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Kotlikoff's Folly and the IMF's Too

letsgetitdone's picture

Laurence Kotlikoff has been making waves by using "inter-generational accounting" and CBO and IMF data, to compute a fiscal gap of $202 Trillion in present value. He concludes that this gap shows that the US is "bankrupt" as of now. Evidently, publications like Bloomberg take this sort of thing seriously since they publish it. But Modern Monetary Theory (MMT) economists, think it's nonsense, due to the inapplicability of inter-generational accounting to Governments sovereign in their own currency.

Mike Norman an MMT economist with a very good blog, got the chance to comment on Kotlikoff's views, and also some nonsense of Tim Geither's and President Obama's at

Mike has very emphatic views on Kotlikoff and inter-generational accounting. In addition, he doesn't think much of the plans of Geithner and Obama to base our US economy on austerity and exports. In fact, his broad smile at the very mention of these ideas, along with his comments, tell the whole story. The idea that the US can or should have an export-led economy anytime soon is a recipe for economic disaster for ordinary Americans. As Mike makes clear, it asks us to forego receiving real wealth and live in poverty, while we send our own real wealth to foreign nations in return for their own non-convertible currencies.

The fact that Obama would even entertain such a policy for America indicates how wrong-headed and foolish the thinking of he and his economic team are. Anyway, enjoy Mike's interview. He doesn't pull his punches.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

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Submitted by JuliaWilliams on

TY for that, lets, he really is dynamic!

letsgetitdone's picture
Submitted by letsgetitdone on

Thanks. Pretty commonsensical, too, isn't he?

Submitted by Randall Kohn on

For one thing, I never knew of him until now. For another, I think his pro-import stance conflicts directly with the need for an industrial policy - something he didn't address in the above clip.

letsgetitdone's picture
Submitted by letsgetitdone on

at his web site.

I don't know how Mike feels about industrial policy. I'm in favor of one, because we have to consider national security and long-term cultural wants and capability needs along with economic criteria.

That said, however, the willingness of other nations to sell us goods in return for electronic bits of information (not even paper currency anymore) adds to our real wealth, so as long as we maintain our capability to produce things ourselves against the day when other nations will recognize that this is a bad deal for them and raise the prices for their goods, we'll be OK.

I think the end game for this international trade process we're going through is the gradual decline in the appetites of other nations for USD. Then their prices will go up and it will once again be profitable to make things here. In the meantime we need to distribute the profits being made by American companies manufacturing overseas by raising taxes on these businesses and on rich individuals more generally. We have to recognize that if America as a whole is getting richer, because productivity is increasing, and more real wealth is coming in from abroad, that wealth has to be shared among our population.

The market system itself is not working to produce that sharing, so we have to allow the Government to do it by strengthening the social safety net and also by translating productivity into more private sector jobs by lowering standard work weeks. One very good job producing measure would be to require standard work weeks of 35 hours, while raising the minimum wage so workers have no loss of income.

There will be the usual arguments against this, but FDR proved that these are invalid by bringing in the 40 hour week in the middle of the Great Depression with nothing but positive effects. We can and should do this again.