Quibbling with Kotlikoff

kotlikoffLarry Kotlikoff is probably the smartest, the most honest and the most thoughtful person ever to run for President of the United States. His platform is well worth a read. The latter part is crammed with carefully considered policy proposals. I’d be very happy to see his tax and health care reforms adopted wholesale. I might vote for him.

That said, I’m annoyed by some of the rhetoric in the early part of the platform document, and I’ve attached some of my quibbles below. (These quibbles stop, arbitrarily, at the end of Kotlikoff’s chapter 4, which is not meant to imply that I have no further quibbles.) In a few cases, I’ve expressed these quibbles harshly. Let me, then, make this perfectly clear up front: I am sure that Kotlikoff has thought about some of this stuff harder than I have. Nevertheless, here’s some of what bugs me:

Page 32: Average weekly take-home pay, expressed in today’s dollars, was $770 in 1966. It’s $720 today. That’s 50 years of cumulative negative real (inflation-adjusted) wage growth.

Well, first of all, this depends a lot on how you do your inflation-adjusting. Today, $30 a month or so will buy you more access to information, or more allergy relief, or more entertainment options, than you could have bought for a million times that much in 1966. Following a cancer diagnosis, what’s the cost of an extra year of life today compared to what it was in 1966? And to bring all this home: Would Larry Kotlikoff rather live in 1966 on what he calls the equivalent of today’s $770 a week, or in 2016 on $720 a week? I think he’s smart enough to choose the latter. If so, his inflation adjustment has got to be wrong.

Also, part of the reason for today’s allegedly low take-home pay is that we’re paying for a lot of government services we didn’t get in 1966. You can question whether those services are overpriced, but if you’re comparing living standards, you’ve still got to count them.

But most importantly, why focus on wages in the first place? Our lifestyles depend on our incomes, not on any single component of our incomes.

Real median family income has risen by only 10 percent over the past 30 years. Moreover, this increase is due to households working harder and longer, since they aren’t earning more per hour. Extra work can take many forms – more hours per day, more days per week, fewer or shorter vacations, second jobs, becoming a two-earner couple, postponing retirement and other work adjustments needed to keep up with the ever-rising bills.

This seems to fly in the face of much published research showing enormous increases in leisure hours over the past few decades, with most of those gains skewed toward the lower end of the income scale. See here for example.

Page 34: Inequality is alive and well in America….Even worse, inequality is on the rise.

This one gets my hackles up. “Even worse” seems to imply that we currently have too much inequality. Too much relative to what, and how does Kotlikoff know? When someone tells you we’ve got too much or too little of something, it’s always incumbent on him to explain how he’d recognize the right amount when he saw it. To simply declare something “too big” without even saying what that means is a cheap rhetorical trick and usually a sign that someone’s deliberately trying to pull the wool over your eyes.

Page 35: The college-wage premium has increased 75 percent since the mid-sixties. Today’s college grads earn twice what those with only a high school diploma receive. This speaks to the loss of our middle class.

What’s driving that college-wage premium? Has the social value of a college education increased, either because of changing technology in the outside world or changing technology on campus? Or is signaling for some reason on the rise? Or something else? Without addressing this question it is quite impossible to know — or even to discuss — whether this increased premium is a good thing or a bad thing. Skipping over that key step strikes me as another cheap rhetorical trick.

Page 35: Economic models in which smart machines compete directly with labor, which is increasingly the case, have one strong prediction – a decline in labor’s share of national income

Again, this is stated as if it’s self-evidently problematic, but it’s not. I’m guessing that most Americans would welcome a day in which less of their income came from labor and more from the ownership of smart machines.

Pages 36-37: Legal immigration is also fueling a veritable population explosion. Unless we reduce legal immigration, our population will rise by one-third – over 100 million people – in just 45 years. That’s the current population of the Philippines. Most of these additional people will locate in the nation’s major cities. Driving in our major cities at peak hours is already a major challenge. With one-third more people, driving in our major cities may be like driving in Manila – an experience I don’t recommend.

I’ve talked to many people about this issue. Most argue that the country has plenty of space, that the Midwest has been emptying out and that the country could easily accommodate twice the number of annual immigrants. My fear is that what happens when other countries have experienced rapid population growth will happen here. People will move primarily into existing urban areas that are already highly congested.

What this overlooks is that the current residents of those existing urban areas, if they don’t like the additional congestion, are free to move to the Midwest. Are such moves costless? Of course not. Might they be a whole lot less costly than staying in a highly congested place? Quite possibly — and an honest cost-benefit analysis should account for that. In today’s America, all congestion is voluntary.

Page 41: the government has also played a major role in discouraging employment and lowering wages by confronting small businesses with the massive red tape I discussed above and large businesses with rates of corporate taxation that are far higher than in other developed countries. Yes, corporate tax collections are very low due to myriad loopholes. But our corporate income tax, while collecting precious little revenue is, nonetheless, producing huge incentives for companies to operate outside the U.S. Another job killer is our long-standing decision to have our employers oversee our healthcare, saving and financial investment decisions via the healthcare and retirement plans they provide. Our employers are not our friends, they are not our parents, and they are not our government. They should not be deciding what healthcare we receive, how much we can save on a tax-sheltered basis, how and with whom we invest our savings and, thanks to these decisions, what we pay in taxes. The business of America’s businesses should be just that, business.

Hear, hear.

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28 Responses to “Quibbling with Kotlikoff”


  1. 1 1 Ken B

    Hmmmm. Just pick one TR was a pretty smart guy. Just to pick one James Madison was a pretty thoughtful guy. I get the impression James Garfield was a pretty honest guy. Ditto JQA. And those aren’t just guys who ran, but guys who won.

  2. 2 2 Laurence Kotlikoff

    Hi Steve,

    Thanks for the lovely words and the thoughtful examination of my platform. Please give me a ring after the election and we’ll go over each of the excellent points you raised. I do have responses.

    All best, Larry

  3. 3 3 Thomas

    Ken B makes a good point. I would add that smart is hard to pin down, especially for presidents and candidates long past. But for honest and thoughtful, I give you George Washington, John Adams (who I almost omitted because of the Alien and Sedition Act), James Madison, John Quincy Adams, Franklin Pierce (yes, him), Grover Cleveland (perhaps the last Democrat president who tried to be faithful to the Constitution), Calvin Coolidge, and Ronald Reagan (who actually thought deeply about government and its proper role and didn’t just read speeches written for him). I omit TR because of his impetuous imperialistic attitude — which played out at home and abroad. Thoughtful he was not. WW may have been smart (the only president with a Ph.D. I believe), but his political agenda was loathsome.

  4. 4 4 blink

    To your first two quibbles, I would add another important caveat vying against focus on averages and medians: Demographic changes. We are simply comparing the average of groups of people with a different portfolio of ages, education levels, origins, genders, etc., etc. all of which makes the comparisons dubious in the first place.

  5. 5 5 Steve Landsburg

    Blink: yes, thank you for adding this.

  6. 6 6 Zazooba

    Excerpts from the Larry Kotlikoff’s platform:

    We still need to work extremely hard on border enforcement to eliminate illegal entry into our country…. The real issue with immigration is legal immigration. We are adding 1 million legal immigrants to the population each year. The great majority are unskilled. This isn’t hurting investment bankers or the software engineers at Google. This is hurting low-skilled U.S. workers.29 It’s the last thing we need if we are trying to restore our middle class….

    Legal immigration is also fueling a veritable population explosion. Unless we reduce legal immigration, our population
    will rise by one-third – over 100 million people – in just 45 years…. Most of these additional people will locate in the nation’s major cities. Driving in our major cities at peak hours is already a major challenge. With one-third more people, driving in our major cities may be like driving in Manila – an experience I don’t recommend. America’s population explosion has far-reaching implications for wage growth, jobs, productivity growth, public services, infrastructure, congestion, public transportation, the education system, agriculture and our nation’s ability to reduce its carbon footprint. Yet, neither Secretary Clinton nor Mr. Trump seem aware of the great demographic changes we have underway. It’s one thing to consciously let your population explode. It’s another to do so with no planning for the consequences.

    … My fear is that what happens when other countries have experienced rapid population growth will happen here. People will move primarily into existing urban areas that are already highly congested. Egypt’s three-largest cities including Cairo represent far less than 1 percent of its landmass. But they contain a quarter of that country’s population.

    So, concern about immigration is not limited to bad people with bad motives.

    His point that we should plan for the consequences of the “great demographic changes we have underway” seems pretty reasonable.

  7. 7 7 nobody.really

    In today’s America, all congestion is voluntary.

    Uh … no. I’ve tried pretty much every decongestant on the market; they’re all crap.

    That said, why don’t the Dems and Repubs address this in their platforms?

  8. 8 8 nobody.really

    Please give me a ring after the election and we’ll go over each of the excellent points you raised. I do have responses.

    Pretty much the same thing Trump said in defense of his secret plans to defeat ISIS. (…Politicians…!)

  9. 9 9 Neil

    “…all congestion is voluntary.” Road congestion is “voluntary” also, but it is inefficient and costs hundreds of billions of dollars in DeadWeight Loss. As you well know, Steve, voluntary and efficient are not the same thing. If immigration increases congestion DWL, that is a consideration.

    That said, there are positive externalities from immigration as well.

  10. 10 10 Steve Landsburg

    Neil: Sure. But the cost of that congestion is not equal to the cost of living with the congestion. It is equal to the cost of living with the congestion *or* the cost of moving away, whichever is less. In the dire circumstances Kotlikoff is describing, a lot of people will (I think) choose to move. So when we imagine people living with all that congestion, we are probably quite overestimating the actual cost.

    (For example, one of the reasons I live in Rochester, NY is that there is nearly no road congestion. I do not suffer from Boston’s road congestion. And nobody else has to, either.)

  11. 11 11 The Original CC

    Is anyone else impressed by the fact that Larry Kotlikoff actually read and responded (with more to come)?

    Nobody.really: I agree. I’m astounded that we can put a man on the moon (or at least we used to be able to) but we can’t make a decent decongestant.

  12. 12 12 Steve Landsburg

    The Original CC:

    Is anyone else impressed by the fact that Larry Kotlikoff actually read and responded (with more to come)?

    I am.

  13. 13 13 Jimbino

    Larry Kotlikoff may as well call his party the Party of God, whose name he summons a few times, as in “A newborn baby is God’s gift if ever there was one.”

    Some of his policies, like those favoring marriage and breeding in his tax and benefits discussions, could have been written by the Pope. He shamefacedly agrees with current policies of disfavoring the single and childfree individual in favor of blessing the married and the breeders with tax deductions, as in “Allocate each worker’s contribution 50-50 to his/her own PSA and to his/her spouse/legal partner’s PSA.”

    He also fails to acknowledge that all the new sacrifices workers will be called on to make to close the fiscal gap serve ultimately to benefit only the legacy of the breeders at the expense of the non-breeders, who double their carbon footprint for each second kid they pop out.

    Then he fails to correct the inequity of special taxation of Amerikan expatriates, who will be presumably remain liable for most of his tax burdens in exchange for “benefits” of health insurance, whether of Obamacare, Kotlikoffcare, Medicare or Medicaid that are NOT available overseas, leave those of them interested in their own health and welfare and that of their kids to renounce their Amerikan citizenship.

    Kolitkoff owes us a lot more “responses” in the interests of morality and fairness, not to mention freedom from the Pope’s social programs.

  14. 14 14 GregS

    I’d love to hear Kotlikoff’s answers. I hope his response isn’t confined to a private phone call. I’m pretty much with Landsburg on these criticisms, but Kotlikoff seems to be a pretty careful thinker.

  15. 15 15 Floccina

    I think that congestion could be solved with a higher fees used to build better transportation systems. Congestion charges seem to work in London. https://www.google.com/search?client=ubuntu&channel=fs&q=Congestion+fee&ie=utf-8&oe=utf-8#channel=fs&q=congestion+charge+map

  16. 16 16 Kevin Erdmann

    The congestion problem is not a problem. The problem is the opposite. Under the current regime regarding urban housing, there is no way those immigrants would populate our major cities. Those cities are sources of outmigration today.

  17. 17 17 Harold

    I would hazard a guess that driving in Manila is fraught not because of the density of traffic, but because of a lack of infrastructure and enforcement of regulations. I am willing to bet that New York has better maintained road and much more sophisticated traffic control systems, as well as mass transit systems that Manila lacks. It seems glib to suggest that the traffic problems in Manila are simply because thee are too many people, and adding more to New York will result in the same outcome as Manila.

  18. 18 18 Advo

    I’ll offer some information on the traffic problems in Manila a bit; I live here (in Las Pinas, Ohana Place), so I have first-hand experience.
    Traffic in Las Pinas centers around Alabang-Zapote Road which goes several miles from East to West. I live in an apartment project a few hundred meters from AZ Road.

    Traffic during rush hour (2-3 hours in the morning, 2-4 hours in the early evening) is bad. Really bad.

    What are the reasons for that?
    There are several:

    1. Lack of competent traffic enforcement, traffic lights etc.
    Jeepneys in particular like to just park in the middle of the road for a minute or two while taking in/offloading passengers or taking a pee. Some major intersections don’t have (working) traffic lights so getting through there is often a question of slowly pushing yourself into the gridlock.
    For existing traffic lights, I don’t think they’re particularly well optimized to ensure high throughput. It would be a surprise if they were optimized; nothing else here is.
    Sometimes traffic enforcers come out and arbitrary block a lane for half an hour. Not sure what the point of that is.

    2. Lack of infrastructure. Not enough roads are being built. There is (in Las Pinas) in particular a lack of “skyways”. If you want to get from anywhere to the East of Las Pinas to anywhere to the West of Las Pinas, you basically have to take Alabang-Zapote Road.
    While there is a network of smaller roads you could theoretically take, large parts of the map are de-facto inaccessible or expensive to take because they are part of large semi-gated communities.

    Manila is suffering from a large deficit in road/rail infrastructure investment. Apparently this is due to a large degree because of bureaucratic hurdles put into place to prevent corruption.
    On the plus side, the inability to spend money has cause the federal debt-to-gdp ratio to decline a lot over the last 15 years.

    Las Pinas desperately needs an additional East/West through-road (is there a technical term for that?), either in the form of a skyway or in the form of a parallel four lane road.
    A subway or MRT system would be an alternative.

    Dutuerte has rolled out massive infrastructure spending projects, but only one (large) bus project for Manila. Not sure how much that is going to help. There doesn’t appear to be anything in the pipeline that could help Las Pinas, but there are several condo projects that’ll add another 10k or so residents over the next few years.

  19. 19 19 Advo

    I looked at Kotlikoff’s programme, and it appears I had misjudged the man.
    The only thing I knew about him were his headline claims of gazillion dollars in unfunded future liabilities, which made me dismiss him as a hack.

  20. 20 20 Dave H.

    I think it is funny that the first quibble you decided to pick with Larry was relating to generational accounting, which is his work that (arguably) gave him the most recognition from other economists.

    I personally would have picked on the fact that he recognizes the dangers of increasing economic inequality, but then proposes a tax plan that is (in some ways) more regressive than the one we have now.

    I also have some question about the economic basis for anyone running as a write-in candidate. By definition, they are seeking the votes of the most educated and informed voters, which means they are removing people from the voting pool that we desperately need to vote.

  21. 21 21 Richard D.

    nobody.really:
    “I’ve tried pretty much every decongestant on the market;
    they’re all crap.”

    For your toughest congestion problems:

    https://www.youtube.com/watch?v=gYc9ZoXtWgE

  22. 22 22 Richard D.

    SL: “”Page 32: Average weekly take-home pay, expressed
    in today’s dollars, was $770 in 1966, $720 today. That’s
    50 years of cumulative negative real (inflation-adjusted)
    wage growth.”
    Well, first of all, this depends a lot on how you do your inflation-adjusting… And to bring all this home: Would Larry
    Kotlikoff rather live in 1966 on what he calls the equivalent
    of today’s $770 a week, or in 2016 on $720 a week?”

    Someone, I cannot recall, noted there are 4 myths
    practically everyone believes regarding economics.
    One: “Things were better in the good old days!”
    (equivalent to “the middle class is falling behind!”)

    Ask Prof. Kotlikoff how many minutes per day
    Joe Sixpack had to work, in 1966, to pay his
    food/housing/fuel bills, vs. today. (and how
    many sq. feet of housing did he enjoy?)

  23. 23 23 Justin Max

    #11 writes “Is anyone else impressed by the fact that Larry Kotlikoff actually read and responded.”

    I’d be impressed if his response didn’t boil down to: “I’ll answer your questions relevant for this election after the election is over.” Larry, why not answer now?

  24. 24 24 AMTbuff

    I’ve tried pretty much every decongestant on the market; they’re all crap.

    That said, why don’t the Dems and Repubs address this in their platforms?

    nobody really likes congestion…

  25. 25 25 Ken B

    All the congestion jokes are funny but both parties DO address it in their platforms. They both support the war on drugs. It is this evil destructive folly which is ultimately the cause of the paranoia about pseudoephedrine.

  26. 26 26 Harold

    #25 From wiki about Portugal “In April 2009, the Cato Institute published a comprehensive case study of the decriminalization of drugs in Portugal.[2] Empirical data from that report indicate that decriminalization has had no adverse effect on drug usage rates. However, drug-related pathologies – such as sexually transmitted diseases and deaths due to drug usage – have decreased dramatically”.

    Seems a productive approach, but 2009 was a while ago. Anyone know how it is getting on today?

  27. 27 27 Ken B

    Harold
    Usually things go to hell immediately. We saw that recently when the island of Britain, post-Brexit, sank.

  28. 28 28 Harold

    Glug glug. However, we are still very much pre-Brexit, just post Brexit referendum. All we know so far is that Brexit means Brexit, which is not helpful.

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