Leveraging posterity’s prosperity?
Files
Published version
Date
2020-05-01
Authors
Brumm, Johannes
Kotlikoff, Laurence
Kubler, Felix
Version
OA Version
Published version
Citation
Johannes Brumm, Laurence Kotlikoff, Felix Kubler. 2020. "Leveraging Posterity’s Prosperity?." AEA Papers and Proceedings. https://doi.org/10.1257/pandp.20201104
Abstract
We critically review studies by Blanchard (B) and Rachel and Summers (RS). By the standard fiscal-gap measure, the US government is in dire fiscal shape thanks to constantly enlarging its postwar, take-as-you-go Ponzi scheme. Yet B and RS seemingly rationalize its expansion. Their arguments rest on the safe rate being very low. But almost all households face high safe rates--the rates available from pre-paying their loans. We also question modeling assumptions that help drive key B and RS results and reference recent simulation studies, which reach strongly opposite conclusions to B's.