Laurence Jacob Kotlikoff (born January 30, 1951) is an American economist who has served as a professor of economics at Boston University since 1984. A specialist in macroeconomics and public finance, he has contributed to a range of fields, including climate change and carbon taxation, the global macroeconomic transition and the future of economic power, inequality, fiscal progressivity, economic guides to personal financial behavior, banking reform, marginal taxation and labor supply, healthcare reform, and social security. He is the author of over 20 books, and his scholarly articles have been published in a range of journals, including the American Economic Review, the Quarterly Journal of Economics, and the Journal of Political Economy. In 2014, The Economist ranked Kotlikoff as the 19th most influential economist in the world.
Born in 1951, Kotlikoff received a BA in economics from the University of Pennsylvania in 1973, and a PhD in economics from Harvard University in 1977. After three years as a postdoctoral fellow at UCLA, he taught as an assistant professor at Yale University from 1980 to 1981, and then as an associate professor at Yale till 1984, during which time he was a research associate at the Cowles Foundation (1980–1984), and served on the Council of Economic Advisers as a senior economist (1981–1982). He became a professor of economics at Boston University in 1984, where he twice chaired its Department of Economics, and was named a William Warren Fairfield Professor in 2009.
Kotlikoff has been a research associate at the NBER since 1980, and a research fellow at CESifo since 1999. He was elected a Fellow of the Econometric Society in 1992, and was elected to the American Academy of Arts and Sciences in 2005.
Kotlikoff has commented regularly on contemporary issues and public affairs. His columns have appeared in the New York Times, the Wall Street Journal, Bloomberg, Forbes, the PBS NewsHour, the Financial Times, the Boston Globe, Yahoo, CNBC, and other major outlets. Kotlikoff is a frequent guest on numerous podcasts and radio shows, and is routinely quoted by the media on a wide range of economic issues. Over the years, Kotlikoff has testified to Congress on tax reform, generational policy, and other economic issues on 19 occasions.
Kotlikoff attempted to run for President of the United States in 2012, and sought the nominations of the advocacy group Americans Elect and the Reform Party of the United States, before ending his campaign in May 2012, when Americans Elect ceased operations. Kotlikoff ran for president in 2016 as an independent alongside his vice president, Dr. Edward Leamer, an economist at UCLA. He achieved ballot-access in 38 states, making him one of only six people in the country that could be legally elected president. His campaign garnered major press from Bloomberg, the Wall Street Journal, the Boston Globe, and other major outlets. Kotlikoff's stated goal in running for president was to provide an economics-based policy-reform platform. After the 2016 election, Kotlikoff released his platform on his website in the form of a monograph entitled You're Hired!
Research
Early research Kotlikoff's thesis examined, in a life-cycle simulation model, the impact of intergenerational redistribution on the long-run position of the economy. He also studied whether the rich spend a larger or smaller share of their lifetime resources than do the poor. And he provided a new empirical approach to understanding the impact of Social Security on saving. At UCLA, Kotlikoff wrote a paper with Avia Spivak on intra-family risk-sharing entitled "The Family as an Incomplete Annuities Market."
He also wrote a widely cited paper with Lawrence Summers questioning the importance of saving for retirement in determining total U.S. wealth accumulation. The publication suggested that most of U.S. wealth accumulation was not attributed to life-cycle saving, but rather to private intergenerational transfers (whether intended or unintended). The article was the subject of a lively debate between Kotlikoff and Franco Modigliani, who won the Nobel Prize in part for his work on the life-cycle model.
Generational accounting
Kotlikoff, together with Alan Auerbach and Jagadeesh Gokhale, pioneered Generational Accounting, which measures the fiscal burdens facing today's and tomorrow's children.Generational Accounting, The Free Press, 1992. Kotlikoff Kotlikoff's work on the relativity of fiscal language claims to show that conventional fiscal measures, including the government's deficit, are not well defined from the perspective of economic theory.
According to Kotlikoff, their measurement reflects economically arbitrary fiscal labeling conventions. He argues that an "Economics labeling problem," as he calls it, has led to gross misreadings of the fiscal positions of different countries, starting with the United States, which has a relatively small debt-to-GDP ratio, but, he argues, is in worse fiscal shape than any other developed country due to its unofficial, i.e., off-the-books, obligations. In 1991, Kotlikoff, together with Alan Auerbach and Jagadeesh Gokhale, produced the first set of generational accounts] for the United States.
Their study claimed to find a major fiscal gap separating future government spending commitments and its means of paying for those commitments, portending dramatic increases in the lifetime net tax burdens facing young and future generations. The generational accounting and fiscal gap accounting developed by Auerbach, Gokhale, and Kotlikoff is a means of assessing the sustainability of fiscal policy and how different countries intend to treat their progeny. Recent generational accounting by the IMF and fiscal gap accounting by Kotlikoff claim to confirm the truly severe long-run fiscal problems facing the U.S.
The Auerbach-Kotlikoff Model In the late 1970s, Kotlikoff, together with Berkeley economist, Alan J. Auerbach, developed the first large-scale computable general equilibrium life-cycle model that can track the behavior, over time, of economies comprising large numbers of overlapping generations.Dynamic Fiscal Policy (with Alan Auerbach), Cambridge University Press, 1987. The Auerbach-Kotlikoff model is widely used by economists to study the transition paths of closed as well as open economies as well as the dynamic impact of fiscal and other policies.
A relatively recent incarnation of the Auerbach-Kotlikoff model is a paper by Hans Fehr, Sabine Jokisch, and Laurence Kotlikoff entitled "Dynamic Globalization and Its Potentially Alarming Prospects for Low-Wage Workers," includes five regions (the U.S., Europe, Japan, China, and India), six goods, region-specific fiscal policy and demographics, and the endogenous determination of the pattern of specialization.. The most recent use of the Auerbach-Kotlikoff model has been to study, together with economists Felix Kubler, Andrey Polbin, and Simon Scheidegger, the economics of carbon change, particularly the optimal uniformly welfare-improving carbon-tax policy. This is the carbon tax cum side payments that produces the highest uniform welfare gain for all current and future generations in all regions of the world.
The general relativity of fiscal language In 1984, Kotlikoff wrote a fundamental paper entitled "Deficit Delusion", which appeared in The Public Interest. This was the first of a series of papers and books (see, e.g., Generational Accounting and Generational Policy) by Kotlikoff, including work with co-authors, showing, via examples, that in economic models featuring rational agents, "the" deficit is a figment of language, not economics. I.e., the deficit is not economically well defined. Instead, what governments measure as "the" deficit is entirely a result of the language they use to label government receipts and payments.
If the government calls a receipt a "tax," this lowers the reported deficit. If, instead, it calls the receipt "borrowing," it raises the reported deficit. Thus, if you give the government, say, $1,000 this year, it can say it is taxing you $1,000 this year. Alternatively, it can say it is borrowing $1,000 from you this year and will be taxing you in, say, five years the $1,000 plus accrued interest and using this future tax to pay you the principal plus interest due in the future on the current borrowing. With one set of words the deficit is $1,000 larger this year than with the other set of words.
If it so chose, the government could say it was taxing you $1,000 this year and also, this year, borrowing $1 trillion from you for, say, five years, making a transfer payment to you this year of $1 trillion, and taxing you in five years an amount equal to principal plus interest on the $1 trillion and using it to pay principal plus interest on the $1 trillion it is now borrowing. With this alternative choice of words, the reported deficit is $1 trillion larger than with the first set of words. But in all three examples, you hand over $1,000 this year and receive and pay zero on net in the future.
Einstein taught us that neither time, nor distance are well-defined physical concepts. Instead, their measurement is relative to our frame of reference – how fast we were traveling in the universe and in what direction. Our physical frame of reference can be viewed as our language or labeling convention. Einstein showed that neither time nor distance were well-defined concepts, but could be measured in an infinite number of ways. The same is true of the deficit. Just like absolute time and distance are not well defined, the deficit and related conventional fiscal measures has no economic meaning.
Kotlikoff, along with Harvard's Jerry Green, offered a general proof of the proposition that deficits and a number of other conventional fiscal measures are, economically speaking, content-free, concluding that the deficit is simply an arbitrary figment of language in all economic models involving rational agents."On the General Relativity of Fiscal Language"
Such models can feature all manner of individual and aggregate uncertainty, incomplete markets, distortionary fiscal policy, asymmetric information, borrowing constraints, time-inconsistent government policy, and a host of other problems, yet "the" deficit will still bear no theoretical connection to real policy-induced economic outcomes. The reason, again, is that there is no single deficit, but rather an infinity of deficit or surplus policy paths that can be announced (by the government or any private agent) simply by choosing the "right" fiscal labels.
Frames of reference According to Kotlikoff, using the deficit as a guide to fiscal policy is like driving in Los Angeles with a map of New York City. For unlike in our physical world in which we are all using the same language (have the same frame of reference), in the world of economics, we are each free to adopt our own frame of reference – our own labeling convention. Thus, if Joe wants to claim that the U.S. federal government ran enormous surpluses for the last 50 years, he can simply choose appropriate words to label historic receipts and payments to produce that time series.
If Sally wishes to claim the opposite, there are words she can find to justify her view of the past stance of fiscal policy. And if Sam wishes to claim that that economy has experienced fluctuations from deficits to surpluses of arbitrary magnitude from year to year, he can do so. Language is extremely flexible. And there is nothing in economic theory that pins down how we discuss economic theory.