Laurence Kotlikoff, 19 February 2020

The US has spent the entire post-war period running a massive and ever-growing Ponzi scheme that takes from the young and gives to the old. This column discusses how the scheme has been and is being run by expanding take-as-you-go-financed Social Security, Medicare, and Medicaid systems, by running huge official deficits, and by imposing a larger share of taxes on the young and a smaller share on the old. Take as you go, whether done on or off the books, has done precisely as theoretically predicted – reduced the US’s national saving rate from 13% in the 1950s and 1960s to 3% in the last two decades. This underlies, in large part, a commensurate drop in the domestic investment rate, which was also 13% between 1950 and 1969 and is now running at 4%. The textbook predicted consequence? Lower median labour productivity and median real wage growth.


CEPR Policy Research