The Coming Generational Storm: What You Need to Know about America's Economic Future

by Laurence J. Kotlikoff and Scott Burns

Book Overview

How to avoid a fiscal crisis in the next generation-- and how to protect yourself if the government acts too late: policy recommendations and individual strategies to protect against skyrocketing tax rates, drastically reduced health and retirement benefits, high inflation, and a ruined currency.

In 2030, as 77 million baby boomers hobble into old age, walkers will outnumber strollers; there will be twice as many retirees as there...

• Format: Paperback
• Language: English
• ISBN: 0262612089
• ISBN13: 9780262612081
• Release Date: January 2005
• Publisher: MIT Press
• Length: 276 Pages
• Weight: 0.92 lbs.
• Dimensions: 0.7" x 6.3" x 9.1"
• Age Range: 18 years and up
• Grade Range: Postsecondary and higher

Customer Reviews

If anything, too optimistic about America's financial future

A great book, very readable. It does have some equations, but they are not essential to the argument; feel free to skip them. I found the explanation of how the deficit has been fudged to conceal the huge future liabilities of the U.S. government fascinating. A "balanced" budget can conceal big liabilities. Did you know that Dwight Eisenhower was the most profligate President of all time? Read the book and find out why! Depending on which historian you consult, I was born in either the last year or so of the Baby Boom or the first year of the Baby Bust. Either way, according to the authors' calculations I am going to end up paying more in taxes to support Social Security and Medicare than I can ever hope to receive in benefits. My eight-year-old son, of course, is in an even worse position. I liked the book's characterization of today's children as being taxed without representation. Amen! As far as Social Security, the authors' proposals are the most realistic I have seen. They certainly deserve serious consideration. I am somewhat more skeptical of Kotlikoff's and Burns' Medicare reform ideas. There have been dozens of attempts to rein in Medicare costs, but none have made any difference. The problem is that decades of insulating people from the real cost of medical care has put their expectations completely out of line with fiscal reality. My personal opinion is that we will have to abolish Medicare altogether, at least temporarily, so that people will be able to understand what high-tech medicine really costs when they have to pay for it themselves. This lesson might not be as bad as it sounds. Keep in mind that there are countries that spend enormously less than we do on health care, and yet have health nearly as good as ours, or in some cases better. Having someone there to hold your hand when you are sick has a surprisingly good cost-benefit ratio compared to conventional American high tech medicine. I differ with the authors on a few things. The authors mention the World War II Greatest Generation in a way that seems to suggest that it is the Baby Boomers who are to blame for our present fiscal problems. This is true in the sense that it's the demographic bulge of the Boomers that is causing many of our problems. But who is responsible for the Boomers? The World War II generation, that's who. The WW II veterans came back from the war with the idea that American know-how could do anything, that prosperity would go on forever, and that they could invite as many new people to this party as they wanted. Well they were wrong, but they're still voting benefits for themselves, and they have apparently long since forgotten the Depression Era lessons they learned about debt being a bad thing. Today they are the most pampered seniors of all time, with people like me paying for it all. In my opinion, the Social Security/Medicare systems have created an aristocratic leisure class in America. The Greatest Generation? I w

Good Book, Kind of Sad

"The Coming Generational Storm: What You Need to Know about America's Economic Future" by Laurence J. Kotlikoff and Scott Burns discusses the financial crisis Americans face due to the combined aging of America and generously-promised, but economically-unrealistic, Social Security and Medicare benefits. We learn that two-thirds of older Americans get over half of their income from Social Security. Nearly 40% of poorer, older Americans get essentially all of their income from Social Security. The authors calculate the value received by an older American from Social Security is approximately equivalent to a portfolio worth about $600,000. Further, the benefits provided by Medicare significantly exceed the value of Social Security to elderly America. Reduced Social Security and Medicare benefits would financially hurt most older Americans, especially poorer Americans. However, Kotlikoff and Burns point out the level of promised future benefits is unfundable. According to the economists who created the Federal 2004 budget, America faces a fiscal gap of $51 trillion (the gap was $45 trillion before the Medicare prescription drug benefit.), or about $159,000 per American. The bulk of this liability is promised Medicare benefits. We can compare this to the current federal debt of $4 trillion, or about $14,300 per American. According to the authors, to cover these promised liabilities, we'd need to raise taxes by 69%, if we hope to keep tax rates constant for further generations. Otherwise, future tax rates will need to increase by more than double for future generations. These conclusions were in the Federal Budget for 2004 (until they were removed). Kotlikoff and Burns tell us President Bush felt these facts might dampen support for his third round of tax cuts, so this information was deleted before the 2004 budget was widely distributed and posted on whitehouse.gov (Page 67). Of course, tax cuts only add to the problem. This brings us to the crux of the problem. If Americans made significant sacrifices now (lower benefits, increased taxes) the problem could be made manageable. However, the authors say politicians don't want to tell Americans the truth and deal with the problem. Instead, they want to make Americans believe there isn't a problem, because it helps get them elected and serves their personal interests. Politicians are putting their own well-being above that of America and future generations will suffer because of it. Because our political leaders won't deal with the problem we are facing "The Coming Generational Storm." While much of the book is insightful, the chapter that most interested me was "Securing Your Future" which offered some practical advice for how individuals can deal with the situation. Kotlikoff and Burns make several basic predictions. First, eventually, tax rates will need to go up. A lot. Second, Social Security and Medicare benefits will need to be cut. A lot. Third, before this happens, America will face tre

If you care about your children - and everyone else's

With luck and good living I might live to 2050. My children and their children will see the second half of the 21st century and maybe beyond. Laurence and Scott woke me up to the future that my progeny might have to live in. A summary of the book is included below, but the important things about this book are: - it is meticulously researched and well written - it will make you think about government accounting in a new and fundamentally different way - it will make you question whether you yourself are behaving farily toward your own children - after scaring you (and rightfully so) Laurence and Scott will give you hope that the future is not yet written, and suggest practical strategies that you can adopt to improve your own financial future. Book Summary: Kotlikoff and Burns have constructed a new way of understanding (primarily U.S.) government economics and forecast a demographically driven economic collision between old and young. The authors dedicate this work to their 10 grandchildren who are identified by name. They predict that their grandchildren - and ours - will encounter a country whose collective population is older than the current population of Florida. That this situation will be prevalent throughout much of the industrialized world, including China; that we will have a population age profile that reflects "the greatest demographic change in human history"; changing from forever young to forever old; that a new segment has emerged which is the fastest growing population segment; people over 85 years of age. They rely on Bureau of the Census figures that forecast growth of the 85+ segment - from 4,259,000 in year 2000 to 13,552,000. in year 2040. This, and other population trends, will change the ratio of gold-ages to "kids" from 1.8 to 3.0, with all the consequences of supporting an aging population with fewer workers contributing to social programs that were built on a completely different set of assumptions. The U.S. social programs we have today are largely a creation of a time when "old people" were expected to die shortly after retirement. The basic assumption was a high ratio of working people to retired people. This high ratio made possible a transfer system where each working generation supported the retirement of prior generations. Kotlikoff and Burns report on the reduction in the ratio of workers to beneficiaries: 16.5 to 1 in 1950 down to 3.4 to 1 in 2000. By 2030, they project, there will be only two workers for each beneficiary. The authors have constructed an intergenerational accounting equation by which they express - and we can understand - the economic pain we are inflicting on our children and our children's children. This equation, they claim, can be used to test all the currently popular proposals for 'easy fixes' as well as a "menu of pain" they themselves propose. As a formula the equation is A = C + D + V - T - H. or.... (A) The burden of debt on future generations = (C) The prese

A Must Read

This book has my early vote for best economics/finance book of the year. At times your may find this deep reading because some of the concepts are new and unfamiliar to most, even though there is no math to contend with beyond A + B = C + D. But getting this clear explanation of the concept of inter-generational accounting is well worth the effort. I must say the authors demonstrate a tour de force here in terms of judgement about what they have chosen to cover, the quality of the writing, and the practical significance of their work. Not only do they delineate a problem of stark importance to all Americans, they go a long way in describing what may be the best chance of minimizing the damage to our country and to individual investors. And I personally rate their investing advice as both practical and right on the money. Who could reasonably ask for anything more?One final thought - I would love to get George Bush and John Kerry to read this book - especially Chapter 6 on Effectively (with a capital E) reforming Medicare and Social Security. I will be surprised (and disappointed)if this book doesn't generate wide discussion of the enormity we all face.Dr. Ron Chesler