Boston University economist Laurence Kotlikoff is understandably unhappy with my critique of his "Inform Act"--a proposed federal law dictating a new way of government fiscal accounting that I explained in a recent column was a useless and misleading device that could be used to attack Social Security and Medicare.
So he's taken to forbes.com to present a lengthy response. Unfortunately, most of his defense confirms rather than contradicts what I said about his brainchild, which uses "generational accounting" to show the burden that government spending today imposes on our children and grandchildren. Let's take a look.
To begin with, Kotlikoff calls my piece an exercise in "character assassination." He doesn't say whose character. It couldn't be his, since all I wrote about him personally was to identify him as "a Boston University economist who's respected as an expert on long-term fiscal issues but rather more controversial when it comes to his dabbling in policy prescriptions." If that's "character assassination" I must be a pretty poor shot.
He then challenges my assertion that "generational accounting doesn’t make a distinction between spending and investment. An appropriation to send a congressional committee on a junket to the Bahamas carries the same weight as building a schoolhouse or a bridge.”
"Michael," he writes, "the goal of generational accounting is certainly not to undervalue public goods, which I probably value more than you." (Based on what?)
He goes on to explain that the goal of his method is "to understand which generations will pay for those public goods and other government spending." We need to "make judgments about whether to make these expensive expenditures. Yet we can’t make those decisions until we understand who will likely pay for them."
If that's really the point of generational accounting, then who needs it? We already know who'll pay for an aircraft carrier built today with borrowed funds: for the most part, the taxpayers of the future. The question is what do they get in return. I observed that under generational accounting, future benefits of an investment today are hard, even impossible to measure. He seems to agree: "The benefits are hard to assess or allocate," he writes.
I describe his view of Social Security and Medicare as "devices for the old to rip off the young." He disagrees, saying I'm just "making up stuff." He says his view of those programs is that they've been "financed, in large and unfair part, on the backs of your kids and mine." Righto. My description of his position took nine words, his took 14. Other than that, they sound basically identical to me. You make the call.
Kotlikoff pitches a fit at my assertion that one of the big supporters of the Inform Act, an organization called the Can Kicks Back that purports to stand up for the fiscal rights of millennials, "actually has links to hedge fund billionaire Peter G. Peterson, whose hostility to Social Security and Medicare is a byword.”
Going into full Joseph Welch mode, Kotlikoff asks, "Michael, have you no shame?" (Maybe this is the "character assassination" part.) Peter Peterson, he says, is "a marvelous person who has served our country at the highest level. He is not hostile to Social Security and Medicare."
Is that so? I reported on Peterson's history of attacks on Social Security and Medicare last year. They date back at least to 1994, when he urged in an article in the New York Review of Books "putting an end to the vast and largely unearned windfall we now give to the more affluent half of all American households" through those two programs.
What he didn't say then, of course, is that most recipients of Social Security and Medicare have spent their lives earning the benefits through payroll taxes. Or that "more affluent" is not synonymous with "affluent": the "more affluent half" of U.S. households in 1994 were those earning $32,000 or more--$48,418 in today's dollars. Is that an affluent income? Anyway, Peterson recommended means-testing and cutting government benefits for anyone then earning more than $35,000.
By the way, in his 1994 article Peterson cited Kotlikoff and based much of his argument on Kotlikoff's generational accounting. That might explain why for Kotlikoff, Petersonness is next to godliness.
Kotlikoff contends the Inform Act is necessary because it's the only way for us to know how much of a burden the national debt will be on future generations. But he also acknowledges that it's unknowable, under generational accounting or any other method, because so much of the future is unknowable.
"If you, Michael, know what inflation will be over the next 30 years, pray tell the country," he writes.
Yes. Exactly. If one of the most important factors in the fiscal future is unknowable even out to 30 years, then what good is generational accounting or the Inform Act? Consider how many other factors are unknowable: U.S. population. Gross domestic product. War, technological progress, productivity. Pretty much everything, in other words.
So thanks, Larry Kotlikoff, for explaining why the Inform Act makes no sense. That's what I said about it to begin with.