A column by Laurence Kotlikoff, (left), has sparked quite the firestorm in the blogosphere. The professor of economics at Boston University and author of "Jimmy Stewart Is Dead: Ending the World's Ongoing Financial Plague with Limited Purpose Banking" is known for straight talk and controversial opinions, and this one doesn’t disappoint. Writing at Forbes.com, Kotlikoff argues the size of the deficit is grossly understated due to fuzzy math, and baby boomers are to blame.
"Every year on Veterans Day, we baby boomers look around and see fewer and fewer members of the Greatest Generation–our parents and grandparents who rose en mass to fight a terrible war and keep us safe," Kotlikoff writes. "The memory of their service provokes guilt as well as pride. As a group, we baby boomers have made no comparable sacrifice. Most of us spent our youth and middle age looking out for No. 1. And we are about to enter old age with a singular goal in mind, namely, extracting as much as possible from our kids and grandkids."
“Our worst economic bequest is the fantastic fiscal liability we're leaving our kids,” he continues. “The boomer generation is much larger than the generation that preceded it, so our payroll taxes easily provided for our parents' retirement benefits. It was a case of the many supporting the few. But the next generation is much smaller than ours, so very soon it will be a case of the few supporting the many. That's a formula for disaster. When we boomers fully retire, our kids will need to pay each of us, on average, $50,000 in today's dollars to cover our retirement benefits. The annual costs of this largesse will total close to $4 trillion!”
The only way to assess a country's true fiscal condition, according to Kotlikoff, is by forming the country's fiscal gap–the present value total of all the official debts, and unofficial current and future spending obligations after netting out all the current and future taxes everyone is currently slated to pay. No matter how one labels receipts and payments, he says, the fiscal gap remains the same.
So how large is the U.S. fiscal gap? The answer, based on the Congressional Budget Office's latest projections, is $202 trillion. In comparison, the official debt held by the public is only $9 trillion. Hence, Kotlikoff says, the real fiscal problem facing the country is 20 times larger than the one we've been publicly acknowledging. And that is where the deficit reduction committee should focus their attention.
Sleep well tonight.