Boston University's Kotlikoff Explains Why The US Is Bankrupt

Earlier, we posted a link to Boston University's Lawrence Kotlikoff who penned an OpEd for Bloomberg titled simply enough "U.S. Is Bankrupt and We Don't Even Know." In it Kotlikoff took a direct stab at Krugman and all the other hard core Keynesian paradise or bust demagogues: "Some doctrinaire Keynesian economists would say any stimulus over the next few years won’t affect our ability to deal with deficits in the long run. This is wrong as a simple matter of arithmetic. The fiscal gap is the government’s credit-card bill and each year’s 14 percent of GDP is the interest on that bill. If it doesn’t pay this year’s interest, it will be added to the balance. Demand-siders say forgoing this year’s 14 percent fiscal tightening, and spending even more, will pay for itself, in present value, by expanding the economy and tax revenue. My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no- pain, all-gain 'solutions'." To hammer his critical point in that delaying the inevitable crunch will only make things worse in the end, Kotlikoff also appeared on Bloomberg TV with Erik Schatzker. Koltikoff's argument is anchored by the IMF's July report that notes the US needs to grow at 14% in perpetuity to "grow into" its balance sheet. Obviously, we will be lucky to get a tenth of that.

Some of Kotlikoff's other observations on why the yields on the near and mid-part of the UST curve are now into record territory is that "we have systematic failure of disclosure of what is really happening on the fiscal side. Government and international organizations are lying effectively lying to us, there is no question about it. The present value of the difference between spending and revenues from the CBO is $200 trillion." The BU economist suggests to introduce a comprehensive healthcare reform with vouchers subject to budget constraints, a progressive low-rate consumption tax, and social security reform. He ends: "There are things we could do but we are in deep doo doo." Not the most eloquent interview, but he is certainly correct in broad strokes.