The near-nationwide lockdown intended to slow the spread of COVID-19 has created “a perfect macroeconomic storm” that’s put the U.S. on track for a depression worse even than the Great Depression — it is therefore “idiotic exuberance” to invest in the market now, argues Boston University economics professor Laurence Kotlikoff in an interview with ThinkAdvisor.
Kotlikoff, who in 2014 was named by The Economist one of the world’s 25 most influential economists, floats a plan for reopening the U.S. economy: a nationalized household testing program run by the states. He is working with a Cornell University professor on a testing model.
Director of the Fiscal Analysis Center, Kotlikoff served on President Ronald Reagan’s Council of Economic Advisers and as a consultant to the International Monetary Fund, the World Bank, the U.S. Education Department and the U.S. Labor Department, among other organizations and governments.
In the interview, the professor, who made a short-lived bid for the presidency in 2012, is critical of President Donald Trump’s “inactions” in managing the coronavirus crisis, charging him with “playing politics with this plague, causing tens of thousands of deaths” and arguing that “what he’s doing will kill the economy.”
The discussion turned to options for cash-strapped Americans who have lost their jobs. One quite effective one, Kotlikoff says, would be withdrawing cash from a 401(k) account to pay off a mortgage.
Other choices include filing early for Social Security — though the Social Security authority strongly advises that tapping retirement accounts is a better idea — and reducing cost-of-living expenses by moving to a state without state income tax.
An outspoken critic of the Social Security Administration (The government “operated on Social Security’s rules with a meat cleaver”), Kotlikoff is the author of “Get What’s Yours — Revised and Updated: The Secrets to Maxing Out Your Social Security,” written with Philip Moeller (February 2015).
The professor is president of the financial planning software firm Economic Security Planning, with offerings to maximize Social Security lifetime benefits.
ThinkAdvisor interviewed Kotlikoff by phone on Tuesday. His forecast for the wounded U.S. economy: “Everybody is likely to feel some pain unless you removed yourself to an island.”
Here are excerpts from our conversation:
THINKADVISOR: You wrote in Forbes on March 16 that the coronavirus lockdown has created: “the perfect macroeconomic storm — a tremendous supply-side shock due to people not being … allowed to go to work or shop, coupled with a substantial slow-down/shut down in the global supply chain.” Ten days later, you wrote, “Get out of the market immediately.” Why that extreme measure?
LAURENCE KOTLIKOFF: It’s idiotic exuberance to be in the market right now. People should go to cash until the market gets to a reasonable valuation. We’re heading toward the greatest depression: You’ll see the second quarter GDP down 35%-40%. In the Great Depression, it took three years, 1929-1933, for the GDP to fall 26%. Now we’re talking about output falling by a bigger percentage in just three months.
In the Great Depression, people were reduced to selling apples on street corners. Are you predicting a similarly grim scenario?
We have more social programs than we had then — we have ways of redistributing the pain.
What’s the best option for reopening the economy?
There’s a way to get the majority of the country back to work very quickly if we do it intelligently at the federal level. But we have a totally incompetent stable moron running the country: President Trump is causing deaths, and what he’s doing will kill the economy. By his inactions and playing politics with this plague, he’s causing tens of thousands of deaths.
What should be done about reopening the economy?
There’s a route out of this. Some of Trump’s supporters may not like it, but they’re not going to like being on a ventilator either [if they contract COVID-19 and require one]. We need a nationalized testing program under government control for the duration of the pandemic.
How would that work?
We need a once-a-week, then daily, group-household test. Each morning a testing mobile, operated by military personnel, would come to your street. You’d provide swab samples, and 15 minutes later your household could be cleared to go to work and visit stores and restaurants for that day, or not.
What if you’re cleared?