New Releases by Laurence J. Kotlikoff

\"Drawing on the hard-nosed science of economics, years of research, and modern technological tools, Money Magic offers flexible, practical advice to help readers make costless financial moves that will leave them far richer, happier and safer than they might have dreamed\"--

Most economists differ, not on the causes of the Great Recession, but on their relative importance. They concur, though, on the basic problem, namely human, not market failure. This study applies the evidence, some new, some old, to re-try the usual suspects. It finds none guilty. Instead, it identifies broadly defined multiple equilibrium, mediated by opacity, false rumors, and panic, as the real culprit. There are many models of bank runs. But each can trigger firing runs - firing someone else's customers for fear that others are firing your customers. Firing runs, in turn, exacerbate bank runs, producing a vicious cycle. This cycle can be manipulated by those who benefit from economic distress (short sellers). If the banking system, not the banking players is the problem, the solution surely lies in fundamental banking reform. This paper concludes by pointing out that a reform that shifted to 100 percent, equity-financed mutual-fund banking with government-organized, real-time asset verification and disclosure could preclude financial runs and their ability to induce firing runs.

"In 2016, Social Security rules changed radically. Do you know how - and how these changes might apply to you? Americans have left literally billions of Social Security dollars on the table - benefits we have earned, are eligible to take, but simply aren't aware of. Fully revised and carefully updated in light of the new law, Get What's Yours is the indispensable guide to collecting the maximum Social Security benefits possible."--Page 4 of cover.

How America went bankrupt and how we can save ourselves—as a country and as individuals—from economic disaster. 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? InThe 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 acclaimedThe 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. https://www.youtube.com/watch?v=IMKw76lBn0k&feature=youtube_gdata_player

Discover how the global financial plague is poised to return, and what can be done to stop it This is not your father's financial system. Jimmy Stewart, the trustworthy, honest banker in the movie, It's a Wonderful Life, is dead. And so is his small-town bank, Bailey Savings & Loan. Instead, we're watching It's a Horrible Mess with Wall Street (aka the Vegas Strip) playing ever larger craps with our economy and our tax dollars. This book, written by one of the world's most respected economist, describes in lively, humorous, simple, but also deadly serious terms the big con underlying the big game?the web of interconnected financial, political, and regulatory malfeasance that culminated in financial meltdown and brought us to our economic knees. But it also proposes an amazingly simply solution?Limited Purpose Banking to make Wall Street safe for Main Street. This book, as well as the financial fix described within it, have received rave reviews from a veritable who's who of policymakers and economics, plus five economics Nobel Laureates Written by a leading economist whose insights on this topic are unparalleled Outlines the first and only proposal to fundamentally fix our financial disaster for good Jimmy Stewart Is Dead will fundamentally change the way you think about the economy, financial markets, and the government.

China's high savings rate and low consumption rate have become a major concern of policy-makers in China, as well as in the rest of the world. This paper integrates China's demographic and national account data with age and sex profiles of household consumption- and labor earnings to project China's national savings through 2030. Our baseline projections show that China's wealth in 2030 would be 28-fold of its wealth in 2008. A lower rate of wealth accumulation (say 12% instead of the projected average of 16%) would increase consumption by 46%. While this lowering of the savings rate could reduce China's high trade surpluses, it comes at the expense of lower consumption for future generations - a justifiable action only if the revealed rate of time preference is actually lower than the true time preference rate of Chinese society. Perhaps, a better solution for China's trade surpluses is to greatly increase the amount of imported physical and human capital goods, i.e. to hold more of its wealth inside China. The spillover of China's savings to abroad could reflect more the failure of China's dysfunctional financial markets to intermediate the savings into investments and less the irrationality of Chinese savings behavior.

Rich or poor, young or old, high school or college grad, this book, written by economist Laurence J. Kotlikoff and syndicated financial columnist Scott Burns, can change your life for the better! If you follow the advice in this book, it will raise your living standard (possibly by a lot), improve your lifestyle, and help you spend 'til the end. And it will completely transform your financial thinking, turning every bit of conventional financial wisdom on its head. If this sounds like a revolution in financial planning, you got it. So do The New York Times, The Washington Post, The Wall Street Journal, USA Today, Time, Consumer Reports, and other top publications that have been featuring the authors' economics-based "consumption smoothing" approach to financial planning. Spend 'Til the End substitutes economic wisdom for the "rules of dumb" that currently pass for financial advice. In the process it indicts the investment and financial-planning industry for giving most people saving and insurance targets that are much too high and then convincing them to invest in risky mutual funds and expensive insurance policies. The result is that most people are scrimping and saving during the years when they could be spending and enjoying their money -- and with no sure payoff. Easy to read, this book is packed with practical and often shocking advice on whether to work, how to pick a career, which job to take, where to live, what sort of house to buy, how much to save, when to retire, which kind of retirement account to use, whether to have kids, whether to divorce, when to take Social Security, how fast to spend down your assets in retirement, and how to invest.

For anyone with an interest in pensions—workers and employers, personnel directors, accountants, actuaries, lawyers, insurance agents, financial analysts, government officials, and social scientists—this book is required reading. Now, without the aid of a pension specialist, anyone can determine how their particular pension plan stacks up against the average. Using virtually all available government sources (including computerized data unavailable in print) and their own extensive surveys, the authors present a comprehensive description of the structural features and financial conditions of U.S. private, state, city, and municipal pension plans. The introductions to the hundreds of tables explain and highlight the information. The picture that emerges of the "typical" plan and its significant variations is crucial to all those with a financial stake in pensions. The reader can compare pension vesting, retirement, and benefit provisions by plan type, plan size, industry, union status, and many more characteristics. With this information, workers can evaluate just how generous their employer is; job applicants can compare fringe benefits of prospective employers; personnel directors can judge their competitive edge. The financial community will find especially interesting the analysis of the unfunded liabilities of private, state, and local pension funds. The investment decisions of private and public pension funds and their return performances are described as well. Government officials and social scientists will find the analysis of pension coverage, the receipt of pension income by the elderly, cost-of-living adjustments, and disability insurance of special importance in evaluating the proper degree of public intervention in the area of old age income support. Pensions in the American Economy is comprehensive and easy to use. Every reader, from small-business owners and civil servants to pension fund specialists, will find in it essential information about this increasingly important part of labor compensation and retirement finances.

A simple, straightforward, and foolproof proposal for universal health insurance from a noted economist. 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 medicine" 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.

AS URGENT AS EVER: Nonpartisan policy recommendations and personal strategies for protecting against skyrocketing tax rates, reduced benefits, high inflation, and ruined currency. “Lays out in easy-to-understand prose why Social Security and Medicare need a comprehensive overhaul.” —Los Angeles Times 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% 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, we’ll see skyrocketing tax rates, drastically lower retirement and health benefits, high inflation, a rapidly depreciating dollar, unemployment, and political instability. But 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 the baby boomers and the “fiscal child abuse” that will double the taxes paid by the next generation. There’s also the “deficit delusion” of the under-reported national debt. None of this will be solved by any of the popularly touted remedies: cutting taxes, technological progress, immigration, foreign investment, or the elimination of wasteful government spending. So, how can the 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. Kotlikoff and Burns also offer a “life jacket”—guidelines for individuals to protect their financial health and retirement. This paperback edition has been revised and updated and includes a new foreword by the authors.

"This paper develops a dynamic, life-cycle, general equilibrium model to study the interdependent demographic, fiscal, and economic transition paths of China, Japan, the U.S., and the EU. Each of these countries/regions is entering a period of rapid and significant aging requiring major fiscal adjustments. In previous studies that excluded China we predicted that tax hikes needed to pay benefits along the developed world's demographic transition would lead to capital shortage, reducing real wages per unit of human capital. Adding China to the model dramatically alters this prediction. Even though China is aging rapidly, its saving behavior, growth rate, and fiscal policies are very different from those of developed countries. If this continues to be the case, the model's long run looks much brighter. China eventually becomes the world's saver and, thereby, the developed world's savoir with respect to its long-run supply of capital and long-run general equilibrium prospects. And, rather than seeing the real wage per unit of human capital fall, the West and Japan see it rise by one fifth by 2030 and by three fifths by 2100. These wage increases are over and above those associated with technical progress"--National Bureau of Economic Research web site.

This paper compares marginal and average tax rates on working and saving under our current federal tax system with those that would arise under a federal retail sales tax, specifically the FairTax. The FairTax would replace the personal income, corporate income, payroll, and estate and gift taxes with a 23 percent effective retail sales tax plus a progressive rebate. The 23 percent rate generates more revenue than the taxes it replaces, but the rebate's cost necessitates scaling back non-Social Security expenditures to their 2000 share of GDP. The FairTax's effective marginal tax on labor supply is 23 percent. Its effective marginal tax on saving is zero. In contrast, for the stylized working households considered here, current effective marginal labor taxes are higher or much higher than 23 percent. Take our stylized 45 year-old, married couple earning $35,000 per year with two children. Given their federal tax bracket, the claw-back of the Earned Income Tax Credit, and the FICA tax, their marginal tax is 47.6 percent. The FairTax imposes a zero marginal tax on saving meaning that reducing this year's consumption by a dollar permits one to increase the present value of future consumption by a dollar. In contrast, the existing federal tax system imposes very high marginal taxes on future consumption. For our stylized working households foregoing a dollar's consumption this year to uniformly raise consumption in all future years raises the present value of future consumption by only 45.8 to 77.4 cents, i.e., the effective marginal tax rates on uniformly raising future consumption via saving facing our households ranges from 22.6 percent to 54.2 percent. The FairTax also reduces most of our stylized households' remaining average lifetime tax rates - and, often, by a lot. Consider our stylized 30 year-old, single household earning $50,000. The household's average remaining lifetime tax rate under the curren.

How generational policy affects the sustainability of a government's fiscal policy. In these eight 2002 Cairoli Lectures, presented at the Universidad Torcuato di Tella in Buenos Aires, Argentina, Laurence Kotlikoff shows how generational policy works, how it is measured, and how much it matters. Kotlikoff discusses the incidence and measurement of generational policy, the relationship of generational policy to monetary policy, and the vacuity of deficits, taxes, and transfer payments as economic measures of fiscal policy. Kotlikoff also illustrates generational policy's general equilibrium effects with a dynamic life-cycle simulation model and reviews the empirical evidence testing intergenerational altruism and risk sharing. The lectures were delivered as Argentina faced a devastating depression triggered, in large part, by unsustainable generational policy. Throughout the book, Kotlikoff connects his messages about generational policy to the Argentine situation and the Argentine government's policy mistakes.

This book examines a number of important determinants of wealth accumulation, including retirement bequests, and precautionary saving motives, demographics, the tax structure, social security, and insurance institutions.

"The developed word stands at the fore of a phenomenal demographic transition. Over the next 30 years the number of elderly in the U.S., the EU, and Japan will more than double. At the same time, the number of workers available to pay the elderly their government-guaranteed pension and health care benefits will rise by less than 10 percent. The fiscal implications of these two demographic trends are alarming. Paying promised benefits will, it appears, require a doubling or more of payroll tax rates. This paper asks if there is a silver lining in this dark cloud hanging over the developed world. Specifically, can the developed economies hope to be bailed out by either macroeconomic feedback effects of by increased migration? To address these questions, this paper develops and simulates a dynamic, intergeneration, and interregional demographic life-cycle model. The model has three regions the U.S. Japan which exchange goods and capital. The model features immigration, age-specific fertility, life span extension, life span uncertainty, bequests arising from incomplete annuitization, and intra-cohort heterogeneity. Other things equal, one would expect the aging of the developed economies to increase capital per worker as the number of suppliers of capital (the old) rises relative to the number of suppliers of labor (the young). But given the need to pay the elderly their benefits, other things are far from equal. According to our simulations, the tax hikes needed to finance benefits along the demographic transition path generate a major capital shortage that lowers real wages by 19 percent and raises real interest rates by over 400 basis points. Hence, far from mitigating the developed world's fiscal problems, macroeconomic feedback effects make matters significantly worse. The simulations also show that increased immigration does very little to mitigate the fiscal stresses facing the developed world. On the other hand, there are policies that can materially improve the developed world's long-term prospects. The one examined here is closing down, at the margin, existing government pension systems and using consumption taxes to pay off those program's accrued liabilities. This policy could be coupled with the establishment of a fully funded mandatory individual saving system. According to our simulations, this policy would impose modest welfare losses on current generations, but generate enormous welfare gains for future generations. Future Europeans and Japanese benefit the most. Their net wages almost triple, and their welfare levels double compared with the no-reform scenario"--NBER website

This collection of essays, coauthored with other distinguished economists, offers new perspectives on saving, intergenerational economic ties, retirement planning, and the distribution of wealth. The book links life-cycle microeconomic behavior to important macroeconomic outcomes, including the roughly 50 percent postwar decline in America's rate of saving and its increasing wealth inequality. The book traces these outcomes to the government's five-decade-long policy of transferring, in the form of annuities, ever larger sums from young savers to old spenders. The book presents new theoretical and empirical analyses of altruism that rule out the possibility that private intergenerational transfers have offset those by the government.While rational life-cycle behavior can explain broad economic outcomes, the book also shows that a significant minority of households fail to make coherent life-cycle saving and insurance decisions. These mistakes are compounded by reliance on conventional financial planning tools, which the book compares with Economic Security Planner (ESPlanner), a new life-cycle financial planning software program. The application of ESPlanner to U.S. data indicates that most Americans approaching retirement age are saving at much lower rates than they should be, given potential major cuts in Social Security benefits.

ESPlanner revolutionizes financial planning. Traditional financial planning makes people set their own saving and life insurance targets. This is hard and, if people set their targets too low, dangerous. ESPlanner finds the right targets by doing life cycle consumption smoothing -- finding the most a person can spend today without suffering a drop in living standard tomorrow. ESPlanner not only calculates a family''s highest sustainable living standard, it also determines the amounts of saving and life insurance it needs to maintain and protect that living standard through time. ESPlanner delivers its findings in the form of annual spending, saving, and insurance recommendations. Whether people are working or retired, maximizing and smoothing their household''s living standard is not easy. Many factors are involved, including the household''s composition, assets, earnings, retirement ages, housing expenses and plans, special expenditures, estate plans, pensions, tax-favored assets, federal and state income taxes, payroll taxes, Social Security retirement and survivor benefits, desired changes in living standard, economies in shared living, and borrowing constraints. ESPlanner considers these and a host of other factors, including contingent plans and the fact that survivors may have different needs and incomes. ESPlanner also lets individuals vary key inputs, such as the ages at which they will retire, collect Social Security retirement benefits, and start to withdraw tax-deferred assets, to determine how these choices affect their maximum sustainable living standard. Although its calculations are complex, ESPlanner''s interface is user-friendly, and its recommendations are easy to follow.

Many undergraduate texts treat macroeconomics as a set of distinct topics rather than as a unified body of theory and empirical findings. In contrast, this text by Alan Auerbach and Laurence Kotlikoff uses a single analytic framework—the two-period life-cycle model—to explore and connect each of the major issues in contemporary macroeconomics. The model describes the evolution of the economy over time in terms of the behavior of overlapping generations of individuals, each of whom lives for two periods: youth and old age. This versatile framework can encompass most macroeconomic schools of thought through the alteration of key assumptions. The use of one basic model also allows the authors to explore important topics not always addressed adequately in other texts; these include credit constraints, real business cycles, generational accounting, and international capital flows markets. Written in a clear, accessible style, this shortened and simplified second edition provides a systematic way to interpret macroeconomic outcomes, to understand various policy proposals, and to appreciate how individuals and firms fit into the big picture.

Since 1980, the U.S. net national saving rate has averaged less than half the rate observed in the 1950s and 60s. This paper develops a unique cohort data set to study the decline in U.S. national saving. It decomposes postwar changes in U.S. saving into those due to changes in cohort-specific consumption propensities, those due to changes in the intergenerational distribution of resources, those due to changes in government spending on goods and services, and those due to changes in demographics. Our findings are striking. The decline in U.S. saving can be traced to two factors: The redistribution of resources from young and unborn generations with low or zero propensities to consume toward older generations with high consumption propensities, and a significant increase in the consumption propensities of older Americans. Most of the redistribution to the elderly reflects the growth in Social Security, Medicare, and Medicaid benefits. The increase in the elderly's consumption propensities may also reflect government policy, namely the fact that Social Security, Medicare, and Medicaid benefits are paid in the form of annuities and that, in the case of Medicare and Medicaid, the annuities are in-kind and must, therefore, be consumed.

Written in a clear, accessible style, this shortened and simplified second edition provides a systematic way to interpret macroeconomic outcomes, to understand various policy proposals, and to appreciate how individuals and firms fit into the big picture.

In an effort to bring all generations to an understanding of the American economy, Laurence Kotlikoff shares information of the budget deficit of the United States government. Generational Accounting strives to educate readers on how the economy of the United States American functions, from explaining who pays for the goods and services the nation receives to when it must be paid, and just how much money goes to it. Kotlikoff analyzes how the government’s budget deficit is the cornerstone of conventional economic policy and argues that it is a number devoid of economic content, often used to lead the American people astray. “Read it and you’ll be on the cutting edge of future debates on fiscal policy.” – Fortune

This paper examines changes over time in the degree to which the resources (human plus nonhuman wealth) of the elderly have been annuitized. Using data from the 1962 and 1983 Federal Reserve Surveys of Consumer Finances we find evidence of an increase in annuitization which is particularly pronounced among the older elderly (those over 75) and among women. The estimated 1983 flow of aggregate bequests to children and grandchildren would have been 20% larger were it not for this increase in annuitization. The change in annuitization may have contributed significantly to the recent decline of the U.S. national saving rate.

What is the basic economic decision-making unit? Is it the household or the extended family? This question is fundamental to economic analysis and policy design. The answer given by the Life Cycle and Keynesian models is that the economic unit is the household. According to these models, members of particular households act selfishly and do not fully share resources with extended family members in other households. Hence, altering the distribution of resources across households within the extended family will alter the consumption and labor supply of those households who acquire or lose resources. In contrast to the Life Cycle and Keynesian models, the altruism model implies that the extended family is the basic economic decision-making unit. According to this model the extended family is linked through altruism and, as a result, acts as if it fully shares resources. In the altruism model nondistortionary changes in the distribution of resources across households within the extended family will have no effect on the consumption or labor supply of any of its members. Despite its importance, the boundaries of economic decision-making units have not, to our knowledge, been examined directly with micro data. Stated differently, the altruism model has not been tested against the Life Cycle and Keynesian alternatives with such data. This paper uses matched data on parents and their adult children, contained in the Panel Study of Income Dynamics, to perform such a test. In essence our test asks whether the distribution of consumption and labor supply across households within the extended family depends on the distribution of resources across households within the extended family. Our findings provide quite strong evidence against the altruism model. The distribution of resources across households within the extended family is a highly significant (statistically and economically) determinant of the distribution of onsumption within the extended family. This finding holds for the entire sample as well as the subsample consisting of rich parents and poor children. In addition to showing that the distribution of extended family resources matters for extended family consumption, we test the life cycle model by asking whether only own resources matter, i.e., whether the resources of extended family members have no affect on a household's consumption. Our results indicate that extended family member resources have, at most, a modest effect on household consumption after one has controlled for the fact that extended family resources help predict a household's own permanent income.