The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy
The United States is bankrupt, flat broke. Thanks to accounting that would make Enron blush, Americaâ€™s insolvency goes far beyond what our leaders are disclosing. The United States is a fiscal basket case, in worse shape than the notoriously bailed-out countries of Greece, Ireland, and others. How did this happen? In The Clash of Generations, experts Laurence Kotlikoff and Scott Burns document our six-decade, off-balance-sheet, unsustainable financing scheme. They explain how we have balanced our longer lives on the backs of our (relatively few) children. At the same time, we've been on a consumption spree, saving and investing less than nothing. And thatâ€™s not to mention the evisceration of the middle class and a financial system that has proven it canâ€™t be trusted. Kotlikoff and Burns outline grassroots strategies for saving ourselvesâ€”and especially our children--from what could be a truly catastrophic financial collapse. Kotlikoff and Burns sounded the alarm in their widely acclaimed The Coming Generational Storm, but politicians didnâ€™t listen. Now the need for action is even more urgent. Itâ€™s up to us to demand radical reform of our tax system, our healthcare system, and our Social Security system, and to insist on better paths to investment return than those provided by Wall Street (mis)managers. Kotlikoff and Burns's "Purple Plans" (so called because they will appeal to both Republicans and Democrats) have been endorsed by a whoâ€™s who of economists and offer a new way forward; and their revolutionary investment strategy for individuals replaces the idea of financial capital with "life decision capital." Of course, we won't be doing all this just for ourselves. We need to fix Americaâ€™s fiscal mess before our kids inherit it.
Economic Crises: The Impact on Australia and Canada
The Financial Crisis accelerated a latent Fiscal Crisis that had been brewing in many Western countries. The paper outlines the causes of the Financial Crisis, and how this increased expenditure and reduced revenues for many Western governments. But these additional fiscal stresses merely advanced the day of reckoning when fiscal problems had to be faced Demographics (the Baby Boom effect) dictated that reforms would be required in taxation, health care and pensions to smooth the transition. Many governments had not prepared adequately, so that the added burden of the Financial Crisis provided a double impost on budgets. The paper compares Canada and Australia in this framework, showing that there are similarities and differences that are instructive. Both countries avoided the initial Crisis, but they may not be so fortunate in the near future.
Estimating Sovereign Default Risk
This paper uses Bayesian methods to estimate the sovereign default probability for Greece and Italy in the post-EMU period. We build a real business cycle model that allows for interactions among fiscal policy instruments, sovereign default risk, and a "fiscal limit," which measures the maximum level of debt the government is willing to finance. We estimate the full nonlinear model using likelihood inference methods. Although we find that Greece historically had a lower default probability than Italy for a given debt level, our estimates suggest that the Italian government is more willing to service debt than the Greek government.