LoungeMachine
07-12-2006, 11:04 PM
Originally posted by Hardrock69
YOU post the docs.
Let me see you post a .pdf file in this thread.
Come on....
I am waiting....
*HR69 waits patiently*
:cool:
Okay smartass......
It took me all of 15 seconds:rolleyes:
Is the United States Bankrupt?
Laurence J. Kotlikoff
the financial markets have a long and impressive
record of mispricing securities; and that financial
implosion is just around the corner.
This paper explores these views from both
partial and general equilibrium perspectives. The
second section begins with a simple two-period
life-cycle model to explicate the economic meaning
of national bankruptcy and to clarify why
government debt per se bears no connection to a
country’s fiscal condition. The third section turns
to economic measures of national insolvency,
namely, measures of the fiscal gap and generational
imbalance. This partial-equilibrium analysis
strongly suggests that the U.S. government is,
indeed, bankrupt, insofar as it will be unable to
pay its creditors, who, in this context, are current
and future generations to whom it has explicitly
or implicitly promised future net payments of
various kinds.
The world, of course, is full of uncertainty.
The fourth section considers how uncertainty
changes one’s perspective on national insolvency
and methods of measuring a country’s long-term
fiscal condition. The fifth section asks whether
immigration or productivity improvements arising
either from technological progress or capital
Is the U.S. bankrupt? Or to paraphrase the
Oxford English Dictionary, is the United
States at the end of its resources, exhausted,
stripped bear, destitute, bereft, wanting in
property, or wrecked in consequence of failure
to pay its creditors?
Many would scoff at this notion. They’d point
out that the country has never defaulted on its
debt; that its debt-to-GDP (gross domestic product)
ratio is substantially lower than that of Japan and
other developed countries; that its long-term
nominal interest rates are historically low; that
the dollar is the world’s reserve currency; and
that China, Japan, and other countries have an
insatiable demand for U.S. Treasuries.
Others would argue that the official debt
reflects nomenclature, not fiscal fundamentals;
that the sum total of official and unofficial liabilities
is massive; that federal discretionary spending
and medical expenditures are exploding; that the
United States has a history of defaulting on its
official debt via inflation; that the government has
cut taxes well below the bone; that countries holding
U.S. bonds can sell them in a nanosecond; that
Is the United States bankrupt? Many would scoff at this notion. Others would argue that financial
implosion is just around the corner. This paper explores these views from both partial and general
equilibrium perspectives. It concludes that countries can go broke, that the United States is going
broke, that remaining open to foreign investment can help stave off bankruptcy, but that radical
reform of U.S. fiscal institutions is essential to secure the nation’s economic future. The paper
offers three policies to eliminate the nation’s enormous fiscal gap and avert bankruptcy: a retail
sales tax, personalized Social Security, and a globally budgeted universal healthcare system.
Federal Reserve Bank of St. Louis Review, July/August 2006, 88(4), pp. 235-49.
Laurence J. Kotlikoff is a professor of economics at Boston University and a research associate at the National Bureau of Economic Research.
© 2006, The Federal Reserve Bank of St. Louis. Articles may be reprinted, reproduced, published, distributed, displayed, and transmitted in
their entirety if copyright notice, author name(s), and full citation are included. Abstracts, synopses, and other derivative works may be made
only with prior written permission of the Federal Reserve Bank of St. Louis.
FEDERAL RESERVE BANK OF ST. LOUIS REVIEW JULY/AUGUST 2006 235
deepening can ameliorate the U.S. fiscal condition.
While immigration shows little promise, productivity
improvements can help, provided the government
uses higher productivity growth as an
opportunity to outgrow its fiscal problems rather
than perpetuate them by effectively indexing
expenditure levels to the level of productivity.
We certainly have seen major changes in
technology in recent decades, and these changes
have coincided with major increases in measured
productivity. But whether or not technology will
continue to advance is an open question. There is,
however, a second source of productivity improvements,
namely, a rise in capital per worker (capital
deepening), to consider. The developed world is
not saving enough and will not be saving enough
to generate capital deepening on its own. However,
China is saving and growing at such extraordinarily
high rates that it can potentially supply the
United States, the European Union, and Japan
with huge quantities of capital. This message is
delivered in Fehr, Jokisch, and Kotlikoff (2005),
which simulates the dynamic transition path of
the United States, Japan, the European Union, and
China. Their model suggests that China can serve
as America’s saver and, consequently, savior,
provided the U.S. government lets growth outpace
its spending and provided China is permitted to
invest massive sums in our country. Unfortunately,
recent experience suggests just the opposite.
The final section offers three radical policies
to eliminate the nation’s enormous fiscal gap and
avert bankruptcy. These policies would replace
the current tax system with a retail sales tax,
personalize Social Security, and move to a globally
budgeted universal healthcare system implemented
via individual-specific health-insurance
vouchers. The radical stance of these proposals
reflects the critical nature of our time. Unless the
United States moves quickly to fundamentally
change and restrain its fiscal behavior, its bankruptcy
will become a foregone conclusion.
FISCAL INSOLVENCY IN A
TWO-PERIOD LIFE-CYCLE MODEL
Consider a model in which a single good—
corn—is produced with labor and capital in either
an open or closed economy. Corn can be either
consumed or used as capital (planted to produce
more corn). Agents work full time when young
and consume when old. There is no change over
time in either population or technology. The population
of each cohort is normalized to 1.
Let wt stand for the wage earned when young
by the generation born in year t, rt for the return
on capital at time t, and ht for the amount the
government receives from the young and hands
to the old at time t.
The generation born at time t maximizes its
consumption when old, ct + 1, subject to
(1)
If the economy of this country, called
Country X, is open and agents are free to borrow,
ht can exceed wt. However, consumption can’t be
negative, hence,
(2)
The left-hand side of (2) is generation t’s remaining
(in this case, entire) lifetime fiscal burden—
its generational account. Equation (2) says that
the government can’t extract more from a generation
than its lifetime resources, which, in this
model, consists simply of lifetime earnings.
Suppose that, to keep things simple, the
economy is small and open and that the wage
and interest rates are positive constants equal to
w and r, respectively. Also suppose that starting
at some time, say 0, the government announces a
policy of setting ht equal to h forever and that
(3)
meaning that the generational accounts of all
generations starting with the one born at time 0
exceed their lifetime resources.
The old at time 0 have a generational account
(remaining lifetime fiscal burden) of –h. These
oldsters, who may have voted for the government
based on the promise of receiving h, represent the
creditors in this context. But the government can’t
deliver on its promise. The young may be fanatically
devoted to the government, worship the
h
h
r
w t −
+
>
1
,
h
h
r
w t
t
t
t −
+
+ £
+
1
1 1
.
c
r
w h
h
r
t
t
t t
t
t
+
+
+
+ +
£ − ++
1
1
1
1 1 1
.
Kotlikoff
236 JULY/AUGUST 2006 FEDERAL RESERVE BANK OF ST. LOUIS REVIEW
elderly, and care little for themselves, but they
cannot beg, borrow, or steal this much corn to give
to the government. The government can go hat in
hand to foreign lenders, but to no avail. Foreign
lenders will realize the government won’t be able
to repay.
The most the government can do for the elderly
is to set h equal to (1 + r)w/r. Let’s assume the
government does this. In this case, the government
impoverishes each generation of young from
time 0 onward in order to satisfy the claims of
time-0 oldsters. In the words of the Oxford English
Dictionary, we have a country at the end of its
resources. It’s exhausted, stripped bear, destitute,
bereft, wanting in property, and wrecked (at least
in terms of its consumption and borrowing capacity)
in consequence of failure to pay its creditors.
In short, the country is bankrupt and is forced to
reorganize its operations by paying its creditors
(the oldsters) less than they were promised.
Facing the Music
The point at which a country goes bankrupt
depends, in general, on its technology and preferences
as well as its openness to international trade.
If, for example, agents who face confiscatory lifetime
fiscal burdens refuse to work, there will be
no lifetime resources for the government to appropriate.
Consequently, the government must further
limit what it can pay its creditors.
As a second example, consider what happens
when an open economy, which has been transferring
(1 + r)w/r to the elderly on an ongoing basis,
suddenly, at time 0, becomes closed to international
trade and credit. In this case, the government
can no longer pay the contemporaneous
elderly the present value of the resources of all
current and future workers. Instead, the most it
can pay the time-t elderly is the current young’s
resources, namely wt. The reason is simple. The
time-t young have no access to foreign loans, so
they can’t borrow against their future receipt of
h in order to hand the government more at time t
than wt.
Clearly the loss of foreign credit will require
the government to renege on much of its commitment
to the time-t oldsters. And if the government
was initially setting h below (1+ r)w/r, but above
wt, the inability to borrow abroad will plunge the
country into bankruptcy, assuming the government
sets h as high as possible. But bankruptcy may
arise over time even if h is set below w0. To see
this, note that capital per worker at time 1, k1, will
equal w0 – h. If w(k1) < w0, where w(kt) (with
w¢( ) > 0) references the wages of generation t,
the country will find itself in a death spiral for
sufficiently high values of h or sufficiently low
values of w0.1 Each period’s capital stock will be
smaller than the previous period’s until t*, where
h $ wt*, making kt*+1 = 0, at which point the jig
is up, assuming capital as well as labor is required
to produce output.
In short, general equilibrium matters. A policy
that looks sustainable based on current conditions
may drive a country broke and do so on a permanent
basis. Of course, policymakers may adjust
their policies as they see their country’s output
decline. But they may adjust too little or too late
and either continue to lose ground or stabilize
their economies at very unpleasant steady states.
Think of Argentina, which has existed in a state
of actual or near-bankruptcy for well neigh a
century. Argentina remains in this sorry state for
a good reason. Its creditors—primarily each successive
generation of elderly citizens—force the
government to retain precisely those policies that
perpetuate the country’s destitution.
Does Official Debt Record or Presage
National Bankruptcy?
Since general equilibrium considerations
play a potentially critical role in assessing policy
sustainability and the likelihood of national bankruptcy,
one would expect governments to be hard
at work developing such models or, at a minimum,
doing generational accounting to see the potential
burden facing current young and future generations.
That’s not the case. Instead, governments
Kotlikoff
FEDERAL RESERVE BANK OF ST. LOUIS REVIEW JULY/AUGUST 2006 237
1 If h is sufficiently large, there will be no steady state of the economy
featuring a positive capital stock. In this case, the economy’s capital
stock will converge to zero over time, starting from any initial
value of capital. If h is not so large as to preclude a steady state
with positive capital, the economy will feature two steady states,
one stable and one unstable. The capital stock in the stable steady
state will exceed that in the unstable steady state. In this case, the
economy will experience a death spiral only if its initial capital
stock is less than that in the unstable steady state.
around the world rely on official debt as the
primary indicator of fiscal solvency. So do the
International Monetary Fund, World Bank,
Organisation for Economic Co-operation and
Development, and virtually all other monitors
of economic policy, including most academic
economists.
Unfortunately, the focus on government debt
has no more scientific basis than reading tea leaves
or examining entrails. To see this, let’s return to
our small open and entirely bankrupt Country X,
which, when we left it, was setting h at the maximally
expropriating value of (1+ r)w/r. Can we
use Country X’s debt to discern its insolvency?
Good question, particularly because the word
“debt” wasn’t used at all in describing Country X’s
fiscal affairs. Neither, for that matter, were the
words “taxes” or “transfer payments.” This, by
itself, indicates the value of “debt” as a precursor
or cursor of bankruptcy, namely, zero. But to drive
the point home, suppose Country X calls the h it
takes from the young each period a “tax” and the
“h” it gives to the old each period a “transfer payment.”
In this case, Country X never runs a deficit,
never has an epsilon worth of outstanding debt,
and never defaults on debt. Even though it is as
broke as broke can be, Country X can hold itself
out as debt-free and a model of fiscal prudence.
Alternatively, let’s assume the government
continues to call the h it gives the time-0 elderly
a transfer payment, but that it calls the h it takes
from the young in periods t $ 0 “borrowing of
mth less a transfer payment of (mt – 1)h” and the
h it gives generation t when it is old at time t +1
“repayment of principal plus interest in the
amount of mth(1+r) less a net tax payment of
–h + mth(1+r).” Note that no one’s generational
account is affected by the choice of language. However,
the outstanding stock of debt at the end of
each period t is now mth.
The values of mt can be anything the government
wants them to be. In particular, the government
can set (use words such that)
(4)
In this case, official debt is negative; i.e., the
m m g m t+= t(+ ) = − g>r 1 0 1 , 1, and .
government “runs” a surplus that becomes infinitely
large relative to the size of the economy.
And because g > r, the present value of the time-t
surplus as t goes to infinity is infinite.
Alternatively, the government can set (use
words such that) mt+1 = m(1+ g), m0 = 1, and g > r.
In this case, official debt becomes infinitely large
and the present value of government debt at time
t as t goes to infinity is infinite. So much for the
transversality condition on government debt!
Thus, the government of bankrupt Country X
is free to say it’s running a balanced budget policy
(by saying mt – 0 for t $ 0); a surplus policy, where
the surplus becomes enormous relative to the size
of the economy; or a debt policy, where the debt
becomes enormous relative to the size of the
economy. Or it could pick values of the mts that
change sign from one period to the next or, if it
likes, on a random basis. In this case, Country X
would “run” deficits as well as “surpluses”
through time, with no effect whatsoever on the
economy or the country’s underlying policy.
But no one need listen to the government.
Speech, or at least thought, is free. Each citizen of
Country X, or of any other country for that matter,
can choose her own language (pattern of the mts)
and pronounce publicly or whisper to herself that
Country X is running whatever budgetary policy
most strikes her fancy. Citizens schooled on
Keynesian economics as well as supply siders,
both of whom warm to big deficits, can choose
fiscal labels to find fiscal bliss. At the same time,
Rockefeller Republicans (are there any left and
do they remember Rocky?) can soothe their souls
with reports of huge surpluses and fiscal sobriety.
To summarize, countries can go bankrupt,
but whether or not they are bankrupt or are going
bankrupt can’t be discerned from their “debt”
policies. “Debt” in economics, like distance and
time in physics, is in the eyes (or mouth) of the
beholder.2
Kotlikoff
238 JULY/AUGUST 2006 FEDERAL RESERVE BANK OF ST. LOUIS REVIEW
2 By economics, I mean neoclassical economics in which neither
agents nor economic institutions are affected by language. Kotlikoff
(2003) provides a longer treatment of this issue, showing that the
vapidity of conventional fiscal language is in no way mitigated by
considerations of uncertainty, time consistency, distortions, liquidity
constraints, or the voluntary nature of payments to the government.
ECONOMIC MEASUREMENT OF
THE U.S. FISCAL CONDITION
As suggested above, the proper way to consider
a country’s solvency is to examine the lifetime
fiscal burdens facing current and future
generations. If these burdens exceed the resources
of those generations, get close to doing so, or simply
get so high as to preclude their full collection,
the country’s policy will be unsustainable and
can constitute or lead to national bankruptcy.
Does the United States fit this bill? No one
knows for sure, but there are strong reasons to
believe the United States may be going broke.
Consider, for starters, Gokhale and Smetters’s
(2005) analysis of the country’s fiscal gap, which
measures the present value difference between
all future government expenditures, including
servicing official debt, and all future receipts. In
calculating the fiscal gap, Gokhale and Smetters
use the federal government’s arbitrarily labeled
receipts and payments. Nevertheless, their calculation
of the fiscal gap is label-free because alternative
labeling of our nation’s fiscal affairs would
yield the same fiscal gap. Indeed, determining
the fiscal gap is part of generational accounting;
the fiscal gap measures the extra burden that
would need to be imposed on current or future
generations, relative to current policy, to satisfy
the government’s intertemporal budget constraint.
The Gokhale and Smetters measure of the
fiscal gap is a stunning $65.9 trillion! This figure
is more than five times U.S. GDP and almost twice
the size of national wealth. One way to wrap one’s
head around $65.9 trillion is to ask what fiscal
adjustments are needed to eliminate this red hole.
The answers are terrifying. One solution is an
immediate and permanent doubling of personal
and corporate income taxes. Another is an immediate
and permanent two-thirds cut in Social
Security and Medicare benefits. A third alternative,
were it feasible, would be to immediately
and permanently cut all federal discretionary
spending by 143 percent.
The Gokhale and Smetters study is an update
of an earlier, highly detailed, and extensive U.S.
Department of the Treasury fiscal gap analysis
commissioned in 2002 by then Treasury Secretary
Paul O’Neill. Smetters, who served as Deputy
Assistant Secretary of Economic Policy at the
Treasury between 2001 and 2002, recruited
Gokhale, then Senior Economic Adviser to the
Federal Reserve Bank of Cleveland, to work with
him and other Treasury staff on the study. The
study took close to a year to organize and complete.
Gokhale and Smetters’s $65.9 trillion fiscalgap
calculation relies on the same methodology
employed in the original Treasury analysis. Hence,
one can legitimately view this figure as our own
government’s best estimate of its present-value
budgetary shortfall. The $65.9 trillion gap is all
the more alarming because its calculation omits
the value of contingent government liabilities
and relies on quite optimistic assumptions about
increases over time in longevity and federal
healthcare expenditures.
Take Medicare and Medicaid spending, for
example. Gokhale and Smetters assume that the
growth rate in these programs’ benefit levels
(expenditures per beneficiary at a given age) in
the short and medium terms will be only 1 percentage
point greater than the growth rate of real
wages per worker. In fact, over the past four years,
real Medicare benefits per beneficiary grew at an
annual rate of 3.51 percent, real Medicaid benefits
per beneficiary grew at an annual rate of 2.36
percent, and real weekly wages per worker grew
at an annual rate of 0.002 percent.3
Medicare and Medicaid’s benefit growth over
the past four years has actually been relatively
modest compared with that in the past. Table 1,
taken from Hagist and Kotlikoff (forthcoming),
shows real benefit levels in these programs grew
at an annual rate of 4.61 percent between 1970
and 2002. This rate is significantly higher than
that observed during the same period in Germany,
Japan, and the United Kingdom. Given the introduction
of the new Medicare prescription drug
benefit, which will start paying benefits in 2006,
one can expect Medicare benefit growth to
increase substantially in the near term.
Kotlikoff
FEDERAL RESERVE BANK OF ST. LOUIS REVIEW JULY/AUGUST 2006 239
3 See www.cms.hhs.gov/researchers/pubs/datacompendium/2003/
03pg4.pdf from the Centers for Medicare and Medicaid website
and http://a257.g.akamaitech.net/7/257/2422/17feb20051700/
www.gpoaccess.gov/eop/2005/B47.xls from the 2005 Economic
Report of the President.
How are the Bush administration and Congress
planning to deal with the fiscal gap? The answer,
apparently, is to make it worse by expanding
discretionary spending while taking no direct
steps to raise receipts. The costs of hurricanes
Katrina and Rita could easily total $200 billion
over the next few years. And the main goal of the
President’s tax reform initiative will likely be to
eliminate the alternative minimum tax.
This administration’s concern with long-term
fiscal policy is typified by the way it treated the
Treasury’s original fiscal gap study. The study
was completed in the late fall of 2002 and was
slated to appear in the president’s 2003 budget
to be released in early February 2003. But when
Secretary O’Neill was ignominiously fired on
December 6, 2002, the study was immediately
censored. Indeed, Gokhale and Smetters were told
within a few days of O’Neill’s firing that the study
would not appear in the president’s budget. The
timing of these events suggests the study itself
may explain O’Neill’s ouster or at least the timing
of his ouster. Publication of the study would, no
doubt, have seriously jeopardized the passage of
the administration’s Medicare drug benefit as well
as its third tax cut.
For their part, the Democrats have studiously
avoided any public discussion of the country’s
long-term fiscal problems. Senator Kerry made
no serious proposals to reform Social Security,
Medicare, or Medicaid during the 2004 presidential
campaign. And his Democratic colleagues
in Congress have evoked Nancy Reagan’s mantra—
“Just say no!”—in response to the president’s
repeated urging to come to grips with Social
Security’s long-term financing problem.
The Democrats, of course, had eight long years
under President Clinton to reform our nation’s
most expensive social insurance programs. Their
failure to do so and the Clinton administration’s
censorship of an Office of Management and
Budget generational accounting study, which was
slated to appear in the president’s 1994 budget,
speaks volumes about the Democrats’ priorities
and their likely future leadership in dealing with
our nation’s fiscal fiasco.
The fiscal irresponsibility of both political
parties has ominous implications for our children
and grandchildren. Leaving our $65.9 trillion bill
for today’s and tomorrow’s children to pay will
roughly double their average lifetime net tax rates
(defined as the present value of taxes paid net of
transfer payments received divided by the present
value of lifetime earnings).
Table 2, taken from Gokhale, Kotlikoff, and
Sluchynsky (2003), presents the average lifetime
net tax rates now facing couples who are 18 years
of age and work full time. The calculations incorporate
all major tax and transfer programs and
assume that the couples work full time through
age 64, experience a 1 percent annual real earnings
growth, have children at ages 25 and 27, purchase
a house scaled to their earnings, and pay college
tuition scaled to their earnings. The table shows
that average lifetime net tax rates are already
fairly high for middle and high earners, who, of
course, pay the vast majority of total taxes.
The table also presents marginal net work tax
rates. These are not marginal tax rates on working
full time (versus not working at all). They are
not marginal net tax rates on working additional
hours. They are computed by comparing the
present value of additional lifetime spending one
can afford from working full time each year from
age 18 through age 64 and paying net taxes with
the present value of additional lifetime spending
Kotlikoff
240 JULY/AUGUST 2006 FEDERAL RESERVE BANK OF ST. LOUIS REVIEW
Table 1
Average Annual Benefit Growth Rates,
1970-2002
Country Rate (%)
Australia 3.66
Austria 3.72
Canada 2.32
Germany 3.30
Japan 3.57
Norway 5.04
Spain 4.63
Sweden 2.35
United Kingdom 3.46
United States 4.61
SOURCE: Hagist and Kotlikoff (forthcoming).
one can afford in the absence of any taxes or
transfers.
Clearly, these marginal net tax rates are very
high, ranging from 54.0 percent to 80.6 percent.
The rates are highest for low-income workers. For
such workers, working full time can mean the
partial or full loss of the earned income tax credit
(EITC), Medicaid benefits, housing support, food
stamps, and other sources of welfare assistance.
Going to work also means paying a combined
employer-employee Federal Insurance Contribution
Act (FICA) tax of 15.3 percent and, typically,
state (Massachusetts, in this case) income taxes
and federal income taxes (gross of EITC benefits).
Together with David Rapson, a graduate student
at Boston University, I am working to develop
comprehensive measures of lifetime marginal net
taxes on working additional hours and saving
additional dollars. Our early work suggests quite
high marginal net taxes on these choices as well.
The point here is that trying to double the
average lifetime net tax rates of future generations
would entail layering additional highly distortive
net taxes on top of a net tax system that is already
highly distortive. If work and saving disincentives
worsen significantly for the broad middle class,
we’re likely to see major supply responses of the
type that have not yet arisen in this country. In
addition, we could see massive emigration. That
sounds extreme, but anyone who has visited
Uruguay of late would tell you otherwise. Uruguay
has very high net tax rates and has lost upward
of 500,000 young and middle-aged workers to
Spain and other countries in recent years. Many of
these émigrés have come and are still coming from
the ranks of the nation’s best educated citizens.
Given the reluctance of our politicians to raise
taxes, cut benefits, or even limit the growth in
benefits, the most likely scenario is that the government
will start printing money to pay its bills.
This could arise in the context of the Federal
Reserve “being forced” to buy Treasury bills and
Kotlikoff
FEDERAL RESERVE BANK OF ST. LOUIS REVIEW JULY/AUGUST 2006 241
Table 2
Average Net Full-time Worker Tax Rates
Multiple of Initial total household Average lifetime Marginal net
minimum wage earnings (2002 $) net tax rate (%) tax rate (%)
1 21,400 –32.2 66.5
1.5 32,100 14.8 80.6
2 42,800 22.9 72.2
3 64,300 30.1 63.0
4 85,700 34.4 59.1
5 107,100 37.8 57.5
6 128,500 41.0 57.5
7 150,000 42.9 57.0
8 171,400 44.2 56.6
9 192,800 45.1 56.1
10 214,200 45.7 55.7
15 321,400 48.4 55.2
20 428,500 49.6 54.7
30 642,700 50.8 54.2
40 857,000 51.4 54.0
NOTE: Present values are actuarial and assume a 5 percent real discount rate.
SOURCE: Gokhale, Kotlikoff, and Sluchynsky (2003).
bonds to reduce interest rates. Specifically, once
the financial markets begin to understand the
depth and extent of the country’s financial insolvency,
they will start worrying about inflation and
about being paid back in watered-down dollars.
This concern will lead them to start dumping their
holdings of U.S. Treasuries. In so doing, they’ll
drive up interest rates, which will lead the Fed to
print money to buy up those bonds. The consequence
will be more money creation—exactly
what the bond traders will have come to fear.
This could lead to spiraling expectations of
higher inflation, with the process eventuating in
hyperinflation.
Yes, this does sound like an extreme scenario
given the Fed’s supposed independence, our recent
history of low inflation, and the fact that the dollar
is the world’s principal reserve currency. But the
United States has experienced high rates of inflation
in the past and appears to be running the same
type of fiscal policies that engendered hyperinflations
in 20 countries over the past century.
INCORPORATING UNCERTAINTY
The world, of course, is highly uncertain. And
the fiscal gap/generational accounting discussed
above fails to systematically account for that
uncertainty. There are two types of uncertainties
that need to be considered in assessing a country’s
prospects for bankruptcy. The first is uncertainty
in the economy’s underlying technology and
preferences. The second is uncertainty in policy.
Let’s take the former first. Specifically, let’s
return to our two-period model but assume that
the economy is closed to international trade. And
let’s assume that at time 0 the economy appears
to be going broke insofar as the government has
set a permanent level of h such that the economy
will experience a death spiral in the absence of
any changes in technology. Thus, k1 = w0 – h,
and w(k1) < w0, where w( ) references the wagegeneration
function based on existing technology.
Now suppose there is a chance, with probability
a, of the economy’s technology permanently
changing, entailing a new and permanent wagegeneration
function, w*( ), such that w*(k1) > w0.
If this event doesn’t arise, assume that technology
permanently remains in its time-0 configuration.
Further assume that w(k1) < h, so that if technology
doesn’t change, the government will go bankrupt
in period 1.
How should an economist observing this
economy at time 0 describe its prospects for
bankruptcy? One way, indeed, the best way, is to
simply repeat the above paragraph; that is, take
one’s audience through (simulate) the different
possible scenarios.
But what about generational accounting?
How does the economist compare the lifetime
burden facing, for example, workers born in
period 1 with their capacity to meet that burden?
Well, the burden that the government wants to
impose, regardless of the technology, entails taking
away h from generation 1 when the generation is
young and giving h back to the generation when
it’s old. Because in the regular (the non *) state
the government will, by assumption, do its best
by its claimants (the time-1 elderly), generation
1 can expect to hand over all their earnings when
young and receive nothing when old (because the
capital stock when old will be zero). This is a
100 percent lifetime net tax rate.
In the * state, the lifetime net tax rate will be
lower. Suppose it’s only 50 percent. Should one
then form a weighted average of the 100 percent
and 50 percent lifetime net tax rates with weights
equal to (1 – a) and a, respectively? Doing so
would generate a high average net tax rate, but one
below 100 percent. Reporting that generation 1
faces a high expected net tax rate conveys important
information, namely, that the economy is
nearing bankruptcy. But citing a figure less than
100 percent may also give the false impression
that there is no absolutely fatal scenario.
Note that agents born at time 1 can’t trade in
a market prior to period 1 in order to value their
lifetime wages and lifetime fiscal burdens. If such
a contingent claims market existed, there would
be market valuations of these variables (but no
trades because all cohort members are assumed
identical). In this case, we could compare the
value of claims to future earnings with the negative
value of claims to future net taxes. But again, this
comparison might fail to convey what one really
wants to say about national bankruptcy, namely,
Kotlikoff
242 JULY/AUGUST 2006 FEDERAL RESERVE BANK OF ST. LOUIS REVIEW
the chances it will occur and the policies needed
to avoid it. How about uncertainty with respect to
future policy? Well, the same considerations just
mentioned appear to apply for that case as well.
In my view, the best way for generational
accounting to accommodate uncertainty is to
establish lifetime fiscal burdens facing future
generations under different scenarios about the
evolution of the economy and of policy. This will
necessarily be partial-equilibrium analysis. But
that doesn’t mean that the projections used in
generational accounting have to be static and
assume that neither policy nor economic variables
change through time. Instead, one should
use general equilibrium models to inform and
establish policy projection scenarios to which
generational accounting can then be applied.
In thinking about uncertainty and this proposed
analysis, one should bear in mind that the
goal of long-term fiscal analysis and planning is
not to determine whether the government’s intertemporal
budget constraint is satisfied, per se.
We know that no matter what path the economy
travels, the government’s intertemporal budget
constraint will be satisfied on an ex post basis. The
manner in which the budget constraint gets satisfied
may not be pretty. But economic resources
are finite, and the government must and will
ultimately make someone pay for what it spends.4
Thus, in the case of the United States, one
could say that there is no fiscal problem facing
the United States because the government’s intertemporal
budget constraint is balanced once one
takes into account that young and future generations
will, one way or other, collectively be forced
to pay $65.9 trillion more than they would have
to pay based on current tax and transfer schedules.
But the real issue is not whether the constraint is
satisfied. The real issue is whether the path the
government is taking in the process of satisfying
the constraint is, to put it bluntly, morally and
economically nuts.
The above point bears on the question of
valuing the government’s contingent liabilities.
The real economic issue with respect to contingent
liabilities is the same as that with respect to any
government liability. The real issue is not how to
value those liabilities, but rather who will pay
them, assuming they end up having to be paid.
The economy could operate with perfect statecontingent
claims markets so that we could tell
precisely the market value of the government’s
contingent claims and see clearly that the government’s
budget constraint was satisfied—that the
market value of all of the government’s statecontingent
expenditures were fully covered by
the market value of its state-contingent receipts.
But this knowledge would not by itself tell us how
badly generation X would fare were state Y to
eventuate. Pricing risk doesn’t eliminate risk.
And what we really want to know is not just the
price at which, for example, the Pension Benefit
Guarantee Corporation can offload its contingent
liabilities, but also who will suffer and by how
much when the Corporation fails to do so and
ends up getting hit with a bill.
CAN IMMIGRATION,
PRODUCTIVITY GROWTH,
OR CAPITAL DEEPENING SAVE
THE DAY?
Many members of the public as well as officials
of the government presume that expanding
immigration can cure what they take to be fundamentally
a demographic problem. They are wrong
on two counts. First, at heart, ours is not a demographic
problem. Were there no fiscal policy in
place promising, on average, $21,000 (and growing!)
in Social Security, Medicare, and Medicaid
benefits to each American age 65 and older, our
having a much larger share of oldsters in the
United States would be of little economic concern.
Second, it is mistake to think that immigration
can significantly alleviate the nation’s fiscal problem.
The reality is that immigrants aren’t cheap.
They require public goods and services. And they
become eligible for transfer payments. While most
immigrants pay taxes, these taxes barely cover
the extra costs they engender. This, at least, is the
conclusion reached by Auerbach and Oreopoulos
(2000) in a careful generational accounting analysis
of this issue.
Kotlikoff
FEDERAL RESERVE BANK OF ST. LOUIS REVIEW JULY/AUGUST 2006 243
4 This statement assumes that the economy is dynamically efficient.
A different and more realistic potential cure
for our fiscal woes is productivity growth, which
is supposed to (i) translate into higher wage growth
and (ii) expand tax bases and limit requisite tax
hikes. Let’s grant that higher rates of productivity
growth raise real average wages even though the
relationship between the two has been surprisingly
weak in recent decades. And let’s accept
that higher real wages will lead to larger tax bases
even though it could lead some workers to cut
back on their labor supply or retire early. This
isn’t enough to ensure that productivity growth
raises resources on net. The reason, of course, is
that some government expenditures, like Social
Security benefits, are explicitly indexed to productivity
and others appear to be implicitly
indexed.
Take military pay. There’s no question but that
a rise in general wage levels would require paying
commensurately higher wages to our military
volunteers. Or consider Medicare benefits. A rise
in wage levels can be expected to raise the quality
of healthcare received by the work force, which
will lead the elderly (or Congress on behalf of the
elderly) to push Medicare to provide the same.
Were productivity growth a certain cure for the
nation’s fiscal problems, the cure would already
have occurred. The country, after all, has experienced
substantial productivity growth in the
postwar period, yet its long-term fiscal condition
is worse now than at any time in the past. The
limited ability of productivity growth to reduce
the implied fiscal burden on young and future generations
is documented in Gokhale and Smetters
(2003) under the assumption that government
discretionary expenditures and transfer payments
are indexed to productivity.
But the past linkage of federal expenditures to
real incomes need not continue forever. Margaret
Thatcher made a clean break in that policy when
she moved to adjusting British government-paid
pensions to prices rather than wages. Over time,
the real level of state pensions has remained relatively
stable, while the economy has grown. As a
result of this and other policies, Great Britain is
close to generational balance; that is, close to a
situation in which the lifetime net tax rates on
future generations will be no higher than those
facing current generations.
Assuming the United States could restrain
the growth in its expenditures in light of productivity
and real wage advances, is there a reliable
source of productivity improvement to be tapped?
The answer is yes, and the answer lies with China.
China is currently saving over a third of its national
income and growing at spectacularly high rates.
Even though it remains a developing country,
China is saving so much that it’s running a current
account surplus. Not only is China supplying
capital to the rest of the world, it’s increasingly
doing so via direct investment. For example,
China is investing large sums in Iran, Africa, and
Eastern Europe.5
Although China holds close to a half trillion
U.S. dollars in reserves, primarily in U.S. Treasuries,
the United States sent a pretty strong message
in recent months that it doesn’t welcome Chinese
direct investment. It did so when it rejected the
Chinese National Petroleum Corporation’s bid to
purchase Unocal, a U.S. energy company. The
Chinese voluntarily withdrew their bid for the
company. But they did so at the direct request of
the White House. The question for the United
States is whether China will tire of investing only
indirectly in our country and begin to sell its
dollar-denominated reserves. Doing so could have
spectacularly bad implications for the value of
the dollar and the level of U.S. interest rates.
Fear of Chinese investment in the United
States seems terribly misplaced. With a national
saving rate running at only 2.1 percent—a postwar
low—the United States desperately needs foreigners
to invest in the country. And the country
with the greatest potential for doing so going forward
is China.6
Fehr, Jokisch, and Kotlikoff (2005) develop a
dynamic, life-cycle, general equilibrium model
to study China’s potential to influence the transition
paths of Japan, the United States, and the
European Union. Each of these countries/regions
is entering a period of rapid and significant aging
Kotlikoff
244 JULY/AUGUST 2006 FEDERAL RESERVE BANK OF ST. LOUIS REVIEW
5 See www.atimes.com/atimes/China/GF04Ad07.html;
www.channel4.com/news/special-reports/
special-reports-storypage.jsp?id=310; and
http://english.people.com.cn/200409/20/eng20040920_157654.html.
6 The remainder of this section draws heavily on Fehr, Jokisch, and
Kotlikoff (2005).
that will require major fiscal adjustments. But
the aging of these societies may be a cloud with
a silver lining coming, in this case, in the form of
capital deepening that will raise real wages.
In a previous model that excluded China
(Fehr, Jokisch, and Kotlikoff, 2004), my coauthors
and I predicted that the tax hikes needed to pay
benefits along the developed world’s demographic
transition would lead to a major capital shortage,
reducing real wages per unit of human capital by
one-fifth over time. A recalibration of our original
model that treats government purchases of capital
goods as investment rather than current consumption
suggests this concern was overstated. With
government investment included, we find much
less crowding-out over the course of the century
and only a 4 percent long-run decline in real
wages. One can argue both ways about the true
capital-goods content of much of government
investment, so we don’t view the original findings
as wrong, just different.
Adding China to the model further alters,
indeed, dramatically alters, the model’s predictions.
Even though China is aging rapidly, its saving
behavior, growth rate, and fiscal policies are
currently very different from those of developed
countries. If successive Chinese cohorts continue
to save like current cohorts, if the Chinese government
can restrain growth in expenditures, and if
Chinese technology and education levels ultimately
catch up with those of the West and Japan,
the model looks much brighter in the long run.
China eventually becomes the world’s saver and,
thereby, the developed world’s savior 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, which we model as
increasing the human capital endowments of
successive cohorts.
Even if the Chinese saving behavior (captured
by its time-preference rate) gradually approaches
that of Americans, developed-world real wages
per unit of human capital are roughly 17 percent
higher in 2030 and 4 percent higher at the end of
the century. Without China they’d be only 2 percent
higher in 2030 and, as mentioned, 4 percent
lower at the end of the century.
What’s more, the major outflow of the developed
world’s capital to China predicted in the
short run by our model does not come at the cost
of lower wages in the developed world. The reason
is that the knowledge that their future wages will
be higher (thanks to China’s future capital accumulation)
leads our model’s workers to cut back
on their current labor supply. So the short-run
outflow of capital to China is met with a commensurate
short-run reduction in developed-world
labor supply, leaving the short-run ratio of physical
capital to human capital, on which wages positively
depend, actually somewhat higher than
would otherwise be the case.
Our model does not capture the endogenous
determination of skill premiums studied by
Heckman, Lochner, and Taber (1996) or include
the product of low-skill-intensive products. Doing
so could well show that trade with China, at least
in the short run, explains much of the relative
decline in the wages of low-skilled workers in the
developed world. Hence, we don’t mean to suggest
here that all United States, European Union,
and Japanese workers are being helped by trade
with China, but rather that trade with China is,
on average, raising the wages of developed-world
workers and will continue to do so.
The notion that China, India, and other
developing countries will alleviate the developedworld’s
demographic problems has been stressed
by Siegel (2005). Our paper, although it includes
only one developing country—China—supports
Siegel’s optimistic long-term macroeconomic
view. On the other hand, our findings about the
developed world’s fiscal condition remain troubling.
Even under the most favorable macroeconomic
scenario, tax rates still rise dramatically
over time in the developed world to pay baby
boomers their government-promised pension and
health benefits. However, under the best-case
scenario, in which long-run wages are 65 percent
higher, the U.S. payroll tax rates are roughly 40
percent lower than they would otherwise be.
This result rests on the assumption that, while
Social Security benefits are increased in light of
Kotlikoff
FEDERAL RESERVE BANK OF ST. LOUIS REVIEW JULY/AUGUST 2006 245
the Chinese-investment-induced higher real wages,
federal government healthcare benefits are not;
that is, the long-run reduction in payroll tax rates
is predicated on outgrowing a significant share
of our healthcare-expenditure problems.
FIXING OUR FISCAL
INSTITUTIONS7
Determining whether a country is already
bankrupt or going bankrupt is a judgment call.
In my view, our country has only a small window
to address our problems before the financial
markets will do it for us. Yes, there are ways out
of our fiscal morass, including Chinese investment
and somehow getting a lid on Medicare and
Medicaid spending, but I think immediate and
fundamental reform is needed to confidently
secure our children’s future.
The three proposals I recommend cover taxes,
Social Security, and healthcare and are interconnected
and interdependent. In particular, tax
reform provides the funding needed to finance
Social Security and healthcare reform. It also
ensures that the rich and middle class elderly
pay their fair share in resolving our fiscal gap.
Tax Reform
The plan here is to replace the personal
income tax, the corporate income tax, the payroll
(FICA) tax, and the estate and gift tax with a
federal retail sales tax plus a rebate. The rebate
would be paid monthly to households, based on
the household’s demographic composition, and
would be equal to the sales taxes paid, on average,
by households at the federal poverty line with the
same demographics.
The proposed sales tax has three highly progressive
elements. First, thanks to the rebate, poor
households would pay no sales taxes in net terms.
Second, the reform would eliminate the highly
regressive FICA tax, which is levied only on the
first $90,000 of earnings. Third, the sales tax would
effectively tax wealth as well as wages, because
when the rich spent their wealth and when
workers spent their wages, they would both pay
sales taxes.
The single, flat-rate sales tax would pay for
all federal expenditures. The tax would be highly
transparent and efficient. It would save hundreds
of billions of dollars in tax compliance costs. And
it would either reduce or significantly reduce
effective marginal taxes facing most Americans
when they work and save.
The sales tax would also enhance generational
equity by asking rich and middle class older
Americans to pay taxes when they spend their
wealth. The poor elderly, living on Social Security,
would end up better off. They would receive the
sales tax rebate even though the purchasing power
of their Social Security benefits would remain
unchanged (thanks to the automatic adjustment
to the consumer price index that would raise
their Social Security benefits to account for the
increase in the retail-price level).
The sales tax would be levied on all final
consumption goods and services and would be
set at 33 percent—high enough to cover the costs
of this “New New Deal’s” Social Security and
healthcare reforms as well as meet the government’s
other spending needs. On a tax-inclusive
basis, this is a 25 percent tax rate, which is a lower
or much lower marginal rate than most workers
pay on their labor supply. The marginal tax on
saving under the sales tax would be zero, which
is dramatically lower than the effective rate now
facing most savers.
Social Security Reform
My second proposed reform deals with Social
Security. I propose shutting down the retirement
portion of the current Social Security system at
the margin by paying in the future only those
retirement benefits that were accrued as of the
time of the reform. This means that current retirees
would receive their full benefits, but current
workers would receive benefits based only on
their covered wages prior to the date of the reform.
The retail sales tax would pay off all accrued
retirement benefits, which eventually would equal
zero. The current Social Security survivor and
disability programs would remain unchanged
except that their benefits would be paid by the
sales tax.
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246 JULY/AUGUST 2006 FEDERAL RESERVE BANK OF ST. LOUIS REVIEW
7 This section draws heavily from Ferguson and Kotlikoff (2005).
In place of the existing Social Security retirement
system, I would establish the Personal
Security System (PSS)—a system of individual
accounts, but one with very different properties
from the scheme proposed by the president. All
workers would be required to contribute 7.15
percent of their wages up to what is now the
earnings ceiling covered by Social Security (i.e.,
they’d contribute what is now the employee FICA
payment) into an individual PSS account. Married
or legally partnered couples would share contributions
so that each spouse/partner would receive
the same contribution to his or her account. The
government would contribute to the accounts of
the unemployed and disabled. In addition, the
government would make matching contributions
on a progressive basis to workers’ accounts,
thereby helping the poor to save.
All PSS accounts would be private property.
But they would be administered and invested by
the Social Security Administration in a marketweighted
global index fund of stocks, bonds, and
real-estate securities. Consequently, everyone
would have the same portfolio and receive the
same rate of return. The government would guarantee
that, at retirement, the account balance
would equal at least what the worker had contributed,
adjusted for inflation; that is, the government
would guarantee that workers could not
lose what they contributed. This would protect
workers from the inevitable downside risks of
investing in capital markets.
Between ages 57 and 67, account balances
would be gradually sold off each day by the Social
Security Administration and exchanged for
inflation-protected annuities that would begin
paying out at age 62. By age 67, workers’ account
balances would be fully annuitized. Workers who
died prior to age 67 would bequeath their account
balances to their spouses/partners or children.
Consequently, low-income households, whose
members die at younger ages than those of highincome
households, would be better protected.
Finally, under this reform, neither Wall Street nor
the insurance industry would get their hands on
workers’ money. There would be no loads, no
commissions, and no fees.
Healthcare Reform
My final proposed reform deals not just with
our public healthcare programs, Medicare and
Medicaid, but with our private health-insurance
system as well. That system, as is well known,
leaves some 45 million Americans uninsured. My
reform would abolish the existing fee-for-service
Medicare and Medicaid programs and enroll all
Americans in a universal health-insurance system
called the Medical Security System (MSS). In
October of each year, the MSS would provide each
American with an individual-specific voucher to
be used to purchase health insurance for the following
calendar year. The size of the voucher
would depend on the recipients’ expected health
expenditures over the calendar year. Thus, a 75
year old with colon cancer would receive a very
large voucher, say $150,000, whereas a healthy
30 year old might receive a $3,500 voucher.
The MSS would have access to all medical
records concerning each American and set the
voucher level each year based on that information.
Those concerned about privacy should rest easy.
The government already knows about millions
of Medicare and Medicaid participants’ health
conditions because it’s paying their medical bills.
This information has never, to my knowledge,
been inappropriately disclosed.
The vouchers would pay for basic in- and outpatient
medical care, prescription medications,
and long-term care over the course of the year. If
you ended up costing the insurance company
more than the amount of your voucher, the insurance
company would make up the difference. If
you ended up costing the company less than the
voucher, the company would pocket the difference.
Insurers would be free to market additional
services at additional costs. The MSS would, at
long last, promote healthy competition in the
insurance market, which would go a long way to
restraining healthcare costs.
The beauty of this plan is that all Americans
would receive healthcare coverage and that the
government could limit its total voucher expenditure
to what the nation could afford. Unlike
the current fee-for-service system, under which the
government has no control of the bills it receives,
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FEDERAL RESERVE BANK OF ST. LOUIS REVIEW JULY/AUGUST 2006 247
the MSS would explicitly limit the government’s
liability.
The plan is also progressive. The poor, who
are more prone to illness than the rich, would
receive higher vouchers, on average, than the rich.
And, because we would be eliminating the current
income-tax system, all the tax breaks going to the
rich in the form of non-taxed health-insurance
premium payments would vanish. Added together,
the elimination of this roughly $150 billion of
tax expenditures, the reduction in the costs of
hospital emergency rooms (which are currently
subsidized out of the federal budget), and the
abolition of the huge subsidies to insurers in the
recent Medicare drug bill would provide a large
part of the additional funding needed for the MSS
to cover the entire population.
Eliminating the Fiscal Gap
A 33 percent federal retail-sales tax rate would
generate federal revenue equal to 21 percent of
GDP—the same figure that prevailed in 2000.
Currently, federal revenues equal 16 percent of
GDP. So we are talking here about a major tax hike.
But we’re also talking about some major spending
cuts. First, Social Security would be paying only
its accrued benefits over time, which is trillions
of dollars less than its projected benefits, when
measured in present value. Second, we would be
putting a lid on the growth of healthcare expenditures.
Limiting excessive growth in these expenditures
will, over time, make up for the initial
increase in federal healthcare spending arising
from the move to universal coverage. Third, we’d
reduce federal discretionary spending by one-fifth
and, thereby, return to the 2000 ratio of this spending
to GDP. Taken together, these very significant
tax hikes and spending cuts would, I believe,
eliminate most if not all of our nation’s fiscal gap.
CONCLUSION
There are 77 million baby boomers now ranging
from age 41 to age 59. All are hoping to collect
tens of thousands of dollars in pension and healthcare
benefits from the next generation. These
claimants aren’t going away. In three years, the
oldest boomers will be eligible for early Social
Security benefits. In six years, the boomer vanguard
will start collecting Medicare. Our nation
has done nothing to prepare for this onslaught of
obligation. Instead, it has continued to focus on
a completely meaningless fiscal metric—“the”
federal deficit—censored and studiously ignored
long-term fiscal analyses that are scientifically
coherent, and dramatically expanded the benefit
levels being explicitly or implicitly promised to
the baby boomers.
Countries can and do go bankrupt. The United
States, with its $65.9 trillion fiscal gap, seems
clearly headed down that path. The country needs
to stop shooting itself in the foot. It needs to adopt
generational accounting as its standard method
of budgeting and fiscal analysis, and it needs to
adopt fundamental tax, Social Security, and
healthcare reforms that will redeem our children’s
future.
REFERENCES
Auerbach, Alan and Oreopoulos, Philip. “The Fiscal
Effects of U.S. Immigration: A Generational
Accounting Perspective,” in James Poterba, ed.,
Tax Policy and the Economy. Volume 14. Cambridge,
MA: MIT Press, 2000, pp. 23-56.
Fehr, Hans; Jokisch, Sabine and Kotlikoff, Laurence J.
“The Role of Immigration in Dealing with the
Developed World’s Demographic Dilemma.”
FinanzArchiv, September 2004, 60(3), pp. 296-324.
Fehr, Hans; Jokisch, Sabine and Kotlikoff, Laurence J.
“Will China Eat Our Lunch or Take Us to Dinner?
Simulating the Transition Paths of the U.S., the
EU, Japan, and China.” NBER Working Paper No.
11668, National Bureau of Economic Research,
October 2005.
Ferguson, Niall and Kotlikoff, Laurence J. “Benefits
Without Bankruptcy—The New New Deal.” The
New Republic, August 15, 2005.
Gokhale, Jagadeesh and Smetters, Kent. “Measuring
Social Security’s Financial Problems.” NBER
Working Paper No. 11060, National Bureau of
Economic Research, January 2005.
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248 JULY/AUGUST 2006 FEDERAL RESERVE BANK OF ST. LOUIS REVIEW
Gokhale, Jagadeesh and Smetters, Kent. Fiscal and
Generational Imbalances: New Budget Measures
for New Budget Priorities. Washington, DC: The
American Enterprise Press, 2003.
Gokhale, Jagadeesh; Kotlikoff, Laurence J. and
Sluchynsky, Alexi. “Does It Pay to Work?”
Unpublished manuscript, January 2003.
Hagist, Christian and Kotlikoff, Laurence J. “Who’s
Going Broke?: Comparing Healthcare Costs in
Ten OECD Countries.” Milken Institute Review
(forthcoming).
Heckman, James; Lochner, Lance and Taber,
Christopher. “Explaining Rising Wage Inequality:
Explanations with a Dynamic General Equilibrium
Model of Labor Earnings with Heterogeneous
Agents.” Review of Economic Dynamics, January,
1998, 1(1), pp. 1-58.
Kotlikoff, Laurence J. Generational Policy. Cambridge,
MA: MIT Press, 2003.
Siegel, Jeremy J. The Future for Investors: Why the
Tried and the True Triumph Over the Bold and the
New. New York, NY: Crown Publishing Group,
2005.
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