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Sun setting on US empire

Public Policy

Leading US economist Laurence Kotlikoff says he remains optimistic about solving the big structural problems plaguing global finance, but he has a grim prognosis for the US if it doesn’t change fiscal and monetary policies.

“We’re heading the way the British Empire went, its inevitable” he says. “The [US] dollar is going to give way to the Yuan as the global currency at some point, its just a matter of time.”

Kotlikoff is a Professor of Economics at Boston University and will be in New Zealand next week as the Sir Douglas Myers Visiting Professor to Auckland University.

He was named by The Economist as one of the world’s 25 most influential economists and in 2016 and that year he ran for the US Presidency as a write-in candidate.

He’s also a New York Times best-selling author.

While he has a strong reputation his ideas definitely sit outside the mainstream political views in the US.

“The global population is absolutely exploding, we’re adding a China in the next 20 years and then until the end of the century we’re adding three China’s in terms of population,” he says. “And most of that population is going to be concentrated in sub-Saharan Africa and the Middle East.”

Kotlikoff argues that if we see productivity move up towards US levels in these regions – as we have seen in China in the past few decades – then we will see them dwarf the US economy by the end of the century.

“The biggest economies by the end of the century would be sub-Saharan Africa, followed by the India, followed by the Middle East, followed by China,” he says. “The US would go from about 15 per cent of GDP down to about five per cent.”

Exacerbating US woes is the fact it the country is effectively broke and is pushing the day of reckoning on that on to future generations by running enormous fiscal deficits, Kotlikoff argues.

He is no fan of President Trump’s new tax reforms, but in the broader context of America’s multi-trillion dollar deficits he doesn’t think they will make much difference.

“Each president is kicking the ball here and nobody is facing the reality of what’s coming. It’s going to end very badly for older people and younger people.”

It will become increasing difficult for the US to maintain its dominant global position and be “the policeman of the world, he says.

“I think the US is going to be forced to take a back seat. And we may not take that very well.”

Professor Laurence Kotlikoff is the Sir Douglas Myers Visiting Professor to the University of Auckland Business School. Photo / Supplied
Professor Laurence Kotlikoff is the Sir Douglas Myers Visiting Professor to the University of Auckland Business School. Photo / Supplied

Kotlikoff says the only way to address the deficits will be to raise real revenue – which will mean astronomical tax rates if the US stays on its current path.

“It’s another way of saying that the country is broke.”

Kotlikoff suggests “the power economics to solve future problems” as a headline for this article.

It’s a line that hints at an underlying sense of hope that more serious financial and economic reforms will be embraced eventually.

Since the global financial crisis he has been a strong advocate for more radical reform of the global financial system and wants to see it move away from highly leveraged lending which he sees perpetuating a cycle of boom and busts.

“We have to move away from this highly leveraged banking system, which is also highly opaque, to something which has no leverage.”

We were seeing central banks repeat low interest rate policies as they did prior to 2007, pushing up house prices and creating potential for a big crash.

“We can see some of the elements,” he said.

Kotlikoff advocates mutual fund banking, or what he calls “limited purpose banking”.

“It’s 100 per cent equity, mutual fund financed banking. So the entire finance system would just run through mutual funds.”

Most Americans are already doing most their banking with mutual funds, through their retirement accounts, he says.

While he accepts that the big banks wouldn’t like it, he argues that with the right regulation it would remove risk from the system and ensure that financial institutions couldn’t fail.

In the current system the global economy is constantly swinging “from irrational exuberance to irrational pessimism,” he says.

“It’s kind of like a bi-polar person There’s no inherent reason for an economy to have anything but steady growth. Technology is getting better all the time and we have more people in the. Inherently the world economy should grow. And it should grow smoothly.”

Professor Kotlikoff will present a seminar “Our Global Economic Future and How to Fix It” at Auckland University Business School next Tuesday at 2pm. For more information, please contact Professor Robert MacCulloch

NZ Herald

59 Comments on "Sun setting on US empire"

  1. Davy on Mon, 12th Feb 2018 3:57 pm 

    “Can you make any positive statement about WW2?”

    nedernazi, I didn’t come here to talk WWII. There are I am sure multiple sites you can visit to satisfy your obsessions. As far as I am concerned your pride is down with your junk and it has you pissed. that is not my problem.

  2. GregT on Mon, 12th Feb 2018 4:09 pm 

    “preppers are fundamentalist religious nutters!”

    “Liberals are intelligent enough to know if society collapses and there is no rule of law.Your fucked!”

    The world according to MM, in two shades of grey.

  3. MASTERMIND on Mon, 12th Feb 2018 4:12 pm 


    It’s not just the West. Our global society is too intertwined to argue that collapse will envelope only one geographic part of civilization.

  4. MASTERMIND on Mon, 12th Feb 2018 4:20 pm 


    BBC One documentary series features East Tennessee preppers, survival store

    See Greg Like I said…here is some more evidence.

  5. MASTERMIND on Mon, 12th Feb 2018 4:26 pm 

    Doomsday preppers married each other’s underage daughters, police say

    Preppers are monsters!

  6. MASTERMIND on Mon, 12th Feb 2018 4:38 pm 

    US National Academy of Sciences Peer Reviewed Study
    “European Neolithic societies showed early warning signals of population collapse”

  7. GregT on Mon, 12th Feb 2018 4:46 pm 

    “See Greg Like I said…here is some more evidence.”

    “”America needs to wake up a little bit and take their eyes off of texting and Facebook and think, ‘If I have a family, it’s my responsibility to have something prepared even if it’s just three days’ worth of water and enough food not to have to rush to the grocery store when I know the roads are going to get bad, if the power’s going to go out’ … ”

    Difficult to argue with that.

    “And the thing that I find that’s very interesting is that Europeans are more aware of our politics that we are,” Keller said. “They are really attuned.”

    Even more difficult to argue with that.

  8. MASTERMIND on Mon, 12th Feb 2018 5:04 pm 

    Peer Reviewed Study: Society Could Collapse In A Decade, Predicts Math Historian ( Turchin, 2010)

    The end of the world as we know it could be near ― possibly just years from now, according to a scientist who uses historical and mathematical modeling to predict events.

    Peter Turchin, a professor at the University of Connecticut’s department of ecology and evolutionary biology, warns in a Phys.Org article published this week that society could risk implosion within the decade because of increasing social unrest.

  9. GregT on Mon, 12th Feb 2018 5:12 pm 

    “The end of the world as we know it could be near ― possibly just years from now, according to a scientist who uses historical and mathematical modeling to predict events.”

    “The next decade is likely to be a period of growing instability in the United States and western Europe”

    “In the United States, we have stagnating or declining real wages, a growing gap between rich and poor, overproduction of young graduates with advanced degrees, and exploding public debt. These seemingly disparate social indicators are actually related to each other dynamically. They all experienced turning points during the 1970s. Historically, such developments have served as leading indicators of looming political instability.”

    Difficult to argue with that either.

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