current medical condition. Insurance companies would willingly accept people with health problems because their vouchers would be higher. And the government could control costs by establishing the values of the vouchers so that benefit growth no longer outstrips growth of the nation's per capita income. It's a single-payer plan, but a single payer for insurance. The American healthcare industry would remain competitive, innovative, strong, and private. Kotlikoff's plan is strong medicine for America's healthcare crisis, but brilliant in its simplicity. Its provisions can fit on a postcard and Kotlikoff provides one, ready to be copied and mailed to your representative in Congress.

The Emperor's Dangerous Clothes

Laurence Kotlikoff argues that the official United States deficit does not look too terrible, but it is a terrible measure of the government's economic health: The truth is a $70 trillion long run imbalance that is growing at $2 trillion per year.

Grading the President's Tax Reform Panel's Plan

Laurence Kotlikoff gives the current tax system a D, the President’s Tax Reform Panel proposal a B+ and explains what his A+ tax system would look like.

The Many Definitions of Social Security Privatization

Definitions can matter, and Don Fullerton and Michael Geruso argue that proponents of social security privatization mean a host of different things by "privatization." They point out that many of the gains from privatization seen by economists like Martin Feldstein and Laurence Kotlikoff owe to only a few aspects of privatization.

Averting America's Bankruptcy with a New New Deal

Laurence Kotlikoff argues that it is high time the U.S. gets its fiscal house in order, and he tells us exactly how with three big ideas.

Are Economists Smarter?

Laurence Kotlikoff presents a humorous take on Lawrence Summers' alleged suggestion that economists are smarter than sociologists.

The coming generational storm: what you need to know about America's economic future

In 2030, as 77 million baby boomers hobble into old age, walkers will outnumber strollers; there will be twice as many retirees as there are today but only 18 percent more workers. How will America handle this demographic overload? How will Social Security and Medicare function with fewer working taxpayers to support these programs? According to Laurence Kotlikoff and Scott Burns, if our government continues on course it has set, we'll see skyrocketing tax rates, drastically lower retirement and health benefits, high inflation, a rapidly depreciating dollar, unemployment, and political instability. The government has lost its compass, say Kotlikoff and Burns, and current administration is heading straight into coming generational storm. But don't panic. To solve a problem you must first understand it. Kotlikoff and Burns take us on a guided tour of our generational imbalance, first introducing us to baby boomers -- their long retirement years and the protracted delay in their departure to next world. Then there's fiscal child abuse that will double taxes paid by next generation. There's also deficit delusion of under-reported national debt. And none of this, they say, will be solved by any of popularly touted remedies: cutting taxes, technological progress, immigration, foreign investment, or elimination of wasteful government spending. So how can United States avoid this demographic/fiscal collision? Kotlikoff and Burns propose bold new policies, including meaningful reforms of Social Security, and Medicare. Their proposals are simple, straightforward, and geared to attract support from both political parties. But just in case politicians won't take political risk to chart a new direction, Kotlikoff and Burns also offer a life jacket -- guidelines for individuals to protect their financial health and retirement. This paperback edition of The Coming Generational Storm has been revised and updated and includes a new foreword by authors.

Essays on Saving, Bequests, Altruism, and Life‐Cycle Planning

In his introduction to this volume Laurence Kotlikoff describes succinctly what the book does: ‘This book tries to explain why our nation is saving so little, why its bequest behaviour is changing, why wealth is so unequally distributed, whether altruism influences household responses to fiscal policies, how altruism might be modelled, how to formally test the rationality of intertemporal economic choice, whether people are capable of making consistent and appropriate intertemporal decisions, whether they do make such decisions, whether they have the knowledge and tools to help them in that process, and, finally, what they should be doing to prepare for the future’. It is a tribute to the work of Kotlikoff that this volume, which reprints 14 papers of his, largely written over the past 10 years, succeeds so well in saying something substantive about each of this long list of issues. The majority of the papers have already appeared in academic journals. But the links between his various papers are close and the issues that are addressed so inter‐related that bringing them together into one volume is amply justified. Furthermore, there are four unpublished papers in the volume, largely concerned with financial planning over the life cycle.

The Importance of Bequests and Life-Cycle Saving in Capital Accumulation: A New Answer

As the workhorse of consumption and saving research for the past four decades, the life-cycle model has proved flexible and useful for examining a variety of questions. In a classic paper, Albert Ando and Franco Modigliani (1963 p. 56) stated a key assumption of the basic model: “[t]he individual neither expects to receive nor desires to leave any inheritance.” Although the authors contended that the absence of a bequest motive was not critical to the heart of their results, the assumption set off a long-standing battle over the relative importance of different motives for saving. In an influential study, Laurence Kotlikoff and Laurence Summers (1981) estimated that a large fraction of the U.S. capital stock was attributable to intergenerational transfers. Modigliani and his collaborators vigorously disagreed and, based on their own empirical work, claimed that life-cycle saving was the primary source of capital accumulation (Modigliani, 1988). Subsequent work has failed to reach a consensus. Since this debate began, an important advance in the consumption literature has been the incorporation of uncertainty in life-cycle models (see e.g., R. Glenn Hubbard et al., 1995). We argue that allowing for uncertainty resolves the controversy over the importance of life-cycle and bequest saving by showing that these motives for saving are overlapping and cannot generally be distinguished. A dollar saved today simultaneously serves both a precautionary life-cycle function (guarding against future contingencies such as health shocks or other emergencies) and a bequest function because, in the likely event that the dollar is not absorbed by these contingencies, it will be available to bequeath to children or other worthy causes. Under this view, households have a bequest motive, but bequests are given (i.e., the motive is “operative”) in only some states of the world. Wealth is something like traveler’s checks: you take them along on vacation “just in case,” but odds are they will remain uncashed and available for sundry goods after the journey is complete. We first demonstrate the result using a simple model and then argue that this approach reconciles the apparent importance of bequests with households’ declared focus on life-cycle saving. Finally, we consider implications of our analysis.

Méthodes et usages des comptes générationnels : un regard décalé

Une évaluation critique des études de comptabilité générationnelle (CG) montre que ces dernières ne peuvent à la fois évaluer le déséquilibre à long terme des politiques de transferts et mesurer les inégalités effectives de bien-être qui en résultent entre générations. Ces deux objectifs également utiles, concernant respectivement la viabilité et l''équité générationnelle, exigent des méthodes différentes : le premier, auquel devrait se limiter la CG, suppose une analyse statique et comptable, en termes de coût financier pour le gouvernement ; le second requiert une approche dynamique plus ambitieuse, en termes d’utilité du consommateur-épargnant. Reste que la CG pourrait être améliorée dans trois directions, en considérant les dépenses d''éducation comme des investissements individuels en capital humain, en simulant la législation sociale courante (au lieu d’extrapoler les transferts par âge et par tête) et en adoptant comme scénario d'évolution un trend structurel qui élimine les éléments les plus conjoncturels des politiques actuelles .

Should Generational Accounts Replace Public Budgets and Deficits?

The author assesses the concept of ‘generational accounts’ and the specific accounts constructed by Alan Auerbach, Jagadeesh Gokhale, and Laurence Kotlikoff (1991). Although these accounts support the assertion of present-orientation in fiscal policy, they rest on numerous assumptions based on judgments that are open to question. These involve the treatment of the public budget constraint, the benefits from public exhaustive expenditures, economic and population projections, the discount rate, and fiscal incidence. Alternative and equally reasonable assumptions could yield radically different conclusions. The author concludes that the Auerbach, Gokhale, and Kotlikoff accounts should not replace the annual public budget, as they argue.