Citizen Action Monitor

“U.S. bankrupt” says economics prof Pt 2/2: “With 500 cooks in Congress making laws, we’re going to end up in a mess”

No 62 Posted by fw, September 09, 2010

In the context of my 6-part transcription of the documentary Overdose: The Next Financial Crisis, which nailed the “The solution is the problem” epithet to the door of the White House, it was no surprise to see Obama politicking in Ohio this week where he steamrollered out more of the same tried and failed proposals to re-ignite a sputtering recovery — another $50 billion for U.S. roads, rails and airports.

Economics Professor Larry Kotlikoff

Unwilling to let this Obamanomics’ moment pass without critical comment, I Googled around and found an additional authoritative voice sounding the alarm for us – Professor Larry Kotlikoff, economics prof at the Boston University, believes the U.S. needs to start cutting spending immediately or face bankruptcy.

In Part 1 of this two-part post, Professor Kotlikoff explained why he thinks the U.S. is bankrupt and in far worse fiscal shape than Greece.

Following is my transcription of the second half of that 10-minute interview with Kotlikoff, which was broadcast on September 6 on RT, a Russian-based TV network. In this part, interviewer Marina Portnaya (MP) asks Larry Kotlikoff (LK) some provocative questions, including:

  • How come, despite warnings of collapse, U.S. officials see signs of economic recovery?
  • What can ordinary people do to protect themselves from collapse?
  • Why aren’t Obama’s economic advisors listening to solutions that you (Kotlikoff) are advocating?

U.S. officials point to “signs of recovery.” Where have we heard that before?

MP – We’ve heard these types of theories for about two years now. That we can’t keep printing money, we could be standing in line for bread. Yet U.S. officials say that we are seeing slow, slow signs of recovery. Are they trying to sugar-coat a problem, are they trying to camouflage it?

LK – They tend to like to sugar-coat and not discuss the long-term problems in their full magnitude. So this fiscal gap analysis that the IMF did in their 2010 review of U.S. fiscal policy, it was tucked away at the back of their report. It wasn’t highlighted in the summary. Politicians are politicians. You’re not necessarily going to get the truth from them. And an economy can be growing very well and all of a sudden people realize how broke it is and the bottom falls out. Take Argentina in 2002. Before that, for roughly ten years, it was going great guns. It was doing really well. All of a sudden people realized that it was beyond its capacity to pay its bills and everything fell apart. The fact of the matter is the U.S. is not recovering very well. Whether this happens tomorrow or two years from now or ten years from now, the reality is that we have a situation that we can’t deal with if we continue to spend at this rate. We have to cut spending immediately and keep it low as a share of GDP for a time. We have to do some radical things today or it will just get worse.

“Protect yourself. Don’t invest in anything that will lose value”

MP – What are Americans and foreign investors supposed to do with the information you’re providing? Because it’s a little scary when you’re warning the country’s going to collapse, essentially, is what you’re saying.

LK – Well, I think they can protect themselves by not buying long-term U.S. government bonds or long-term U.S. corporate bonds because . . .

MP – Don’t buy in to your own country?

LK – If you’re an American, you’re investing — or if you’re foreigner – you’re investing in a bond that’s going to pay you back a fixed amount of dollars. If prices go up 10, 200 percent — whatever percent they go up [and] I think they’re going to skyrocket given this policy — and therefore people are going to be paid back in watered-down dollars. Dollars that won’t buy anything in real terms. So if you want to protect yourself you don’t want to be investing in things that are going to lose value.

Caveat emptor – “The U.S. financial system is fundamentally corrupt”

MP – What about those that don’t invest? That are just trying to live their lives day-by-day? There are a lot of Americans that don’t invest.

LK – This is why it’s so important to get this problem under control because it’s a threat to the prosperity of the country, to the employment situation and to the wage growth for younger people. We need to really get people to be confident about the American economy and the American government and change that whole situation around. Right now everybody understands to some degree – and some of us understand to a much greater degree – how broke this country is, and how important it is to get control of it. But people are coming around to the understanding that things need to be fixed. Now we have to radically reform our fiscal and also our financial institutions. The financial system in the U.S. needs to be fixed fundamentally. It’s fundamentally corrupt as far as I can tell.

So why aren’t Obama’s advisors listening to Kotlikoff?

MP – The economic advisors surrounding U.S. President Barack Obama, I trust that they understand the situation. If there’re ten of them, I trust that at least three do, if not all ten – understand in the way that you’re explaining it. How come they’re not applying any of the solutions or suggestions that you’ve just now laid out?

LK – The economists that go to work in Washington generally leave their economics at home and become politicians from one moment to the next. Immediately they go there and they say: “Oh, we can’t propose the first best option for fixing this problem because it’s politically unviable. So, therefore, we’re going to propose the third best.” And then you start discussing the third best and you end up with the fifth best. So we need to have some people with some strength behind their convictions to say, “Look, either do it right or forget it.”

Will we see rioting in the streets of America?

MP – If there are not any changes that take place soon, is the world going to see Americans rioting in the streets the same way that the world saw those living in Greece rioting in the streets?

LK — We can have some pretty hard times. Yeah, we already have a lot of very hard times for many Americans right now, millions of Americans. I believe a very younger population handing over so much of their pay check to the government in different ways getting back (inaudible). . . They’re going to have to at some point cut benefits dramatically. So leaving this big bill to younger people is going to make them very unhappy. You may see people leaving the country to try and find jobs – even in China and other places. And so it’s a pretty depressing story. But I don’t want to depress everybody. I want to try to get this thing fixed. I want to say here’s the truth. I’m not a Republican. I’m not a Democrat. But there is a way to fix this. And having 500 cooks in Congress or so, that number of Congress people making law is going to end up as a mess. And we’ve seen that happen. So we need to have very simple solutions.

MP – Professor Kotlikoff, thanks you very much for sitting down with me.

LK – My pleasure.

My concluding thoughts – three points

First, considering Kotlikoff’s disparaging opinion of politicians, and the picture he paints of a “fundamentally corrupt” financial system, I trust that he isn’t naively expecting a call from the White House anytime soon to listen to his version of “the truth”. Second, he asserts that “People are coming around to the understanding that things need to be fixed.” Even if that is so – and I hope it is – what power will ordinary citizens have to change a corrupt system, short of mass civil disobedience or rioting in the streets? Third, the professor’s advice on how to protect oneself in the face of a possible financial collapse doesn’t help me as a stock holder. But, in fairness, he’s an economics prof, not a financial advisor.

For more information

Visit Kotlikoff’s website where you will find his articles and rave reviews of his latest book, which proposes a fix to the U.S. “financial plague” — Jimmy Stewart is Dead: Ending the World’s Ongoing Financial Plague with Limited Purpose Banking.

Kotlikoff is a hot ticket right now. He’s all over the web, appearing on talk shows and in the pages of the leading online alternative press and the blogosphere. Just Google his name and stand back.

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This entry was posted on September 9, 2010 by in information counterpower and tagged , , .
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