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The Clash of Generations

The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy

Laurence J. Kotlikoff
Scott Burns
Copyright Date: 2012
Published by: MIT Press
Pages: 288
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  • Book Info
    The Clash of Generations
    Book Description:

    The United States is bankrupt, flat broke. Thanks to accounting that would make Enron blush, America'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? InThe 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 that's not to mention the evisceration of the middle class and a financial system that has proven it can't be trusted. Kotlikoff and Burns outline grassroots strategies for saving ourselves--and especially our children--from what could be a truly catastrophic financial collapse. Kotlikoff and Burns sounded the alarm in their widely acclaimedThe Coming Generational Storm, but politicians didn't listen. Now the need for action is even more urgent. It'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 who'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 America's fiscal mess before our kids inherit it.

    eISBN: 978-0-262-30155-8
    Subjects: Economics, Finance

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Acknowledgments
    (pp. ix-x)
  4. Prologue
    (pp. xi-xii)

    The day was coming—for years, decades, really.

    Warnings had been sounded, loud, clear, and often.

    Most heard, few listened. The problem was distant, its size unclear.

    “No worries. We’ll fix it. The next election, the next party, the next leader.”

    There was time.

    There wasn’t.

    The contract was simple: 100,000 barrels of oil, delivered to this country, at this port, on this day. Payment in Chinese yuan.

    The seller was big and always insisted on dollars.

    Not that day.

    Thanks to U.S. pressure, the yuan was floating free. You could buy and sell it anywhere.

    The yuan was strong...

  5. 1 The United States Is Bankrupt
    (pp. 1-8)

    Economic meltdowns are as much psychological events as they are economic ones.¹ They hit when people panic—when they see enough evidence of private or public financial turmoil or malfeasance to realize it’s time to take their remaining money and run. Before 2008, no one would have viewed a wholesale U.S. economic meltdown as remotely plausible. But that terrible year changed everything. It turned our economic world upside down.

    In 2008, we discovered that Wall Street was no longer safe for Main Street, that it had systematically produced and sold trillions of dollars of fraudulent securities, and that it was...

  6. 2 Catastrophic Success
    (pp. 9-22)

    Being alive shouldn’t be a problem, let alone a catastrophe. But that’s what it’s coming to for more and more of us. The longevity we human beings have sought for millennia is now ours. But we weren’t careful with our wishes. The fulfillment of our dream has produced perverse and unintended consequences that threaten virtually everything we hold dear. It threatens our economy. It threatens our standard of living. It threatens our health. It threatens our ability and capacity to care for those in need. It threatens our ability to nurture and educate the young. It threatens most of what...

  7. 3 Living beyond Our Children’s Means
    (pp. 23-44)

    For those used to looking at long-term fiscal projections, our looming fiscal debacle is not news. What is news is that it can no longer be ignored; it’s gotten dramatically worse, and it could easily touch off a financial collapse that would make 2008 look tame.

    Bankruptcy is always in the eye of the creditor. So far, U.S. creditors seem blind to what’s coming. One reason, as indicated earlier, is misplaced focus. They are concentrating on our country’s official debt relative to its gross domestic product (GDP), thinking this actually says something about our country’s fiscal condition. The other is...

  8. 4 Economic Fallout
    (pp. 45-68)

    America’s scariest economic chart—figure 4.1—provides a snapshot of postwar American economic decline. It shows that our country is now saving nothing and investing next to nothing. This isn’t anything new. Hop onto either the saving curve or the investment curve in 1950 and you’ll take a ride downhill, with some uphill stretches, over the next sixty years.

    Countries that don’t save don’t have the wherewithal to invest, so it’s not surprising that our nation’s net domestic investment rate has followed our national saving rate down the tubes. But there is one way for a spendthrift country to experience...

  9. 5 Beatings without Bruises
    (pp. 69-80)

    Every day terrible things happen to children. A child may be left in a car on a 100-degree day and die. Another may be locked in a closet, unfed for days at a time. Still others arrive at hospital emergency rooms with multiple fractures from parental rage. Others somehow survive the chaos of drug-addicted or alcoholic parents. It’s a long and depressing list, yet a recent report shows that nearly 3 million children were abused or neglected in a single year.¹ If-it-bleeds-it-leads journalism makes these events public knowledge. That’s a good thing.

    We respond to stories of this kind of...

  10. 6 Does It Pay to Grow Up?
    (pp. 81-98)

    Now let’s take a closer look at three big parts of the American dream—three things we’ve enjoyed and naively assumed our kids would too:

    Ownership of a home that rises in value

    Access to a level of education that opens the door to a good income

    A growing job market that offers opportunity to all

    Owning your home used to be a sign of financial stability. No longer. The housing market, which fell apart starting in 2007, continues to worsen. New housing starts remain close to the postwar low, and the Case-Shiller home price index, after a short and...

  11. 7 The War on Our Children
    (pp. 99-108)

    Not very many older people have gotten the message Anya Kamenetz was trying to deliver inGeneration Debt. Sadly, the circumstances of the young have yet to become visible to many, perhaps most, older people. One indication is the regular stream of cartoons poking fun at recent graduates who have returned home to live with their parents. Only as the effects of the financial crisis drag on are we starting to see those in their twenties described as a new “lost generation.”

    And while older Americans worry about the future of Social Security and Medicare, the fact that both political...

  12. 8 Unsafe at Any Speed
    (pp. 109-122)

    The financial meltdown that’s surely coming and will do more lasting damage to our kids won’t be triggered, like the last one was, by the production and sale of trillions of dollars in fraudulent securities. It will be a run on the Treasury and the Fed triggered by the global realization that Uncle Sam is in far worse fiscal shape than ever imagined.

    The moment of reckoning can come at any time. When the markets finally realize that our fiscal problem is enormous and cannot indefinitely be papered over by the Fed’s money creation, things will change abruptly. We’ll have...

  13. 9 Getting to Yes
    (pp. 123-138)

    Our health care system is a mess. It leaves one in six Americans uninsured, and its costs threaten our nation’s solvency. The Affordable Care Act of 2010 introduced health exchanges to expand coverage to America’s 50 million uninsured. But U.S. District Judge Henry Hudson ruled that forcing people to buy health insurance is unconstitutional.² This and related rulings may be the death knell for President Barack Obama’s plan to cover the nation’s uninsured.

    Talk about literal interpretation of the Constitution. Had the health care law used different words and levied a tax on all uninsured Americans and used the proceeds...

  14. 10 There Must Be Some Way Out of Here
    (pp. 139-152)

    When Winston Churchill famously said, “Americans can always be counted on to do the right thing … after they have exhausted all the other possibilities,” he might have been thinking of the American tax system. Unfortunately we’re still working on all the wrong possibilities and doing the wrong thing.

    Our tax system is well beyond the need for reform. Today it needs to be reinvented. The existing system is terribly inefficient, highly inequitable, and horribly complex. It also discourages work and saving. Thanks to a virtual encyclopedia of tax loopholes, the system generates remarkably little revenue. It is also surprisingly...

  15. 11 Time to Retire
    (pp. 153-166)

    Social Security is old. In 2010, it celebrated its seventy-fifth birthday. Love it or hate it, it has done its job. We think it should retire. We need a new system, the purple social security plan ( The new system will retain Social Security’s best features, scrap the rest, and cover its costs.

    Social Security’s objective—forcing people to save for retirement—is not only legitimate; it’s extremely important. Otherwise millions of us would seek handouts in our old age. Without Social Security millions of Americans would be gerontological versions of Tennessee Williams’s Blanche DuBois, depending “on the kindness...

  16. 12 Becoming Our Own Solution
    (pp. 167-200)

    In an ideal world, one inhabited by wise and compassionate human beings blessed with flexibility and foresight, our postcard solutions might become a reality. We’d have a broad consensus on our social contract. Government would be the primary instrument for having that contract work. The problems we face would be solved.

    But that isn’t our world.

    Since 1935 the budget of the U.S. government has been in surplus (and you’ve seen how unreal that is) a total of eight years. Other than 1999 and 2000, you have to go back a half-century, to 1960, to find another year of surplus....

  17. 13 The Power of Ordinary Living
    (pp. 201-228)

    Certain things in life are highly predictable. Talk to a suburban mom, for instance, and there is a high probability that she drives a minivan or an SUV. She might want to drive something else, but kids have stuff and friends, so a vehicle with a large carrying capacity is essential. That little Miata will have to wait.

    We could get dark about life’s predictability. We could sum up all human existence with, “Life’s a bitch, and then you die.” There are moments, such as watching the evening news, when this seems like a pretty good summary. But when it...

  18. 14 The Generational Storm
    (pp. 229-234)

    Our country’s problems are real, and they aren’t going away on their own or by saying, “Yes, we can.” We’re $211 trillion in debt, saving nothing, investing next to nothing, in most cases experiencing no real wage growth, suffering high unemployment, growing more unequal, getting older, refusing to die, balancing a phony budget, fighting wars of pride rather than purpose, dumping massive liabilities on our kids, and sustaining a “trust-me” banking system poised to redetonate.

    We are, in short, totally screwed. Yes, that’s strong language. But in thinking about the state of the economy and what we’ve done and are...

  19. Notes
    (pp. 235-252)
  20. Index
    (pp. 253-275)