By Marc Rapport
Amidst the sound and the fury of the presidential campaign there was one small detail not discussed.
“America is broke. They never got to that,” said Laurence Kotlikoff, the best-selling author, columnist and Boston University economist who gave the keynote talk Thursday at USC’s 36th annual Economic Outlook Conference.
That’s broke as in hundreds of trillions of dollars broke, as the overseers of the world’s largest economy print money to sustain a financial system that could collapse overnight into hyperinflation on par with anything seen in South America, Germany or Zimbabwe in the past century or so.
So broke, Kotlikoff said, that it would require raising federal taxes of all kinds by 53% right now just to fund Social Security, Medicare, Medicaid, national defense and other obligations while keeping the true debt off the books.
So broke that paying it all off would take the entire American workforce laboring for 10 years without saving or spending a single penny on anything else.
“There’s a reason economics is called the dismal science,” Kotlikoff told the group of about 150 Palmetto State business people gathered Dec. 8 in the Capstone House meeting room on the University of South Carolina campus.
Kotlikoff, a Harvard-trained economist whose work extends back to his employment in the Reagan administration, said that while the national debt is currently pegged at $15 trillion to $20 trillion, depending on who’s doing the estimating, it’s more like $206 trillion.
That’s because of all the liabilities kept off the books, a practice that has continued for six decades in what Kotlikoff called a Ponzi scheme that now has “old people living off young people” in ever-growing numbers because of an aging population.
“This fiscal gap is the present value of future expenditures net of future receipts. It’s that simple,” he said.
Receipts, of course, include taxes. The 53 percent hike needed now will reach 69 percent in 2045 if nothing changes, he said. “This is not just some crazy projection,” he said. “This is baked in. This is what the Congressional Budget Office thinks is reasonable given current policy.”
Tax hikes of that nature are highly unlikely. In fact, Kotlikoff said, based on what he’s heard from Trump and his advisers and congressional leaders such as House Speaker Paul Ryan, more likely would be a new tax scheme with a top bracket of 15 percent.
“The first obligation of an adult is taking care of the children. We’re certainly not doing that, kicking this problem down the road,” he said.
Kotlikoff also decried what he called a “faith-based, trust me banking system that remains extremely fragile. It was built to fail, and all the core problems remain” despite the efforts of measures such as the Dodd-Frank Act.
So, what will be the one thing that finally sends the markets over the cliff? The economy tumbling? America into a massive fiscal tailspin?
Kotlikoff isn’t sure. “Tipping points are very psychological,” he said. “It’s very unpredictable what the final straw would be, what tweet would drive people to sell everything the next morning. This cancer has been growing for six decades and when it hits a vital organ, I can’t say.”
He also noted the positive nature of the economic forecasts from the in-house economists at the USC session, and observed wryly: “I guess it’s all upbeat in South Carolina, but the rest of the country is in trouble.”