It is headed: Please Join Me, 11 Nobel Laureates, and Many Others: THE INFORM ACT
Frankly I’m not knowledgeable enough to evaluate the content of the message as a god or bad idea. I do recall having been critical of some issue that Prof. Kotlikoff was championing in the recent past. I think it was here on Angry Bear. I’m hoping that some of you econo people can add your three cents on the issue. Is this proposal for legislation a worthwhile idea, or not?
Just arriving about 1 oclock pm….I had no trouble with access from a readers pov. Maybe the problem was MEV and a server problem….assuming the problem is gone???? If not please email…
Larry Kotlikoff is probably certifiable. I would guess that makes the Nobel Prize winners a bit crazy too.
Kotlikoff is running around telling every one the true national debt is 222 Trillion dollars. He gets this by running infinite horizon present value calculations based on his idea of what constitutes debt, and… as far as i can tell no regard for the size of the economy that will paying that “debt.”
Also, he does not appear to actually understand “present value.” He sees his graph… HIS graph… growing exponentially to the even horizon and cannot believe that actually paying the “debt” , as for example by raising the SS tax one tenth of one percent per year for a few years, could possibly keep up. It can.
I have shown rather rigorously that the one tenth of one percent increase from time to time will fully pay the 8 Trillion Dollar Unfunded Deficit! the Trustees Report describes for the 75 year actuarial window.
They also report a 20.5 Trillion Dollar (present value) defict for “the infinite horizon. What Kotlikoff can’t believe, or understand, is that the one tenth etc pays for 8 Trillion of that 20.5, leaving about 12 Trillion (round numbers.) 12 Trillion in “present value” (with a “real” interest assumed at 2%) translates into 240 billion per year.
Or, since the 12 T part will be free to grow for 75 years while the 8 T is taking care of the 75 year deficit, we could say it will be about 24 trillion after that 75 years, earning about 480 Billion.
Now, it turns out that the “real” economy will also grow at about 2% over that time, turning the about 8 Trillion in “subject wages” into about 16 Trillion over the seventy five years. Because the one tenth percent (each) increase in the payroll tax over that time will have raised the total tax by 4% (of wages), we would expect that 4% of 16 Trillion to be about 640 billion per year.
This is more than the Kotlikoff magic bank will be paying on the “present value” he is hysterical about.
My numbers here are rough. But they do seem to let the air out of the problem.
I believe Dean Baker has shown something similar about numbers like these. But I am not aware of anyone… least of all 9 New York Nobel Prize winning economists… who have taken the trouble to do the math exactly. Of course, exactly means keeping track of all relevant variables, which is something that economists, NP or not, NEVER do.
Kotlikoff, and one would suppose the Nobel Prize economists, are fixated on something called generational accounting, by which they project the economy of today into the future and prove that future taxpayers will be unfairly burdened by the choices past taxpayers have made.
They never include in their calculations, for example, that future retirees will be living longer than todays, so they may WANT to save a higher percent (of their higher wages) for retirement. The extra 2% (or 4%) those future workers will be paying are simply an “unfair burden” imposed by the Evil Franklin Roosevelt’s social engineering.
And of course the fact that those future workers will be making twice as much… real dollars… as we are today, is never mentioned. Because you see, we cannot allow those future workers to decide how they want to spend their own money. We have to let the Nobel Economists decide for them. After all they are smarter than you.
My INFORM act:
Raise and lower withholding taxes monthly (or in the shortest span possible) in direct step with spending and cutting. Newspapers will have to add a new section for people to track every bit of government spending. We wont build a courthouse for 100 years.
Money cut from government spending will immediately re-enter the economy. Intentional deficit levels can be set precisely.
Why can’t I use my non performing 401K to retire my own mortgage? More to the point, what would be the likely dislocations (good and bad) caused by allowing those with enough of a balance the option to transfer the required funds to their mortgage lender and repay the money to their own retirement funds with interest?
Ok I can acknowledge one wrinkle – the interest on that (self) loan would probably no longer be tax deductible. Ok fine I can live with that.
But abandoning that deduction would let me 1> Stabilize my own concern about my ability to stay employed long enough to pay it off. The new self-mortgage would turn into a taxable distribution if I default on it. So I’d have to pay taxes on the transfer but only in the event I couldn’t pay it back. And either way the house title belongs to me absent tax liens. 2> Invest my retirement savings in something significant and useful to me in retirement – a paid off house. My investment would also provide stability in my community and neighborhood – something my current 401K expressly does not provide. 3> Provide a guaranteed return on those savings at least as long as I was able to make the payments. Again, the current scheme is basically the opposite. No guarantees period. 4> Potentially give at least some 50 somethings an opportunity to leave the work force earlier with a paid off house. Without a mortgage I could get by on less than half what I am making now.
Ok I realize the scheme would quickly run aground on the political difficulty of challenging both the mortgage lending and retirement savings lobbies lol. So politically impossible but still… an interesting fantasy one I have carried around for a few years now in my head.
The advantages seem so compelling to me but maybe I haven’t considered the drawbacks. There must be some… anybody?
Amateur Socialist,
I rolled over my constantly dwindling 401K about a year ago. It’s in an IRA so it has the same tax advantage, if that’s really an advantage at all (but that’s another discussion). Unless your employer is making a good contribution to your 401K it isn’t giving you anything you can’t better find on your own. My biggest complaint in that regard is that almost all such accounts are invested in some choice of mutual funds. Look up the dividend return on your mutual funds. Abysmal at best and appreciation is more like a roller coaster ride; what goes up always falls and usually never goes up quite as high again.
I’m not sure that paying off the mortgage is the best thing to do given that you can still deduct the interest from earnings if you itemize. With rates in and around 3.5% to 4.0% and deductible its a hard investment to beat. You can earn 4% dividend on high quality electrical utility stocks which are currently a little high (PEs around 19:1), but still returning more than 4%. In effect you earn from the dividend a bit more than you pay for the mortgage.
Jack you may be missing the point of my idea. I want to get the laws changed so that my mortgage is an allowed investment by my own 401K. So the dividends on that part of my 401K will be the actual interest I pay myself back into my own retirement account.
If this could be allowed by law I think it would be a great public policy initiative. 401K investors would get an additional option in one of the safest investments imaginable – A mortgage on a house they occupy.
I got the idea from a feature of my company’s 401K which allows loan disbursements at low cost to savers up to a maximum of $50K or 1/2 the account value whichever is less. But you can’t borrow more than $50K and the term is a maximum of 4 years. So it couldn’t be used to retire a mortgage (at least until the balance goes below 50K). The interest on loans is credited back into my account – essentially lending money to myself and paying it back with interest into a segregated tax deferred account. No credit scoring or qualification is required aside from the needed account balance since you are lending the money to yourself.
All we need is the ability to extend larger loans for longer terms and allow the deferred account to invest in real estate under certain specific conditions. We could limit the mortgages to primary or maybe secondary residences of the account holder to prevent speculation (and a 401K funded property bubble…)
i am missing the point too. why not just pay off your mortgage instead of putting the money into the 401k.
i (think i) know there are tax games to play, but paying off the mortgage in two or three years does indeed leave you able to live on half what you were living on when you had the mortgage. i find it worked very well for me, and i didn’t lose any sleep figuring out tax advantages or praying for the Dow.
There is a similar trick… if you stay employed long enough: instead of putting all your money in the stock market… where it is essentially lost to you until and unless you take it out with gains… just use your money for what you need and want, then when you get old enough to think more about retirement than fancy cars, save every dime you don’t need for food and taxes (you already paid for the house, right?).
you can save enough in a few years to equal what you would have gained on the stock market by saving your whole life, and you will get used to living on “nothing.”
I have no idea if these are “good” ideas or not. but they worked well enough for me when i ran out of the usual options.
you increase GDP if people pay you more than they don’t pay for some other “good.”
this is “good for the economy” because it gives people a reason to spend and therefore to work for more money, presumably by creating something that other people are willing to work to be able to buy.
I received this as an email in the name of Larry Kotlikoff, Professor of Economics, Boston University; http://hosted.verticalresponse.com/1143605/3da10559b1/TEST/TEST/
It is headed: Please Join Me, 11 Nobel Laureates, and Many Others: THE INFORM ACT
Frankly I’m not knowledgeable enough to evaluate the content of the message as a god or bad idea. I do recall having been critical of some issue that Prof. Kotlikoff was championing in the recent past. I think it was here on Angry Bear. I’m hoping that some of you econo people can add your three cents on the issue. Is this proposal for legislation a worthwhile idea, or not?
What the devil is this? And when did Angry Bear add an exclusionary aspect to its blog?
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What password?
Also, is AB running at snail’s pace this AM or is it my machine?
Jack:
Not sure how the pssword got there; but, I fixed it. I had to wait to get on for a bit also. Probably like Dan says . . . a server problem.
Jack – something is screwy this morning with AB, tried on two machines on two different networks.
Just arriving about 1 oclock pm….I had no trouble with access from a readers pov. Maybe the problem was MEV and a server problem….assuming the problem is gone???? If not please email…
Jack
Larry Kotlikoff is probably certifiable. I would guess that makes the Nobel Prize winners a bit crazy too.
Kotlikoff is running around telling every one the true national debt is 222 Trillion dollars. He gets this by running infinite horizon present value calculations based on his idea of what constitutes debt, and… as far as i can tell no regard for the size of the economy that will paying that “debt.”
Also, he does not appear to actually understand “present value.” He sees his graph… HIS graph… growing exponentially to the even horizon and cannot believe that actually paying the “debt” , as for example by raising the SS tax one tenth of one percent per year for a few years, could possibly keep up. It can.
I have shown rather rigorously that the one tenth of one percent increase from time to time will fully pay the 8 Trillion Dollar Unfunded Deficit! the Trustees Report describes for the 75 year actuarial window.
They also report a 20.5 Trillion Dollar (present value) defict for “the infinite horizon. What Kotlikoff can’t believe, or understand, is that the one tenth etc pays for 8 Trillion of that 20.5, leaving about 12 Trillion (round numbers.) 12 Trillion in “present value” (with a “real” interest assumed at 2%) translates into 240 billion per year.
Or, since the 12 T part will be free to grow for 75 years while the 8 T is taking care of the 75 year deficit, we could say it will be about 24 trillion after that 75 years, earning about 480 Billion.
Now, it turns out that the “real” economy will also grow at about 2% over that time, turning the about 8 Trillion in “subject wages” into about 16 Trillion over the seventy five years. Because the one tenth percent (each) increase in the payroll tax over that time will have raised the total tax by 4% (of wages), we would expect that 4% of 16 Trillion to be about 640 billion per year.
This is more than the Kotlikoff magic bank will be paying on the “present value” he is hysterical about.
My numbers here are rough. But they do seem to let the air out of the problem.
I believe Dean Baker has shown something similar about numbers like these. But I am not aware of anyone… least of all 9 New York Nobel Prize winning economists… who have taken the trouble to do the math exactly. Of course, exactly means keeping track of all relevant variables, which is something that economists, NP or not, NEVER do.
Kotlikoff, and one would suppose the Nobel Prize economists, are fixated on something called generational accounting, by which they project the economy of today into the future and prove that future taxpayers will be unfairly burdened by the choices past taxpayers have made.
They never include in their calculations, for example, that future retirees will be living longer than todays, so they may WANT to save a higher percent (of their higher wages) for retirement. The extra 2% (or 4%) those future workers will be paying are simply an “unfair burden” imposed by the Evil Franklin Roosevelt’s social engineering.
And of course the fact that those future workers will be making twice as much… real dollars… as we are today, is never mentioned. Because you see, we cannot allow those future workers to decide how they want to spend their own money. We have to let the Nobel Economists decide for them. After all they are smarter than you.
My INFORM act:
Raise and lower withholding taxes monthly (or in the shortest span possible) in direct step with spending and cutting. Newspapers will have to add a new section for people to track every bit of government spending. We wont build a courthouse for 100 years.
Money cut from government spending will immediately re-enter the economy. Intentional deficit levels can be set precisely.
Why can’t I use my non performing 401K to retire my own mortgage? More to the point, what would be the likely dislocations (good and bad) caused by allowing those with enough of a balance the option to transfer the required funds to their mortgage lender and repay the money to their own retirement funds with interest?
Ok I can acknowledge one wrinkle – the interest on that (self) loan would probably no longer be tax deductible. Ok fine I can live with that.
But abandoning that deduction would let me 1> Stabilize my own concern about my ability to stay employed long enough to pay it off. The new self-mortgage would turn into a taxable distribution if I default on it. So I’d have to pay taxes on the transfer but only in the event I couldn’t pay it back. And either way the house title belongs to me absent tax liens. 2> Invest my retirement savings in something significant and useful to me in retirement – a paid off house. My investment would also provide stability in my community and neighborhood – something my current 401K expressly does not provide. 3> Provide a guaranteed return on those savings at least as long as I was able to make the payments. Again, the current scheme is basically the opposite. No guarantees period. 4> Potentially give at least some 50 somethings an opportunity to leave the work force earlier with a paid off house. Without a mortgage I could get by on less than half what I am making now.
Ok I realize the scheme would quickly run aground on the political difficulty of challenging both the mortgage lending and retirement savings lobbies lol. So politically impossible but still… an interesting fantasy one I have carried around for a few years now in my head.
The advantages seem so compelling to me but maybe I haven’t considered the drawbacks. There must be some… anybody?
Amateur Socialist,
I rolled over my constantly dwindling 401K about a year ago. It’s in an IRA so it has the same tax advantage, if that’s really an advantage at all (but that’s another discussion). Unless your employer is making a good contribution to your 401K it isn’t giving you anything you can’t better find on your own. My biggest complaint in that regard is that almost all such accounts are invested in some choice of mutual funds. Look up the dividend return on your mutual funds. Abysmal at best and appreciation is more like a roller coaster ride; what goes up always falls and usually never goes up quite as high again.
I’m not sure that paying off the mortgage is the best thing to do given that you can still deduct the interest from earnings if you itemize. With rates in and around 3.5% to 4.0% and deductible its a hard investment to beat. You can earn 4% dividend on high quality electrical utility stocks which are currently a little high (PEs around 19:1), but still returning more than 4%. In effect you earn from the dividend a bit more than you pay for the mortgage.
Jack you may be missing the point of my idea. I want to get the laws changed so that my mortgage is an allowed investment by my own 401K. So the dividends on that part of my 401K will be the actual interest I pay myself back into my own retirement account.
If this could be allowed by law I think it would be a great public policy initiative. 401K investors would get an additional option in one of the safest investments imaginable – A mortgage on a house they occupy.
I got the idea from a feature of my company’s 401K which allows loan disbursements at low cost to savers up to a maximum of $50K or 1/2 the account value whichever is less. But you can’t borrow more than $50K and the term is a maximum of 4 years. So it couldn’t be used to retire a mortgage (at least until the balance goes below 50K). The interest on loans is credited back into my account – essentially lending money to myself and paying it back with interest into a segregated tax deferred account. No credit scoring or qualification is required aside from the needed account balance since you are lending the money to yourself.
All we need is the ability to extend larger loans for longer terms and allow the deferred account to invest in real estate under certain specific conditions. We could limit the mortgages to primary or maybe secondary residences of the account holder to prevent speculation (and a 401K funded property bubble…)
am soc
i am missing the point too. why not just pay off your mortgage instead of putting the money into the 401k.
i (think i) know there are tax games to play, but paying off the mortgage in two or three years does indeed leave you able to live on half what you were living on when you had the mortgage. i find it worked very well for me, and i didn’t lose any sleep figuring out tax advantages or praying for the Dow.
There is a similar trick… if you stay employed long enough: instead of putting all your money in the stock market… where it is essentially lost to you until and unless you take it out with gains… just use your money for what you need and want, then when you get old enough to think more about retirement than fancy cars, save every dime you don’t need for food and taxes (you already paid for the house, right?).
you can save enough in a few years to equal what you would have gained on the stock market by saving your whole life, and you will get used to living on “nothing.”
I have no idea if these are “good” ideas or not. but they worked well enough for me when i ran out of the usual options.
Suppose I decide to be an entrepreneurial small business person and start a bungy jumping business. I don’t make anything.
Do I increse the GDP?
Are my efforts good for the economy?
Arne
if i understand your question
you increase GDP if people pay you more than they don’t pay for some other “good.”
this is “good for the economy” because it gives people a reason to spend and therefore to work for more money, presumably by creating something that other people are willing to work to be able to buy.