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.
Sustainability of Fiscal Policy in Democracies and Autocracies
This paper tries to identify the fiscal sustainability record of democratically and autocratically governed countries by applying various performance indicators (credit worthiness, payment defaults, national debt, foreign assets) and also to clarify what effect the characteristics of a regime have on consolidation efforts in a country. The study identifies two key findings. While in the past, democracies have clearly found it easier to preserve their credit standing and solvency and to avoid government bankruptcy, a similar advantage can no longer be detected for democracies in terms of reducing national debt and foreign debts. Why democracies, in spite of their arrangements with a sensitivity for the public good and for due process, are finding it so difficult to avoid shifting their debts to future generations, to undertake cutback measures and to provide sufficient financial foresight, can in principle be interpreted as the other side of the coin, namely highly presence-oriented interests boosted even further through the short "democracy-specific time horizon".
DEBT AND GROWTH NEW EVIDENCE FOR THE EURO AREA
Against the background of the euro area sovereign debt crisis, our paper investigates the relationship between public debt and economic growth and adds to the existing literature in the following ways. First, we use a dynamic threshold panel methodology in order to analyse the non-linear impact of public debt on GDP growth. Second, we focus on 12 euro area countries for the period 19902010, therefore adding to the current discussion on debt sustainability in the euro area. Our empirical results suggest that the short-run impact of debt on GDP growth is positive and highly statistically significant, but decreases to around zero and loses significance beyond public debt-to-GDP ratios of around 67%. This result is robust throughout most of our specifications, in the dynamic and non-dynamic threshold models alike. For high debt-to-GDP ratios (above 95%), additional debt has a negative impact on economic activity. Furthermore, we can show that the long-term interest rate is subject to increased pressure when the public debt-to-GDP ratio is above 70%, broadly supporting the above findings.