Top Economist; The US is in Worse Financial Shape Than Greece

Larry Kotlikoff is the guy you want to talk to when you want to understand the US budget.

Kotlikoff is a William Fairfield Warren Distinguished Professor and Professor of Economics at Boston University, a Fellow of the American Academy of Arts and Sciences, a Fellow of the Econometric Society, a Research Associate of the National Bureau of Economic Research, and President of Economic Security Planning, Inc., a company specializing in financial planning software. Professor Kotlikoff received his BA in Economics from the University of Pennsylvania in 1973 and his PhD in Economics from Harvard University in 1977.

From 1977 through 1983, he served on the faculties of economics of the University of California, Los Angeles, and Yale University. In 1981–82, Professor Kotlikoff was a Senior Economist with the President’s Council of Economic Advisers.

As Scott Sumner points out, he pioneered the accounting system that takes into account not just legal liabilities such as Treasury debt, but also entitlement liabilities such as Social Security.

He recently testified before the Senate Budget Committee.

CNS News reported on that important testimony:

The U.S. has a $210 trillion “fiscal gap” and “may well be in worse fiscal shape than any developed country, including Greece,” Boston University economist Laurence Kotlikoff told members of the Senate Budget Committee in written and oral testimony on Feb. 25.

“The first point I want to get across is that our nation is broke,” Kotlikoff testified. “Our nation’s broke, and it’s not broke in 75 years or 50 years or 25 years or 10 years. It’s broke today.

"Indeed, it may well be in worse fiscal shape than any developed country, including Greece," he said...

This declaration of national insolvency will, no doubt, shock those of you who use the officially reported federal debt as the measuring stick for what our country owes,” Kotlikoff told committee members who are considering President Obama’s proposed budget for Fiscal Year 2016.

“After all, federal debt in the hands of the public is only 74 percent of GDP. Yes, this is double the debt-to-GDP ratio recorded a decade ago. But it’s still a far cry from Italy’s 135 debt-to-GDP ratio or Greece’s 175 percent ratio.”

However, using the Congressional Budget Office’s July 2014 75-year Alternate Fiscal Scenario projection, Kotlikoff calculated that the U.S.' “fiscal gap” –which he defines as "the difference between our government's projected financial obligations and the present value of all projected future tax and other receipts" - is actually much higher than those of either Italy or Greece.

“We have a $210 trillion fiscal gap at this point,” Kotlikoff told the senators, which amounts to 211 percent of the U.S.’ $18.2 trillion GDP, making it higher than Greece’s 175 percent debt-to-GDP ratio.

The fiscal gap is “16 times larger than official U.S. debt, which indicates precisely how useless official debt is for understanding our nation’s true fiscal position,” said Kotlikoff, a former senior economist on President Ronald Reagan’s Council of Economic Advisers...

Kotlikoff said that not counting “off book” liabilities like Social Security give lawmakers and the public a false sense of the nation’s true fiscal condition.

“What economics tells us is that we can’t choose what to put on the books. All government obligations and all government receipts, no matter what they are called, need to be properly valued in the present taking into account their likelihood of payment by and to the government,” Kotlikoff testified.