Laurence Kotlikoff is a second time guest to the Creating Wealth show and has a lot to share on the subject of economics and Social Security. Laurence Kotlikoff is a William Warren FairField Professor for Economics at Boston University and recently released a book entitled, Get What’s Yours: The Secrets to Maxing Out Your Social Security. Laurence sits down with Jason to talk on the growing Social Security problem, the U.S. government’s 210 trillion dollar time bomb, and what kind of economic environment we should expect in the next ten years.
Key Takeaways:
[4:15] U-Haul is a good litmus test for migration trends.
[9:25] Jason recommends reading The Untethered Soul by Michael Singer.
[10:45] Look out for the informal Chicago property tour July 15th.
[14:00] Jason welcomes Laurence Kotlikoff to the show.
[14:55] How is Social Security sexist?
[19:30] By waiting until you’re 70-years-old, you’d be collecting a 76% higher Social Securities check.
[25:30] The true fiscal gap the government is facing is around 210 trillion dollars.
[30:15] How does the U.S. debt compare to the rest of the world?
[39:55] Should we expect an inflationary, deflationary, or stagnationary economy in the future?
[43:50] Laurence encourages even the younger generation to the read his book, Get What’s Yours.
[45:40] ThePurplePlans.org is a website that shares details on how economists believe you can fix the economy.
Mentioned In This Episode:
The Untethered Soul by Michael Singer
https://www.maximizemysocialsecurity.com/
http://www.thepurpleplans.org/
Tweetables:
“Who gets elected? It’s the person who can make the most promises.”
“We are broke as broke can be.”
“I’m not for ripping off your kids in order to pay benefits to older generations.”
Transcript
Jason Hartman:
Welcome to the Creating Wealth show. This is episode number 532. It’s Jason Hartman. You probably know that already. Our guest today will be Laurence Kotlikoff. He’s back on the show, he’s been on before. He’s an economist, very well known academic. He is probably the most influential person talking about the 210 trillion dollar time bomb, as he puts it. I have called it many times the 60 trillion time bomb, no one knows the exact number.
It really is an estimate, but Laurence Kotlikoff has probably done more analysis on this than any other, at least any credible economist and academic out there and what does that time bomb refer to, you ask? Well, it refers to the unfunded mandates, the unfunded entitlements, the future of America and what it’ll have to spend to keep the promises it has already made over the next, you know, it’s a little fuzzy too in terms of time frame, but we’ll call it approximately 15 years.
So, the USA has a lot of promises to keep. Doesn’t seem to have the money to keep those promises, so we’ll see how we do and how we keep those promises. I say that the way to keep them is through inflation. Inflation being a fantastic business plan for governments who like to make big promises that they can’t keep so politicians can get re-elected and it always goes to the power of the incumbency and one of the reasons the incumbency has so much power, whether it be senate, congressman, any elected official at any level, of course, the Presidency being the big one. Aren’t you glad our current president is probably starting to think about his library, I sure am.
We’ll see if we get anybody better, but I don’t hold out a lot of hope for that, because as we’re in this discussion about unfunded entitlements and so forth, you know, who gets elected, right? It’s the person who can make the most promises and what is the way to come close, although you never completely keep them, but the way they come close to keeping those promises is through inflation. It is quite literally a fantastic business plan for those in power.
So, Laurence Kotlikoff is here to talk about that, but also to talk about Social Security and this part has really surprised me by the way, folks. I am the last guy that wants to be thinking about Social Security, because I think I’m going to be way too wealthy to worry about that at the time it comes, but listen, we’ve paid into this Ponzi scheme system. We want to get as much out of it as we possibly can. So, he’s out with a new book. New York Times bestselling book on that exact subject. So, you might as well maximize it and there are some real ways to do that that I was unaware of.
Many years ago, I used to talk in the Creating Wealth seminars that I do, I used to talk a lot about U-Haul, because U-Haul is a good litmus test for what are the immigration trends. What is the path of progress, if you will. Where are people going? Where are they moving to? Now, I’ve talked about this many times on some of the last 531 episodes, right, as we’re diving into 532 here, but it’s really quite interesting. I used to cite a U-Haul truck going from Irvine, California to Austin, Texas and the cost versus going the other direction, but since I just moved from Phoenix, Arizona to La Jolla, California. I pulled up the stats on the U-Haul website and it was quite interesting.
Now, forgive me if I talked about this before, because I may have. I have been so busy with my move and trying to get settled the last couple of weeks. Really just, moving, I tell you, moving takes a lot out of you. It really does, you know, everybody you talk to will agree that moving is probably one of the most stressful, difficult, and close to horrific experiences anybody can have, right? It ain’t easy to move. It’s giant on the hassle factor, you know? #firstworldproblems, of course. Some people can’t find fresh water, some people are living in war zones, some people are fighting wars; moving is nothing compared to any of those things. So, for give me with my first world problems talk here, but among, as first world problems go, moving is pretty tough, okay, I think we’ll all agree on that.
So, what does it cost to rent a 26ft U-Haul truck to go from Phoenix, Arizona to La Jolla, California. It’s a $194. That’s pretty cheap, you know? That’s not too expensive. Now, what do you think it costs to rent that exact same truck going the other direction. If you want to move from La Jolla, California to Phoenix, Arizona, what do you think it costs to rent that $194 26ft truck? That’s the largest truck U-Haul rents, 26ft. They say it’ll move a four bedroom house, what do you think listeners?
And before you guess the price, not only what do you think the price is, but what is the lesson here? What can we learn from the price of this truck, well, we can learn a lot, because it shows us where the migration trends are. One of the big things as a real estate investor, we’ve got to be conscious of is what’s called in-migration and what is called out-migration. On top of this in-migration and out-migration, add the concept of what’s known as the path of progress. Now, the path of progress just means where is the development? Where is the growth, right?
So, that truck leaving California is much more expensive. It’s $521 to leave, but only $194 to come in. That’s pretty amazing. Why is that amazing? Because basically U-Haul will give you a great deal if you’ll bring the trucks back to California. In fact, they have been known at times to pay people to drive empty trucks to places that are leaving. So, this tells you that people are leaving Southern to California to move to places with greater job growth and lower cost of living. It’s by far not a perfect statistical analysis, I agree, but it is a sign. It is a litmus test. It tells you what is going on and you can do this from many locations. Type in a bunch of different cities and see where the in-migration and out-migration are.
Now, you can do further analysis on this. Promover.org is a website I’ve used before. I bought one of their expensive $300 reports a few years back to look at this and I thought that it was quite interesting. Tells you where people are moving. It’s quite interesting to know that.
On the book recommendation list, this is just a person recommendation book that I want to share with you today, but there are many business books that we talk about. We try to get a lot of these authors on the show, because I love to hear what they think. This author would make a great tenth episode author. Of course, we have people like T.R. Vecker, Bob Proctor, Dennis Whitley, gosh, I can’t even remember all the names. We’ve had so many great tenth episode guests in the past.
You know, Harvey Mackay. Many greats out there, okay, and we want to get Tony Robbins on and a whole bunch of others, but this one is, I’ve been listening to this book today and that’s why I wanted to share it with you and it is entitled The Untethered Soul by Michael Singer. The Untethered Soul by Michael Singer. Really fantastic. I mean, super good stuff. So, if you’re interested in doing a little inner work, I would highly recommend that book for your psyche and mental and spirutial growth. Michael Singer, The Untethered Soul.
Really great book and before we get to Laurence Kotlikoff, our guest today, our Chicago and Grand Rapids informal semi-private property tour just for mentioning that on, what was it, the last episode or the episode before the last one, I think, yeah, I think it was before the flashback Friday episode. Several of you responded. Hey! Thank you for responding. If all of you would just write as many reviews for the show as quickly you would express interest in our stuff, I’d appreciate that.
So, thank you. Please go review the show on iTunes or whatever platform you’re using. Might be SoundCloud or Stitcher Radio or any of the other places you’re listening to this podcast. We would love it if you would write a review. So, thank you very much for doing that, but thank you for expressing interest in this semi-private informal property tour we’re trying to put together.
We’re going to call it sort of a tour and hang out and here’s the plan, this is what we’re trying to do. It’s not formal yet, it’s not done yet, but July 16th – we’d ask people to arrive in Chicago on July 15. We would start at about 9am on July 16th, we would tour some Chicago or really, you know, Chicago metro properties that you could buy. We want to go and see our local market specialists there and look at our operation and then we would have dinner and sleep in Chicago on the night of July 16th and in the morning of July 17th, we would drive to Grand Rapids, that’s about a three hour drive and then that after noon we would tour properties and some of you if you want to fly out of Grand Rapids, you can catch flights that night.
So, into Chicago on the 15th, tour the 16th, and then we will drive over to Grand Rapids, we’ll look at some of the land contract properties and look at some of the properties you can buy as well. On the 17th you can fly out that night or fly out on the following day. The 18th and that’s the plan. If we get this formalized, our pricing would be $797 dollars and for Venture Alliance Members, it would be $297. We’re always going to have big fat discounts for Venture Alliance members. So, only $297.
What does it include? You would pay for your own hotel. We’d pay for all your meals and we would pay for your transportation and, of course, our company is included, right. You get to hang out with Fernando and I and look at properties in these markets as well as all of our local market specialists. So, if you would like to attend, keep that in mind.
Again, we will totally announce it when it’s completely 100% formal, but that is the plan and at JasonHartman.com, under the events section, we’ll have a place where you can sign up. So, without further adieu, let’s get to our guest, Laurence Kotlikoff to talk about Social Security, how to maximize that, talk to about the economy in general and where we’re going.
It’s my pleasure to welcome Laurence Kotlikoff back to the show. He was on while ago. He is a William FairField, Warren, distinguished professor and a professor of economics at Boston University. He’s President of Economic Security Planning. Author of several books including Get What’s Yours: The Secrets to Maxing Out Your Social Security. Larry, welcome back, how are you?
Laurence Kotlikoff:
Great, nice to be with you.
Jason:
Yeah, it’s good to have you. Well, I just got to ask you first. I mean, this new book of yours is really hot and we’re not going to talk only about Social Security. I want to talk about the economy and investing and so forth, is Social Security sexist?
Laurence:
Well, it’s a lot of things. It’s extremely complicated and the book has become a New York Times bestseller for 12 weeks in a row, because it’s so complicated that many people are leaving tens to hundreds of thousands of dollars on the table, but one of the key things about it is that it was born as a sexist program in the sense that there were benefits that were just available for women, not for men, and at some point Ruth Bader Ginsburg took Social Security to court and the Supreme Court – before she was a Supreme Court Justice, choose to change that.
So, Social Security is nominally sex-blind, but when you look at the fact that women earn less than men, you see the fact that in reality it is sexist. There are lots of provisions that are in some ways overly favorable to women, certain women, and other ways highly discriminatory against women. So, it’s sexist so far as it effectively changes the story, the deal for women compared to men. I can give you the worst case kind of story about..
Jason:
Yeah, go ahead. This is quite interesting, because I just recetly finished reading Dr. Warren Farrell’s book about The Myth of Male Power and you know, it’s kind of counter intuitive. Our culture tends to think men have a much better deal , but I don’t know, I kind of think women have the better deal, actually.
Laurence:
They do and they don’t. Take the incentive to work. If you a, suppose you’re a a female who works for McDonald’s, earns relatively little and you have a husband who is a middle class earner, okay, well, every penny that you pay in payroll taxes over your entire working life, which is 12.4% of your pay, may produce not a penny more in Social Security benefits than were you to not work whatsoever, because you’re going to be collecting on your husband’s work record and when he dies, you’ll collect a widows benefit on his work record. You’ll collect first the spouse benefit and then a widow’s benefit.
So, while that might sound good, you’re going to get actually more benefits than just benefits based on your own record, but for your entire working life, you’re contributing, being told that you’re going to get something back in exchange for handing over 12.4% of every dollar you earn. 12.4 cents on you earn and if you really realize that you’re not getting anything back, then that becomes an extra 12.4% tax that a real, you know, a real disincentive to work that your husband doesn’t face.
On the country, if he earns more money, contributes more, he raises his own benefit and also raises your benefit, so, in terms of work incentives, this is designed to keep women at home, presumably raising children and not getting in the way of males when it comes to the working place, keeping them down, economically speaking. Keeping them as second class citizens.
Now, there are also, think about a women whose got an investment banker for a husband and she has no kids, she spends her entire life playing golf. So, she can end up actually collecting more benefits than the McDonald’s worker having never contributed a penny over her life time.
So, it should not be the case that somebody who contributes not a penny for her or his entire life, ends up receiving vastly more Social Security benefits than a low wage worker who contributes 12.4% to her pay day in and day out or month in and month out, and week out from age 16 to maybe age whatever, 70. They work that long, they’re going to get absolutely nothing more for having made all those contributions to the system. So, I view that as a form of sexual discrimination.
Jason:
Larry, when I originally saw the book, Get’s What Yours, I know of thought, you know, maximizing Social Security. Isn’t that sort of a small game in the overall scheme of things? You know, this is not for people for, you know, doing big things, but then you said, it could amount to hundreds of thousands of dollars? Is this really that significant for people?
Laurence:
Well, I’ll give you an example. I have a friend, Glenn Loury, who is an economics professor at Brown. One of the top economists in the world. His wife tragically passed away when she was 58, Glen has just turned 66. We had dinner about a year ago. I asked him whether he thought he could collect any widower benefits from Linda’s work record. He said, absolutely not.
I kept asking him the same question over and over again and he said absolutely not and finally he said, well, what am I missing? I said, you’re missing a $120,000 that you can get for free just by filing when you turn 66 for your widower benefit and you’ll get $30,000 a year for four years and he’s just done that. He could have filed earlier, but he’s working full time and he would have lost the benefit through the earnings test, but anyway. I made him a $120,000.
Now, in addition, the fact that he’s waiting till 70 to collect his own retirement benefit means that he’s going to be collecting 76% higher check, month in and month out, from age 70 to 100, if he lives that long, compared to having collected his benefits starting at 62, for example. So, the benefit increase from waiting to collect your retirement benefit is dramatic. There’s a 76% higher return benefit available to you if you wait till 70. Social Security has for three years been encouraging people to take their benefits early because if they take them early, they can’t lose them by dying.
Let me put it this way, if they don’t take them early and they die, they won’t get their benefit. That’s the rational. Now, if you think about this, if you take a low benefit early and you do die, what happens to you? Well, as far as everybody seems to know, you go to heaven where you don’t need any money, where you’re perfectly happy, so you’re not engaged in any regret when you’re in heaven, right, so the real danger is not dying earlier and not getting your money, because you’re going to be in heaven. The real danger is living to a 100 at a much lower living standard because you were impatient and didn’t wait till 70 to collect a 76% higher check month in and month out for the next 30 years.
So, part of the big game to optimizing your Social Security benefits to getting what’s yours is to understand the insurance value of Social Security. The fact that this is a insurance product, the benefits continuing rolling in as long as you live. They have a certain economic value. We can put a price tag on that. I am a professor of economics, we’ve known since 1965, based on work by a very famous Israeli economist named (#22:32?), how to properly price this financial instrument.
So, this is – I mean, imagine you had an economy, a country, where nobody had the ability to insure their home. There was no homeowners insurance industry and then the governments comes along and offers people homeowners insurance and the agency is setup to offer that, starts telling people not to take it, because it’s a break even, it’s going to cost you something, some premium and on average you won’t get it back because your house mostly won’t burn down, most likely won’t burn down, so therefore don’t buy the insurance. That would be really shockingly absurd, that kind of situation, and who did buy the homeowners insurance would be protected against the worst case scenario, which is the house burns down, so, there would be a real value to them, enormous value to them, worth thousands, tens of thousands of dollars really having that protection.
Now, here is the same kind of situation, the worst case scenario is that you live to 100 and Social Security is providing this insurance against that happening. So, what you want to do is get the highest possible value continuing until you’re maximum age of life, not your expected age of life, but your maximum, because, I mean, the Social Security system pays you right through to the end, but the system historically has been focusing not on the most, the longest to which you could live, the maximum age of life, but rather he age of which you will die on average, but just like homeowners insurance, you can’t play the averages, you can’t play the averages with respect to your longevity risk.
Jason:
Not with one case, yeah, that’s why the insurance industry came about because they could play the averages. Well, you now, I mean, one of the big things i think in the field of longevity science that is just doing some pretty amazing stuff right now. It feels like we might be on the verge of cracking the code there, I think, Larry, one of the big problem people are going to face, it’s a good problem to have, mind you, but it’s a problem nonetheless is too much life at the end of the money.
That sort of begs the question about the broader economic societal issues here, you know, we need to plan and invest for our future because people will likely live so much longer. Is the Social Security system bankrupt? Will they just have to print more money to pay it? You’ve done a lot of work on the, what I call the 60 trillion dollar time bomb, the unfunded entitlements and so forth coming at us. You say, I think, it’s about 220 trillion dollars, I might be mistaken on that, so please correct me, but your numbers are pretty high and you’re the guy when it comes to that, everybody looks to you for that number.
Laurence:
Well, the true fiscal gap the country is facing, the federal government; including all the programs, Social Security, Medicare, paying for defense spending, gassing up Air Force One, all those projected expenses.
Jason:
For Michelle’s vacations.
Laurence:
Perhaps, I don’t know whether she’s taking a lot or not, but I haven’t kept track, but all those expenditures including servicing the official debt, they have a certain value in the present, what we call the present value and all the taxes that are projected to be paid to cover those expenditures also have a value in the present, a present value, and if you take the difference in these two present values, you find a fiscal gap, a gap between the two numbers of 210 trillion dollars. Now, that’s the number that I calculated based on the congressional budget offices projections of expenditures and taxes, which they released in July.
So, this number is really a congressional budget office, a CBO number, it’s a government number. They’re just not publicly reporting it this way because they’re trying to conceal the fact that the country is bankruptcy to the American public. We didn’t get bankrupt, we didn’t get into this kind of situation where we have a 210 fiscal gap.
Just to put it in perspective, our economy is about seven, I think, close to 18 trillion dollars in size, so we’ve got a fiscal gap that’s basically ten times the size of the economy. That’s like working ten years – having everybody work for ten years and do nothing but save up that money that was earn in order to cover expenditures that aren’t going to be covered by the tax system.
So, we are broke as broke can be and we are hiding this fact and we got here, because congress has spend decades engaged in what I call a ‘take as you go’ policy. Taking from the young, giving to the old, resources in the form of benefits, Medicare, Medicaid, Social Security, and then telling the young, don’t worry, you’ll have your opportunity to expropriate your kids when you’re older.
So, I’m not opposed to Social Security or Medicare, I’m all for social insurance. What I’m not for is ripping off your kids and other people’s kids and my kids in order to pay benefits to older generations. I’m deeply opposed to what I view is a moral outrage that we’re leaving our kids with a fiscal bill that represents 58% of ll the taxes that will be raised through time.
So, that means the country is 58% under finance. In other words, 210 trillion is 58% of the present value of all the projected future taxes. We need, one way of thinking about this 210 trillion dollar number is that we need an immediate and permanent 58% increase hike in every single federal tax, personal income taxes, VICA taxes, corporate taxes, estate and gift taxes, excise taxes. They all have to immediately raise by 58% to come up with an extra 210 trillion to close that fiscal gap or we can cut every single penny of expenditures by 33%.
So, we can cut your Social Security benefits when you retire by a third. We can cute your medicare benefits when you retire by a third. Somebody who is 95 like my mom right now, cut her benefits immediately by a third. Now, that’s not likely to happen nor am I advocating that, but we are in a very deep, deep hole. A magnitude worse than Detroit was when they declared bankruptcy. You may have been reading recently about the condition of the state of Illinois, they have a pension system which I believe is 60% underfunded, so our entire fiscal operation is about 60% underfunded.
Jason:
Okay, so here’s the question given all of this, number one is, compared to what or compared to whom, depending on, you know, compared to what other country? I mean, we are so mismanaged and it is just horrible, but you look around the world and you think, gosh, Japan’s not better off. China is not better off. Russia is not better off. Europe isn’t – Europe isn’t a country, of course but, you know, the Euro zone is not better off. Compared to what in terms of other major players around the world? I mean, is this just a race to the bottom, Larry, where we’re all just going to print our way out of this and I don’t mean that as a solution. I think it’s ridiculous, of course.
Laurence:
Each of these places has their challenges, but Japan has had two major pension reforms. Italy has had two major pension reforms. They have much closer control over healthcare spending. They have a bigger official debt, but they don’t have as much in the way of off the book liabilities. So, Italy for example has a negative fiscal gap. They don’t have a fiscal gap that’s 10.5% of GDP from now to the end of time. They have a fiscal gap that’s negative to about 2% of GDP from now to the end of time. They’re actually looking ahead and making real changes.
So, Germany has a much smaller fiscal gap. France does as well. England as a pretty high fiscal gap, not as high as ours. Luxembourg has an even higher fiscal gap as the share of – the President made it their GDP. So, in terms of proportional calculation. So, there are and I think Russia is actually in worse fiscal shape than the US is, although that’s not a 100% clear. So, it varies.
Jason:
When you look at fiscal shape though, you gotta take into account demographics. I mean, Russia is a dying country demographically. Japan is a dying country. Europe is a dying region demographically. Of course, the US is dying except if it was for its immigration.
Laurence:
I was going to say all these calculations I’m citing about Russia fiscal gap and Italy and so forth. They’ve fully taken to account demographics. So, yeah, Russia is shedding about 40 million people over the course of the century, according to the projections.
Jason:
Wow. That is staggering, that is staggering, by the way, wow.
Laurence:
We’re adding about a 100 million people. We’re adding more than the population of the Philippines, so imagine taking every Filipino and just dropping them, parachuting them down into the US. In proportion to where people now live and you can see the kind of overcrowding that we would have instantly, so we’re having a population explosion in our country and other places are losing, having population decline. Japan’s going to loose 70 million people.
So, they’re going to lose about 40% of the population and that’s a big deal when it comes to how they’re going to deal with China. China is not going to get that much bigger in terms of population, pretty much stable over the century, but India is going to grow by about 300 million people. So, they’re going to add to the population with the equivalent of the United States right now.
Jason:
See, the difference is though, for India, that’s a problem. For us, it’s an opportunity. You know, the Malthusian environmentalist might disagree, but I think it’s an opportunity. Yeah, so, anyway.
Laurence:
I don’t think it’s an opportunity to tell you the truth. I don’t think we make, fiscally speaking, make money from immigrants. I don’t think we’re preparing to deal with the congestion, the pollution. I’m basically trying to..
Jason:
I’m talking about population growth from the inside, not immigrant growth, that’s kind of a different issue.
Laurence:
Yeah, well the big driver, yeah, we have about a zero population growth rate, fatality rate right now. It’s about 2.1 children per births per women each year and that, without any immigration our population would ultimately stabilize, but that’s not the case. We’re really bringing in people left, right, and center independent of, you know, if they’re skilled or not skilled and I think we need to have a small immigration policy and some significant amnesty for people that are here.
So, I basically applaud President Obama and other people in congress that have pushed for a reasonable immigration bill, but we also need to secure the boarder and the boarder around this country should have been secured years ago. It doesn’t take that much to build a serious fence between Tijuana or San Diego and wherever the boarder ends. It may be in Texas.
Jason:
Okay. I didn’t mean to get too much off on the immigration tangent, but you know, I just think when you look at this problem of the 210, I’ll call it, the 210 trillion time bomb and you compare us to other countries, gosh, I think America by comparison is in much better shape and you may disagree with me. That’s just my..
Laurence:
I think we’re in better shape in terms of if you count a raw population as having more people being a good thing, I think it’s a very bad thing if you’re not prepared for it, if you’re a major polluter per capita in the world. If you are worried about climate change.
Jason:
But in terms of consumption versus pollution, you know, all we’ve done is export our pollution to China and go manufacture our stuff over there as if we’re not breathing the same air, you know, it’s kind of a ridiculous idea, but what I wanted to ask you. So, we’ve got this 210 trillion dollar time bomb, how are we going to get out of it? Is it – I mean, is the future inflationary or deflationary? I think that’s the big question on the table or is it just sort of this kind of stagnationary? Is it sort of a Phillips curve type scenario or significant? One way or the other?
Laurence:
Well, we’ve been printing money at a torrid pace since 2007. The federal reserve has increased the amount of money it had printed between its founding around, 1913 through 2007. There was about 800 billion dollars printed and today you can check the statistics and I think they printed about four trillion dollars up to now. So, they’ve increased the basic money supply by about three trillion.
Jason:
So, are we going to increase the money supply by 210 trillion dollars? And by the way, how much time are we talking about? Are we talking about 15 years for that?
Laurence:
I think if were listening to your podcast here and spent a few days with me and really in a class room where i could show them some data and some of the economic reasoning behind the concern here and explain very clearly the kinds of policies we’ve been running, they would quickly see that the country is in terrible shape and we need to cut spending, raise taxes, and we can’t print enough money to cover 210 trillion dollar short fall. It’s not how it works.
So, when everybody in the country starts to realize that things, that there has been printing a lot of money to pay its bills and at that point starts abandoning US treasury bonds and that leads to hikes in interesting rates and that leads the bond market to crash and probably the stock market. When all of that will take place, it’s any man’s guess, because the government has been very effective in hiding the facts about our fiscal nightmare that we’re preparing for our children.
Jason:
Yeah, I agree, I agree. It’s amazing how the US has been able to defy gravity in a way and just sort of kick the can down the road. I mean, we’ve had five decades of this spending binge.
Laurence:
Yeah, the national saving rate is about 3%. It was 15% in 1950. The domestic rate is 4%, was 15% in 1950. So, exactly what our economic models predict has happened that take from the young, give to the old, the old will consume more. The younger being told not to worry, they’re going to get their taxes back in the form of transfer payments when they’re old, so don’t worry about having to pay more taxes today, just think about that as an asset and they’ve maintained their consumption. The old people have increased their consumption and total consumption has gone up. National savings went down and saving is invested and if you have less to save – less to invest, you less investment. It’s all connected and it’s exactly what our equation sayers are going to happen and our simulation models, our computer models will show will happen, has happened.
Jason:
What do those models show about my question though and if you don’t want to make a stab at it, feel free not to, but I just gotta ask you like, you know, inflation, deflation, stagnation? What are the next five, ten years hold?
Laurence:
I think we’re going to have very high inflation, because any country that’s gotten into this kind of fiscal jam that the first resort is to printing money that’s what we’ve seen actually happen since 2007, so we’ve had eight years of responding to this issue by just printing money, so I see us trying to continue doing that.
Jason:
As hideous as it is, it seems like inflating your way out of your debt and your problems is really kind of a good business plan for governments. I mean, I’m not sanctioning by any means or recommending it, but if you’re sitting in the shoes of the government and you want to become president, you gotta promise things to people, you gotta give people free stuff, you gotta dole out the entitlements and the only way to do that and keep the low tax people happy, even though it’s not low, is to just inflate, you know, that’s the hidden tax. It’s a very efficient and covert method of wealth transfer, isn’t it?
Laurence:
Oh, absolutely and we’re trying to do that, but the problem is that you really can’t print 210 trillion dollars worth of money.
Jason:
Why not? Why not? I mean, would that just mean massive hype? Would it be Zimbabwe type inflation?
Laurence:
Probably worse than Zimbabwe. We’ve already laid in place the potential for a hyper inflation. When you increase the basic money supply by a factor of four or so, you’re putting in place the pontifical for prices to grow – to grow by a factor of four and if they grow very rapidly by a factor of four, that’s very high inflation.
Jason:
Why hasn’t it happened yet? I mean, people would argue that, you know, I remember Peter Schiff predicting back in 2008 that gold would be $5,000 by the end of Obama’s first term, you know, that didn’t even come close to true. He’s been on the show and I’ve touched that issue with him, but why hasn’t it happened yet, Larry? I mean, you know, four trillion dollars created out of thin air, you know, very mild inflation.
Laurence:
Well, you know, I think partly the public doesn’t understand the prices and price movements are really driven by expectations and when expectations become such that people think there’s going to be a lot of money printed to pay the government’s bills and they start turning money into a hot potato. So, the same money becomes – starts circulating faster, so you actually have effectively more money and that’s puts up a pressure on prices, so the, it’s a matter of expectations of the street, the bond traders think that, yeah, we’re in trouble, but we’re going to make any moves until we see other people making moves, because if we lose money together, we still have a job. If we lose money by ourselves we get fired. So, you know, we did that with PIMCO ended up, in effect, getting fired.
Jason:
Very interesting. Larry, give out your website and tell people where they can find the book, etcetera.
Laurence:
Well, the book again is Get What’s Yours: The Secrets to Maxing Out Your Social Security. You can get it at your local bookstore. That’s where I would send people, because I’m not a big fan of Amazon or Barnes & Noble, but if you can’t get to your book store, you can go online to Amazon or Barnes & Noble and pick it up.
I think Amazon has it being sold for $10-11, it might make you a couple of thousand dollars, so it’s certainty worth buying even if you’re a younger person, you should buy it for your parents or read it and then tell your parents what to do it or your grand parents if you’re young enough, because they need help making sure they get everything that’s due to them so that they’ll have money to help you if you need it or require less money from you if they need it.
So, there’s that and there’s a software program called MaximizeMySocialSecurity.com. This is where my little software company markets a $40 program that anybody can use to figure out the optimal strategy for maximizing their life time benefits. So, I would say the combination of the book, Gets what’s Yours and the Social Security software, Maximizing My Social Security, both things together can really help you .
Jason:
Definitely. Good stuff. Well Laurence Kotlikoff, arre there any questions I didn’t ask you or anything you want to tell the listeners in general as we sign off here.
Laurence:
I think the other message would be to look at Kotlikoff.net. This is my main website, academic website where I list all my writings, whether they’re columns or articles so that people that want to hear my views or read my views can do very easily right at that website, Kotlikoff.net. So, I recently written about Greece and how they should basically exit their indebtedness, how they should default, exactly how they should go about it, how to fix the banking system, how to fix the Social Security system.
I have a website called the PurplePlans.org, which goes into some details about how economists think we should be fixing the economy, so anybody who is working with a politician in this campaign there seems to be a zillion people running for President, all those candidates should be looking at the PurplePlans.org to understand how they can fix the economy, because it’s a set of postcard length plans that economists have largely endorsed and we think we know how to deal with the economy much better than the politicians.
Jason:
Good stuff. Laurence Kotlikoff, thank you so much for joining us again. We, of course, would love to have you back on the show always and keep up the good work.
Laurence:
Great, Jason. Any time.
Announcer:
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