In this episode, Jason Hartman welcomes Laurence Kotlikoff, a William Warren FairField Professor for Economics at Boston University and author of Get What’s Yours: The Secrets to Maxing Out Your Social Security. The two discuss the issues with Social Security, the US debt compared to the rest of the world, and the future economic environment. They also talk about ThePurplePlans.org, a website that shares details on how economists believe you can fix the economy.
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Welcome to creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multi millionaire who not only talks the talk, but walk the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:56
Welcome to the creating wealth show. This is episode number 532. It’s Jason Hartman. Again, 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 200 and $10 trillion 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 other credible economist and academic out there. And what does that timebomb refer to? You ask? Well, it refers to the unfunded mandates the unfunded entitlements, the future of America and what it will have to spend to keep the promises it has already made over the next two, you know, it’s a little fuzzy to 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 reelected. 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, in Are you glad our current president is probably starting to think about planning his library, I assure him, Well, 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 to 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, you know, I, I am the last guy that wants to be thinking anything about Social Security, because I think I’m gonna be way too wealthy to worry about that at the time it comes. But listen, you know, 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 best selling 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 and they creating wealth for 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 migration 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 been so busy with my move in trying to get settled the last couple of weeks it really just moving I tell you moving takes a lot out of you. It really does. You know, everybody you talked to will agree that moving is probably one of the most stressful difficult and close to horrific experiences anybody can have. Right? It’s easy to move. it’s it’s a it’s it’s giant on the hassle factor. You know, hashtag first world problems. Of course, some people can’t find fresh water. Some people are living in Warzone, some people are fighting wars. Moving is nothing compared to any of those things. So forgive me with my firstworldproblems talk here. But among as firstworldproblems go moving is pretty tough.
Okay, I think we’ll all agree on that. So what does it cost to rent a 26 foot u haul truck? To go from Phoenix, Arizona, to La Jolla, California? It’s $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 hundred and $94 26 foot truck? That’s the largest truck you haul rents 26 feet, 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 people are leaving. So this tells you that people are leaving Southern 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 any location, you know, type in a bunch of different cities and see where the in migration out migration are.
Now, you can do further analysis on this pro mover.org is a website that I’ve used before I bought one of their expensive $300 reports a few years back to look at this. And I thought that 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 personal 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 10th episode author. Of course we have people like t harv eker Bob Proctor, Denis waitley. Gosh, I can’t even remember all the names. We’ve had so many great 10th episode guests in the past. You know Harvey Mackay many many many greats out there, okay. And we want to get Tony Robbins on and you know a whole bunch of others but This one is I’ve been listening to this book today. And that’s why I want 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 spiritual growth. Michael singer, the untethered soul really great book. And before we get to Laurence Kotlikoff, our guest today, our Chicago in 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, 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 as you would express interest in our stuff, I would 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 reviews. 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 16, we would ask people to arrive in Chicago on July 15, we would start at about 9am. On July 16, 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 their operation. And then we would have dinner, and sleep in Chicago on the night of July 16. And in the morning of July 17, we would drive to Grand Rapids, that’s about a three hour drive. And then that afternoon, we would tour properties. And some of you if you want to fly out of Grand Rapids, you could 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 properties you can buy as well, on the 17th, you could 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. 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 would 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 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 Jason hartman.com. Under the events section, we’ll have a place where you can sign up.
So without further ado, let’s get to our guest. Laurence Kotlikoff talk about Social Security, how to maximize that talk 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 a 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 14:18
Great, nice to be with you.
Jason Hartman 14:19
Yeah, it’s good to have you. 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. But is Social Security
Laurence Kotlikoff 14:32
sexist? 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 10s 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 security to court. And the Supreme Court before she was a Supreme Court justice chose to change that. So so security is nominally sex blind. But when you look at the fact that women earn less than men, you see the fact that in, in reality, it is sexist. There are lots of provisions that are, in some ways are really favorable to women, and in other ways, certain women in other ways highly discriminating discriminatory against women. So it’s sexist. And 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 Hartman 15:54
going go ahead. This is quite interesting, because I just recently finished reading Dr. Warren Farrell’s book about the myth of male power and, and you know, it’s kind of counterintuitive, we our culture tends to think, oh, men have a much better deal. But I don’t know, I kind of think women have a better deal. Actually,
Laurence Kotlikoff 16:11
they do. And they don’t take
Laurence Kotlikoff 16:15
the incentive to work. If you’re a suppose you’re a we’re a female who works for McDonald’s earns relatively little. And you have a husband, who’s 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, then 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 widow’s benefit on his work record, you collect versus spousal benefit, and then a widows benefit. So while that might sound good, you’re gonna 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 every dollar you earn. And if you really realize that you’re not getting anything back, then that becomes an extra 12.4% tax, that the real, you know, extra just disincentive to work that your husband doesn’t face. On the contrary, 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 workplace, keeping them down, economically speaking, keeping them as second class citizens. Now, then they’re also think about a woman who’s got a 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 lifetime. 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% of our pay, day in and day out or year, month in and month out or week in week out from a 16 to maybe age, whatever 70 they work that long, they can get excellent, absolutely nothing more for having made all those contributions to the system. So I view that as a form of sexual discrimination.
Jason Hartman 19:05
Larry, when I originally saw the book, get what’s yours? I kind 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 who are 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 Kotlikoff 19:27
Well, I’ll give you an example. I have a friend Glenn Lowry, who’s an economics professor Brown, one of the top economists in the world. His wife tragically passed away when she was 58. Glenn is just turned 66. We had dinner about a year ago. He I asked him whether he thought he could collect any widows, whatever benefits from Linda’s work record. He said absolutely not. I kept asking him the same question over and over again. He said absolutely not fine. He said, Well, what am I missing? I said, Well, you’re missing $120,000 that you can get for free, just by filing, when you turn 66 for your widower benefit, 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 them the benefit through the earnings test. But anyway, I made him $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 a 76% higher check month in and month out from age 70 to 100 of the lives that long, compared to having collected his benefit starting at 62, for example. So the benefit increased from, from waiting to collect a retirement benefit is dramatic. There’s a 76% higher retirement benefit available to you if you wait till 70. So security has for years been encouraging people to take their benefits early, because if they take them early, they can’t lose them by dying, you know, if they 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 rationale. Now, if you think about this, if you take a low benefit early, and you do die, what ends up what 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 early and not getting your money. Because you’re going to be in heaven. The real danger is living to 100 at a much lower living standard, because you were impatient and didn’t wait till 70 to collect to 76% higher check month in month out for the next 30 years. So, so part of the big gain to optimizing your Social Security benefits to getting what yours is to understand the insurance value of Social Security, the fact that this is a insurance product, the benefits continue rolling in as long as you live, they have a certain economic value, we can put a price tag on that I’m a professor of economics we’ve known since 1965, based on work by a very famous Israeli economist named manakin. Yari, how to properly price this financial instrument. So this is, imagine you had an economy, a country where nobody had the ability to insure their home, there was nobody, no homeowners insurance industry, and then comes along and offers people homeowners insurance, and the agency set up to offer that starts telling people not to take it, because it’s a breakeven, it’s going to cost you something some premium. And on average, your you won’t get it back because your house based mostly one burned 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 it did buy the homeowners insurance would be protected against the worst case scenario, which is their house burns down. So there was be a real value to them. enormous value to them worth thousands and 10s of thousands of dollars really having that protection. Now here, it’s 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 when you want to do is get the highest possible value, continuing until, until your maximum age of life, not your expected age of life, but your maximum. Because I mean, it’s so serious 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, the age of would you you will die on average. But just like with health insurance, homeowners insurance, you can’t play the averages. You can’t play the averages with respect to your longevity risk.
Jason Hartman 24:24
Now with one case, yeah, that’s why and that’s why the insurance industry came about because they could play the averages. Well, you know, I mean, one of the big things, I think, in the field of longevity sciences that is just doing some pretty amazing stuff right now it feels like we might be on the verge of, you know, cracking the code there. I think Larry, you know, one of the big problems people are going to face so it’s a good problem to have, mind you, but it’s a problem nonetheless, is is too much life at the end of the money. You know, that sort of begs the question about the broader economic and societal issues here. You know, we need to plan and invest For our future because yeah, 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, you know, what I call the $60 trillion time bomb the unfunded entitlements and so forth coming at us, you you say I think it’s about 200 and $20 trillion. I might be mistaken on that. So please correct me, but it’s your numbers pretty high. And you’re the guy when it comes to that. I mean, everybody looks to you for that number.
Laurence Kotlikoff 25:30
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 for Michelle’s vacations.
Laurence Kotlikoff 25:46
Perhaps Yeah, I don’t know whether she saved a lot or not, I haven’t kept track. But all those expenditures, including servicing the official debt, they have a certain value in the presence of what we call 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 200 and $10 trillion. Now, that’s a number that I calculated based on the Congressional Budget office’s projections of expenditures and taxes, which they released in July. So this number is really a Congressional Budget Office 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 bankrupt to the American public. And we didn’t get bankrupt, we didn’t get into this kind of situation where we have a 200 and $10 trillion fiscal gap, just to put it in perspective, our economy’s about seven, I think close to $18 trillion dollars in size. So we’ve got a fiscal gap, that’s basically 10 times the size of the economy. That’s like 10, working 10 years having the con having everybody worked for 10 years, and do nothing but save up that money that was earned in order to cover expenditures that aren’t going to be covered by other tax by by the tax system. So we are broke is broken be. And we are hiding this fact. And we got here, because Congress has spent decades engaged in what I call 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 a opposed to so security and the other, quite the worst are 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 is I view a moral outrage that we are leaving our kids with a fiscal bill that represents 58% of all the taxes will be raised through time. So that means that the country is 58% under finance, in other words, 200 and 10 trillion is 58% of the present value of all the projected future taxes. So we need one way of thinking about this too unintentionally in our 200 and $10 trillion number is that we need a an immediate and permanent 58% increase hike in every single federal tax personal income taxes, FICA taxes, corporate taxes, signif, taxes, excise taxes, they all have to immediately rise 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 your Social Security benefits when you retire by a third, you can cut your Medicare benefits when you retire by a third. Somebody who’s 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 far worse. orders of magnitude worse than Detroit was when they were declared bankruptcy. You may have been reading recently about the condition of the state of Illinois, they have a pension system which is I believe 60% underfunded. So our fiscal our entire fiscal operation is about 60%. underfunded.
Jason Hartman 29:43
Okay, so here’s the question given all of this number one is compared to what are compared to whom, depending on you know, compared to what other country I mean, we are so mismanaged and it is just deplorable. But you look around the world and you think God Japan’s not better off. China’s not better off. Russia is not better off. Europe isn’t Europe’s not a country, of course. But you know, the eurozone is not better off, compared to what, you know, in terms of other major players around the world. I mean, are we all just gonna? Is this just a race to the bottom? Larry, 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, but
Laurence Kotlikoff 30:24
each of these places has their challenges. But Japan has had two major pinch reforms, Italy has had two major pension reforms, they’re much closer control or health care spending, they have a bigger official debt, but they don’t have as much in the way of off the book liability. So Italy, for example, has a negative fiscal gap, they don’t have a fiscal gap, that’s 10.5% of GDP from now until the end of time, they have a fiscal gap that’s negative about 2% of GDP, from now to the end of time, thanks to, they’re actually looking ahead and making real changes. So Germany has got a much smaller fiscal gap. France does as well, England has a pretty high fiscal gap, but not as high as ours. Luxembourg has an even higher fiscal gap as a share of the president of the GDP. So in terms of, you know, a proportional calculation. So there are, and I think Russia is actually in worse fiscal shape than the US is, although that’s not 100%. Clear.
Laurence Kotlikoff 31:32
So it varies.
Jason Hartman 31:33
When you look at fiscal shape, though, you’ve got to take into account like demographics. I mean, Russia is a dying country, demographically, Japan’s a dying country. Europe is a dying, you know, region, demographically, they of course, the US is dying. And you know, except if it wasn’t for its immigration,
Laurence Kotlikoff 31:50
I was gonna say that all these calculations, I’m citing about Russia’s fiscal gap, and Italy’s and before they fully take into account demographics. So yeah, Russia’s shedding about 40 million people over the course of the century, according to projections.
Jason Hartman 32:05
Wow, that is staggering. That is staggering. By the way, wow,
Laurence Kotlikoff 32:10
we’re adding about 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, are losing or having population decline, Japan is going to lose 70 million people. So they’re going to lose about 40% of their population. And that’s, you know, that’s a big deal when it comes to how are they going to deal with China, China’s 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 their population, the equivalent of the United States right now.
Jason Hartman 33:09
See the differences though, for India. That’s a problem. For us. It’s an opportunity. I mean, you know, the the Malthusian environmentalist might disagree, but I think it’s an opportunity, you know. So anyway,
Laurence Kotlikoff 33:22
I don’t think it’s an opportunity to tell you the truth. I don’t think that we make fiscally speaking make money from immigrants. I don’t think we’re preparing to deal with the congestion pollution. You know, basically,
Jason Hartman 33:35
I’m talking I’m talking about population growth from the inside, not immigrant growth. That’s kind of a different issue.
Laurence Kotlikoff 33:40
Yeah. Well, the big driver that Yeah, we have about a zero population growth rate, fertility rate right now, it’s about two per 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 people in left, right and center independent of you know, if they’re skilled or not skilled, and I think we need to have a reasonable immigration policy and some significant amnesty for people that are here. So I basically applaud President Obama and other people in Congress that have you know, push for reasonable immigration bill, but we also need to secure the border. And the border around this country should have been secured years ago. It doesn’t take that much to build a serious fence between you know, Tijuana and San Diego. And, and wherever the border ends.
Laurence Kotlikoff 34:52
You know, it may be enough, Texas,
Jason Hartman 34:54
okay. Okay. I mean, I didn’t mean to get too much off on the immigration tangent, but you know, I just think When we look at this, this problem of the 200, I’ll call it the 200 and $10 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 Well,
Laurence Kotlikoff 35:17
I think we’re in better shape in terms of
Jason Hartman 35:20
if you if you count overall 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 your major polluter per capita in the world, if you’re worried about climate change, but but in terms of in terms of consumption versus pollution, you know, all we’ve done is export our pollution to China, and totally told, go manufacture our stuff over there, you know, as if we’re not breathing the same air. You know, it’s, it’s kind of a ridiculous, ridiculous idea. But you know, what I want to ask you is, you know, so we’ve got this 200 and $10 trillion time bomb, how are we going to get out of it? Is it going to be? 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 stagnation area? Is it sort of a Phillips Curve type of scenario or, or significant,
Laurence Kotlikoff 36:18
one way or the other? Well, we’ve been printing money
Laurence Kotlikoff 36:21
at a at a torrid pace. Since 2007, Federal Reserve has increased the amount of money that it had printed between its founding round 20 1913, through 2007, there was about $800 billion printed. And today, you can check the statistics, and I think they’ve printed about $4 trillion up till now. So they’ve increased the basic money supply by about 3 trillion. So
Jason Hartman 36:51
are we going to increase the money supply by 200? And $10 trillion? Ultimately? And by the way, how much time are we talking about? Are we talking about 15 years for that?
Laurence Kotlikoff 37:01
I think if everybody were listening to your podcast here, and spend a few days with me, and and really in a classroom with a with where I could show them some data and some 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’s in in terrible shape, and that we need to cut spending raise taxes, and that we can’t print enough money to cover $210 trillion shortfall. It’s just not going to work. So
Laurence Kotlikoff 37:50
Laurence Kotlikoff 37:53
everybody in the country starts to realize that things that the government has been printing a lot of money to pay its bills, and at that point, starts abandoning US Treasury bonds and raises and that leads to hikes and interest rates. And that leads the bond market to crash and probably the stock market, when all that will take place is any man’s guess, because the government has been very effective in hiding the facts about our fiscal, fiscal nightmare that we’re preparing for our children? Yeah,
Jason Hartman 38:29
I agree. I agree. It’s amazing how the US has been able to defy gravity in a way and kick and just sort of kick the can down the road. I mean, we’ve had five decades of this spending binge.
Laurence Kotlikoff 38:43
Yeah, the National national savings rate is now about 3%. It was 15% 1950. The domestic interest rate is 4%. It was 15% 1950. So exactly what our economic models predict has happened. That take from the young gifts, the old the old will consume or 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 is going up National Savings gone down and saving is invested. And if you have less to save to less than one ratio, you have less investment. So yeah, so it’s it’s all it’s all connected and it’s exactly what our equations say is going to happen in our simulation models or computer models. Show will happen has happened. What What do those models
Jason Hartman 39:49
show about my question though, and if you if you don’t want to make a stab at it, feel free not to but I just got to ask you like, you know, inflation, deflation stagnation. What What what are the next 510 years old,
Laurence Kotlikoff 40:02
I think we’re gonna have very high inflation. Because any country that’s gotten into this kind of fiscal jam, they the first resort is to printing money. And 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 is trying to continue doing that,
Jason Hartman 40:27
as hideous as it is, it seems like inflating your way out of your your debts and your problems is really a kind of a good business plan for governments. I mean, I’m not saying it’s, uh, I’m not sanctioning it by any means, or, you know, and recommending it. But if you’re sitting in the shoes of the government, and you want to become president, you got to promise things to people, you got to give people free stuff, you got to 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? Oh, absolutely. And we’re trying to do that. But the problem is that you really can’t print $210 trillion worth of monthly,
Laurence Kotlikoff 41:15
why not? Why not? What I mean, would that just be massive hype? Would it be Zimbabwe, it type inflation, probably worse than Zimbabwe, we already have laid in place the potential for hyperinflation, when you increase the basic money supply by a factor four. So you’re, you’re putting in place the potential for prices to grow, to grow up by a factor of four. And if they grow very rapidly by a factor of four, that’s very high inflation.
Jason Hartman 41:45
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 that didn’t even come close to true. He’s been on the show, and I touch that issue with him. But, you know, why hasn’t it happened yet? Larry, I mean, you know, we’ve $4 trillion created out of thin air, you know, very mild inflation.
Laurence Kotlikoff 42:10
Well, I think, partly the public doesn’t understand the prices in the short run, price movements are really driven by expectations. And when expectations become such that people think there’s gonna be a lot of money printed, printed to pay the government’s bills. And they started turning money into a hot potato. So the same money becomes started circulating faster. So you actually have, effectively more money. And that puts upward pressure on prices. So the it’s a matter of expectations. The street, the bond traders think that, yeah, we’re in trouble. But we’re not 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 and you know, for Bill Gross, gross who did that, with PIMCO ended up in fact being fired.
Jason Hartman 43:13
Very interesting, Larry, give out your website and tell people where they can find the book, etc?
Laurence Kotlikoff 43:17
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 and Nobles. But if you can’t get your bookstore, you can go online to Amazon or Barnes and Noble and pick it up, I think, I think Amazon has it being sold for around 10 $11, it might make you a couple hundred thousand dollars. So it’s certainly worth buying. Even if you’re younger person, you should buy it for your parents or read it. And then tell your parents what to do. Or your grandparents if you’re young enough, because they need they may need help making sure they get everything that’s due to them so that they’ll have money to give to help you if you need it or require less money from you, if they need it. So there’s that. And then there’s a software program called maximize my Social Security calm, so it’s maximized my social security.com this is where my little software company markets, a $40 program that anybody can use to figure out a good strategy, the optimal strategy for maximizing their lifetime benefits. So I would say the combination of the book, get what yours and the society software maximize my security. Those things together. can help.
Jason Hartman 44:40
Definitely, yeah, yeah. Good. Good stuff. Well, Laurence Kotlikoff, are there any questions? I didn’t ask you that air. You know, anything you want to tell the listeners in general, as we sign off here?
Laurence Kotlikoff 44:51
Well, I think the other message would be to look at Kotlikoff dotnet This is my main web website, academic website. Where I list all my writings with the columns or articles, so that people that want to hear my views, or read my views can do so very easily. Right, right at that website Kotlikoff dotnet. So I recently written about Greece, and how they should basically exit their their indebtedness, how they should default exactly how they should go about it, how to fix the banking system, how to fix the system. I have a website called the purple plans.org, which goes into some details about how economists think we should be fixing the economy. So anybody who’s 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 purple plans.org to understand how to 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 Hartman 46:12
good stuff. Laurence Kotlikoff, thank you so much for joining us again, we’d Of course, love to have you back on the show always and keep up the good work,
Laurence Kotlikoff 46:19
Right, Jason I anytime.
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