Product Description

One of Library Journal's Best Business Books of 2004, A Forbes.com Top Ten Business Book for 2004, One of Barron’s 25 Best Books of 2004, Winner in the category of Economics in the 2004 Professional/Scholarly Publishing Annual Awards Competition presented by the Association of American Publishers, Inc. and CHOICE Outstanding Academic Title for 2004

This paperback edition of The Coming Generational Storm has been revised and updated and includes a new foreword by the authors.

In 2030, as 77 million baby boomers hobble into old age, walkers will outnumber strollers; there will be twice as many retirees as there are today but only 18 percent more workers. How will Social Security and Medicare function with fewer working taxpayers to support these programs? According to Laurence Kotlikoff and Scott Burns, if our government continues on the course it has set, we'll see skyrocketing tax rates, drastically lower retirement and health benefits, high inflation, a rapidly depreciating dollar, unemployment, and political instability. The government has lost its compass, say Kotlikoff and Burns, and the Bush administration's spending and tax policies have charted a course straight into the coming generational storm.

Kotlikoff and Burns take us on a guided tour of our generational imbalance: There's the "fiscal child abuse" that will double the taxes paid by the next generation. There's also the "deficit delusion" of the under-reported national debt. And none of this, they say, will be solved by any of the popularly touted remedies: cutting taxes, technological progress, immigration, foreign investment, or the elimination of wasteful government spending. Kotlikoff and Burns propose bold new policies, including meaningful reforms of Social Security and Medicare, that are simple, straightforward, and geared to attract support from both political parties.

Product Details

• Amazon Sales Rank: #291503 in Books
• Published on: 2005-01-19
• Original language: English
• Number of items: 1
• Binding: Paperback
• 302 pages

Features

• ISBN13: 9780262612081
• Condition: NEW
• Notes: Brand New from Publisher. No Remainder Mark.
• Click here to view our Condition Guide and Shipping Prices

Review
"...Filled with advice on protecting what you've got and making it grow before and during retirement."
— Chris Tucker, Dallas Morning News

"...Kotlikoff proffer plenty of evidence to back up their claims."
— Anne Wagner, National Journal

"...[A] serious attempt to look at a problem that most people are trying to ignore."
— Alan Beattie, Financial Times

"The Coming Generational Storm ...lays out in easy-to-understand prose why Social Security and Medicare need a comprehensive overhaul."
— Gregory D. Hess, Los Angeles Times

"The Coming Generational Storm documents in frightening detail America's reckless fiscal trajectory as it barrels toward bankruptcy. The need to revamp Medicare and Social Security is urgent. This book is a must-read for anyone who cares about our nation's future."
—Janet Yellen, University of California, Berkeley, Member, Federal Reserve Board (1994-1997), and Chair, Council of Economic Advisers (1997-1999)

"The Coming Generational Storm is a well written summary of an impressive and important body of carefully documented research. The book demonstrates clearly the folly of existing tax and transfer policies in the face of the impending retirement of the baby boom generation. Anyone interested in the future economic viability of American society and the economic problems we are bequeathing to our children should read this study."
—James J. Heckman, The University of Chicago, Nobel Laureate in Economic Sciences (2000)

"The Coming Generational Storm is one of the most important (and refreshingly irreverent) policy analyses of recent years. Laurence Kotlikoff and Scott Burns ask what will happen to our economy and way of life when the baby boomers meet the current Medicare and Social Security systems. Their answers, using the innovative techniques of 'generational accounting' developed by Kotlikoff and others, demonstrate how close we are to a genuine fiscal precipice and the hard landing that awaits us. For our current presidential aspirants, the authors also provide some provocative ideas for how to ameliorate the damage this storm will certainly leave in its wake."
—Robert J. Shapiro, Senior Fellow of the Brookings Institution and the Progressive Policy Institute, and former Under Secretary of Commerce for Economic Affairs

"The Coming Generational Storm lays out the problems in understandable language and compelling detail."
— The Washington Post

"Among academic experts, Larry Kotlikoff has earned the title 'Mr. Generational Accounting.' His unfuzzy arithmetic decisively rebuts the Bush tax cuts, which are based on the delusion that 5 - 4 = 6, not 1. Read and judge for yourself the specter of our future: too many retirees dependent on too few working-age people. Fiscal imprudence now mandates broken promises later."
—Paul A. Samuelson, Massachusetts Institute of Technology, Nobel Laureate in Economic Sciences (1970)

"Between a rock and a hard place. We must all too soon realize that we want to spend more on transfers (Social Security, Medicare, Medicaid) than we are willing to pay in taxes. And the prospective $44 trillion shortfall is, almost literally, beyond ordinary comprehension. Documented diagnosis, along with suggested reforms, are first steps toward constructive dialogue."
—James M. Buchanan, Distinguished Professor Emeritus, George Mason University and Virginia Polytechnic Institute, Nobel Laureate in Economic Sciences (1986)

"Brilliant insights on the me generation versus the next generation. Better still, smart advice on equally vexing questions like whether to invest in a 401(k) or a second mortgage."
—Sylvia Nasar, author of A Beautiful Mind

"Having painted a fiscal picture as awful as 'Guernica,' the authors unveil two bold plans....[An] engaging book."
— Todd G. Buchholz, The Wall Street Journal

"I lie awake nights worrying about the fiscal crisis described in The Coming Generational Storm. This is by far the single most important problem in U.S. economic policy. Every American should read this fabulous book."
—George Akerlof, University of California, Berkeley, Nobel Laureate in Economic Sciences (2001)

"If Stephen King wrote about economics it would look like this. Kotlikoff and Burns have gazed into our future and seen a nightmare. The authors describe that nighmare vividly and identify why our elected officials on both sides of the political aisle are too cowardly to save us. Every U.S. citizen should read and digest this book before it is too late."
—Kevin A. Hassett, Director of Economic Policy Studies, American Enterprise Institute, and co-author of Dow 36,000

"Kotlikoff has been one of the pioneers of the new economics of generational accounting. If anyone foresaw the deterioration of the U.S. government's fiscal health, he did. Now, with journalist Scott Burns, he has written a book that spells out, in crystal-clear layman's terms, the disturbing truth about the rising tide of red ink."
—Niall Ferguson, Stern School of Business, New York University, and author of Empire and The Cash Nexus

"No economist has thought more clearly or spoken more resolutely about our long-term fiscal challenges than Larry Kotlikoff. In plain talk backed by economic rigor and the powerful models that he and his colleagues have pioneered, Kotlikoff and coauthor Scott Burns expose the shoddy thinking and false premises that lie at the heart of U.S. fiscal policy and that risk the economic well-being of future generations. They show how reckless George W. Bush has been with our economic future, but also show that the evasions from fiscal honesty extend well beyond the irresponsibility of this administration. And they offer solutions that are clear, bold, and controversial. You may not accept them in full, but you will understand better than ever before the real choices that we face. This book is a must-read for a country adrift in fiscal shortsightedness and political spin."
—Jeffrey D. Sachs, Director of the Earth Institute, Columbia University

"The policy solutions of Kotlikoff and Burns are specific and ingenious...."
— Michael Mandel, Business Week

"There's a lot of frivolous criticism of our politicians, but this book hits the mark, convincingly documenting their biggest sin: the failure to account for the magnitude of a huge government deficit crisis. The accounting scandals of Enron, WorldCom, and Parmalat pale by comparison. Read this book so you can start preparing for much higher taxes in the future for you and your children."
—Robert J. Shiller, Yale University, author of Irrational Exuberance and The New Financial Order

"This is a book any serious investor should absorb and act upon."
— Jonathan Chevreau, National Post

"This is a sobering look at an impending crisis with implications for all of us. Recommended for all collections."
— Stacey Marien, Library Journal

"This may be the year's most important book. Essential."
— R. M. Whaples, CHOICE

From the Inside Flap
"*The Coming Generational Storm* is one of the most important (and refreshingly irreverent) policy analyses of recent years. Laurence Kotlikoff and Scott Burns ask what will happen to our economy and way of life when the baby boomers meet the current Medicare and Social Security systems. Their answers, using the innovative techniques of 'generational accounting' developed by Kotlikoff and others, demonstrate how close we are to a genuine fiscal precipice and the hard landing that awaits us. For our current presidential aspirants, the authors also provide some provocative ideas for how to ameliorate the damage this storm will certainly leave in its wake."
--Robert J. Shapiro, Managing Director and Founding Partner, Sonecon, LLC, Senior Fellow of the Brookings Institution and the Progressive Policy Institute, and former Under Secretary of Commerce for Economic Affairs

"Among academic experts, Larry Kotlikoff has earned the title 'Mr. Generational Accounting.' His unfuzzy arithmetic decisively rebuts the Bush tax cuts, which are based on the delusion that 5 - 4 = 6, not 1. Read and judge for yourself the specter of our future: too many retirees dependent on too few working-age people. Fiscal imprudence now mandates broken promises later."
--Paul A. Samuelson, Institute Professor Emeritus, MIT, Nobel Laureate in Economic Sciences (1970)

"Kotlikoff has been one of the pioneers of the new economics of generational accounting. If anyone foresaw the deterioration of the U.S. government's fiscal health, he did. Now, with journalist Scott Burns, he has written a book that spells out, in crystal-clear layman's terms, the disturbing truth about the rising tide of red ink."
--Niall Ferguson, Stern School of Business, New York University, and author of *Empire* and *The Cash Nexus*

"I lie awake nights worrying about the fiscal crisis described in *The Coming Generational Storm*. This is by far the single most important problem in US economic policy. Every American should read this fabulous book."
--George Akerlof, Koshland Professor of Economics, University of California, Berkeley, Nobel Laureate in Economic Sciences (2001)

"*The Coming Generational Storm* is a well written summary of an impressive and important body of carefully documented research. The book demonstrates clearly the folly of existing tax and transfer policies in the face of the impending retirement of the baby boom generation. Anyone interested in the future economic viability of American society and the economic problems we are bequeathing to our children should read this study."
--James J. Heckman, Henry Schultz Distinguished Service Professor of Economics, The University of Chicago, Nobel Laureate in Economic Sciences (2000)

"*The Coming Generational Storm* documents in frightening detail America's reckless fiscal trajectory as it barrels toward bankruptcy. The need to revamp Medicare and Social Security is urgent. This book is a must-read for anyone who cares about our nation's future."
--Janet Yellen, Haas School of Business, University of California, Berkeley, Member, Federal Reserve Board (1994-1997), and Chair, Council of Economic Advisers (1997-1999)

"As someone who has written extensively on global aging and its profound implications, I was delighted to read *The Coming Generational Storm*. It is an extremely important and original contribution."
--Peter G. Peterson, Chairman, The Blackstone Group, and author of *Gray Dawn: How the Coming Age Wave Will Transform America--And The World*

"Kotlikoff and Burns document and analyze the most serious issue facing the American government today: the looming intergenerational conflict created by its gross failure to develop a consistent plan to fund and manage entitlements for the elderly, the cost of which will explode when the baby boom generation retires. This book is essential reading for those concerned about their own future and their childrens'."
--Daniel McFadden, Cox Professor of Economics , University of California, Berkeley, Nobel Laureate in Economic Sciences (2000)

"Brilliant insights on the me generation vs.the next generation. Better still, smart advice on equally vexing questions like whether to invest in a 401(k) or a second mortgage."
--Sylvia Nasar, John S. and James L. Knight Professor of Business Journalism, Columbia University, author of *A Beautiful Mind*

"No economist has thought more clearly or spoken more resolutely about our long-term fiscal challenges than Larry Kotlikoff. In plain talk backed by economic rigor and the powerful models that he and his colleagues have pioneered, Kotlikoff and co-author Scott Burns expose the shoddy thinking and false premises that lie at the heart of U.S. fiscal policy and that risk the economic well-being of future generations. They show how reckless George W. Bush has been with our economic future, but also show that the evasions from fiscal honesty extend well beyond the irresponsibility of this Administration. And they offer solutions that are clear, bold, and controversial. You may not accept them in full, but you will understand better than ever before the real choices that we face. This book is a must-read for a country adrift in fiscal shortsightedness and political spin."
--Jeffrey D. Sachs, Director of the Earth Institute, Columbia University

"If Stephen King wrote about economics it would look like this. Kotlikoff and Burns have gazed into our future and seen a nightmare. The authors describe that nighmare vividly and identify why our elected officials on both sides of the political aisle are too cowardly to save us. Every U.S. citizen should read and digest this book before it is too late."
--Kevin A. Hassett, Director of Economic Policy Studies, American Enterprise Institute, and co-author of *Dow 36,000*

"Between a rock and a hard place. We must all too soon realize that we want to spend more on transfers (Social Security, Medicare, Medicaid) than we are willing to pay in taxes. And the prospective $44 trillion shortfall is, almost literally, beyond ordinary comprehension. Documented diagnosis, along with suggested reforms, are first steps toward constructive dialogue."
--James M. Buchanan, Buchanan Center for Political Economy, George Mason University, Nobel Laureate in Economic Sciences (1986)

"There's a lot of frivolous criticism of our politicians, but this book hits the mark, convincingly documenting their biggest sin: the failure to account for the magnitude of a huge government deficit crisis. The accounting scandals of Enron, WorldCom, and Parmalat pale by comparison. Read this book so you can start preparing for much higher taxes in the future for you and your children."
--Robert J. Shiller, Stanley B. Resor Professor of Economics, Yale University, author of *Irrational Exuberance* and *The New Financial Order*

About the Author
Laurence J. Kotlikoff is Professor of Economics at Boston University. One of the nation's leading experts on fiscal policy, national saving, and personal finance, Kotlikoff is the author of Essays on Savings, Bequests, Altruism, and Life-Cycle Planning (2001), Generational Policy (2003), The Coming Generational Storm (2004), all published by The MIT Press, and other books.

Dallas Morning News personal finance columnist Scott Burns is nationally syndicated by Universal Press. His column can be read on the Web at www.scottburns.com and on MSN's MoneyCentral, one of the three largest financial Web sites.

Customer Reviews

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 present value of government purchases plus
(D) Official debt plus
(V) Implicit debt minus
(T) The present value of taxes paid by current generations minus
(H) The value of Government financial assets.

To change the future the authors present a "menu of pain" (created under the direction of the U.S. treasury secretary) by which the current generation can generate revenues and cut expenditures sufficiently to avoid the coming generational storm. The menu includes

* 69% increase in federal income taxes
* 95% increase in payroll taxes
* 106% reduction in federal purchases (admittedly infeasible)
* 45% reduction in Social Security and Medicare benefits

But all is not lost, the authors claim, and cite the United Kingdom as an example, explaining that policies adopted in the 1980s under Margaret Thatcher have put the UK in the best long-term fiscal shape of any major European Union nation. Finally, the authors propose actions that individuals can take now to protect ourselves and secure our future.

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 tremendous economic stress when the government starts printing more money to pretend the liabilities are manageable.

America is fortunate because the U.S. dollar is the world's currency. The authors argue foreign investors will be less willing to hold dollars when the U.S. currency faces devaluation. (We've already seen a significant shift in the value of the U.S. dollar relative to the euro. This is attributed to foreign investors lacking faith in America's fiscal policy.)

The authors suggest individuals hold a small percentage of their investment portfolios in non-U.S.-dollar-denominated investments. For example, they mention EverBank.com as a source of foreign certificates of deposit. So, you can hold euros or Chinese yuan, if the U.S. dollar goes kaput. They suggest considering international bond funds which don't hedge currency risk, and, of course, international equity funds (Vanguard International Total Stock Market), precious metal funds, commodity funds (T. Row Price New Era) and health care funds (Vanguard Healthcare fund).

Kotlikoff and Burns point out that it's important to keep your investment costs low, by favoring index funds or low management expense funds. Portfolio survival is discussed. This is an area made better known to the public by Scott Burns, who is a financial columnist (ScottBurns.com). In particular, if you sell shares from a portfolio that drops in value, you might wind up selling so many shares during a down market that you destroy your portfolio.

The authors also suggest you consider your "health capital." In other words stay healthy, because you won't be able to afford aging otherwise! (They also mention the contrarian position: "Live hard. Die young.") Sites like livingto100.com can help us estimate our life expectancy.

Kotlikoff and Burns say we should reevaluating 401(k) contributions. They argue with future tax rates likely higher and with extra taxation of Social Security benefits with rising income during old age, 401(k)s can lead to paying higher taxes in the future.

However, I'd argue many upper income earners would rather have $1 million to $2 million in a 401(k) rather than worry that they might have their Social Security taxed, because they have too much income during retirement! In other words, when you do your financial planning, you might consider the effects of your decisions on your Social Security or you might just proceed as many semi-affluent and affluent do--assume no Social Security at all. If you get it, great. But, don't readjust your plans because of Social Security. (You probably could maximize your estimated Social Security in the future by having no other future income. Not the best plan!)

Of course, the argument of using low-cost index funds outside of tax-deferred retirement accounts also makes a certain sense, especially with current tax rates.

Overall, I thought "The Coming Generational Storm: What You Need to Know about America's Economic Future" was a great read.

Very interesting and insightful, but uneven.
This book covers an amazing amount of information related to the U.S. Government unfunded liabilities in just 8 chapters and 240 pages. The authors study in detail the demographics, economics, and fiscal policies that have lead to the current fiscal crisis. According to the authors the fiscal crisis has already occurred. If the U.S. Government's accounting reflected common standards applied to insurance companies, the U.S. Government would be deemed insolvent. This is because of our huge unfunded liabilities associated with mainly Medicare, but also Social Security.

The book covers several parts, including:
1) Diagnostic of the fiscal crisis (demographic study),
2) Why certain (pseudo) redeeming factors will not alleviate the problem,
3) Why the U.S. will turn in a Banana Republic with hyperinflation,
4) Proposals to fix Social Security and Medicare and resolve our fiscal crisis,
5) An investment guide to protect one self if the fiscal crisis is ongoing.

The authors' persuasiveness of their point of view is erratic from one topic to the next ranging from excellent to really bad.

Their treatment of the first two topics: diagnostic and pseudo redeeming factors are outstanding. The demographics of our aging population represent a tsunami of fiscal costs that have not been provisioned for. Additionally, wave of immigration, improvement in technology, increase in labor productivity will not alleviate these costs. Immigrants cost as much in benefits as they pay in taxes. Technology has actually increased the intensity and the cost of health care. Also, Social Security benefits are fully indexed to inflation and labor productivity index. I give this section a 5 rating.

The authors are convinced that the U.S. Government will be hell bent on decreasing its real unfunded liability by printing money that will result in hyperinflation. I think this is nonsense. The Federal Reserve which is politically independent is the body who controls the levers of the money supply and associated inflation. It will never cause a situation where hyperinflation will take root. We most probably will have real interest rate levels substantially higher than we do now. But, the risk is that such high real interest rate levels will choke economic growth and cause recession and deflation, not inflation as the authors suggest. I give this section a 1 rating.

The authors proposals to fix Social Security and Medicare are excellent, as they make economic and political sense. They are talking of a very slow privatization phase in of Social Security, and a voucher system for Medicare so elderly would make economically informed decision when purchasing health care. I give this section a 5 rating.

Their investment guide unfortunately is piss poor. I'd give this section a 1 rating, here is why. The authors recommend holding as your core investments inflation indexed bonds (either TIPS or I Bonds). However, these bonds give you very mediocre returns before tax. They give you terrible returns after tax. Over the long run, there is little chance you will protect your assets against inflation on an after tax basis with these instruments. They recommend international bonds as a hedge against the inevitable long term depreciation of the dollar [view of the authors]. However, that is unlikely. Per their own demographic study just about all developed countries have a much worse unfunded liability problem than we have. This is because their societies are aging more rapidly and their government benefits are more generous. If the dollar has to tank, you have to wonder against what? From a long term demographic perspective there are no clear candidates. Finally, the authors also recommend gold as an investment, especially through gold mining companies. I think only a gold bug could follow this recommendation. Gold has little merit as an investment. It's proclaimed inflation hedging benefits have melted away twenty years ago.

If you are further interested in this subject, I also strongly recommend two excellent books by Robert Stowe England: "The Fiscal Challenge of an Aging Industrial World" and "Global Aging and Financial Markets." These books give you a better comparison between the U.S. and other developed countries' fiscal position. Regarding investments, I strongly recommend Burton G. Malkiel's "The Random Guide to Investing."