The Coming Generational Storm: What You Need to Know about America's Economic Future

by Laurence J. Kotlikoff, Scott Burns

How to avoid a fiscal crisis in the next generation -- and how to protect yourself if the government acts too late: policy recommendations and individual strategies to protect against skyrocketing tax rates, drastically reduced health and retirement benefits, high inflation, and a ruined currency.

In 2030, as 77 million baby boomers hobble into old age, walkers will outnumber strollers; there will be twice as many retirees as there are today but only 18 percent more workers. How will America handle this demographic overload? How will Social Security and Medicare function with fewer working taxpayers to support these programs? According to Laurence Kotlikoff and Scott Burns, if our government continues on the course it has set, we'll see skyrocketing tax rates, drastically lower retirement and health benefits, high inflation, a rapidly depreciating dollar, unemployment, and political instability. The government has lost its compass, say Kotlikoff and Burns, and the current administration is heading straight into the coming generational storm.

But don't panic. To solve a problem you must first understand it. Kotlikoff and Burns take us on a guided tour of our generational imbalance, first introducing us to the baby boomers -- their long retirement years and "the protracted delay in their departure to the next world." Then there's the "fiscal child abuse" that will double the taxes paid by the next generation. There's also the "deficit delusion" of the under-reported national debt. And none of this, they say, will be solved by any of the popularly touted remedies: cutting taxes, technological progress, immigration, foreign investment, or the elimination of wasteful government spending.

So how can the United States avoid this demographic/fiscal collision? Kotlikoff and Burns propose bold new policies, including meaningful reforms of Social Security, and Medicare. Their proposals are simple, straightforward, and geared to attract support from both political parties. But just in case politicians won't take the political risk to chart a new direction, Kotlikoff and Burns also offer a "life jacket" -- guidelines for individuals to protect their financial health and retirement.

This paperback edition of The Coming Generational Storm has been revised and updated and includes a new foreword by the authors.

Genres: Economics, Nonfiction, Business, History, Politics, Finance, Sociology

276 pages, Paperback

First published January 1, 2004

Reviews

[Christopher · Rating 3 out of 5]

This book helped me discover that I'm not going to understand economics anytime soon. That's not to say the book isn't well-written. Perhaps if you understand and like economics, you would find this book interesting and well worth your time.

Written in 2004, during the Bush, Jr. years, Kotlikoff and Burns lay out the country's economic situation back then to show our dire financial circumstances. They point out the crushing deficit and sprinkle the blame on all the presidential administrations from Reagan up to Bush, Jr. Then they detail the coming generational storm. That is the baby boomer generation moving into retirement and plunging the country deep into the throes of Social Security and Medicare funding breakdown.

The book is prescient regarding the baby boomers causing a severe strain on our social support systems. But you don't have to know economics to understand that fear in 2003. That time is here now, as I write this. But Kotlikoff and Burns (and few others) could not foresee things like the 2008 housing crash, trump, the pandemic, and another housing bubble, among other things.

I don't know if the numbers they come up with hold water now. Some do for sure. The most interesting and viable chapter of this book is the last one about securing the future. Their advice is sound and applies today. I'm sure this book was worth reading when it was published but only the last chapter is worth reading now.

There, I've written way too much already.

[Dennis Littrell · Rating 5 out of 5]

Let them eat cake

This is about the "big whammy," as the authors term it, a $51-trillion debt that America has piled up that will come home to roost upon the heads of our children and grandchildren. They will not be pleased.

The really scary thing about this story is that, although Kotlikoff and Burns wax hopeful near the end of the book, and indeed present a possible way out of the crisis, one gets the sense that they believe that there will be no remedial action and certainly no cure until the pain sets in, and then it will be too late.

Personally I won't be around to experience any of this, but my grandsons will. According to the authors, my grandsons will be burdened with tax obligations of unprecedented weight and/or runaway inflation of the banana republic variety, or the collapse of the American economy as we know it. It's even possible that they'll have all three, probably in that order.

The main culprits are Social Security, Medicare and Medicaid. Quite simply we are incurring transfer payment obligations to our elderly so enormous that the working population will not be able to pay for them. And the terrible thing is that our government knows this--there have been many studies--but has neither the will nor the desire to do anything about it. Call it the crisis of representative democracy. No one in Congress or in the White House has the guts to tell the American people that we are going bankrupt. Everybody seems to think that the future will take care of itself, or, at any rate, that's THEIR problem. Maybe some fabulous invention or technology will confer upon my grandsons enormous wealth and all the financial obligations will disappear like wisps of clouds on a sunny day.

It is important to note that the present incumbent in the White House has greatly exacerbated the problem by recklessly cutting taxes while going on a wild spending spree so that his friends at Raytheon, Halliburton, Big Oil and Big Pharma will have full capitalization. As the authors note, politicians care almost exclusively about maintaining themselves in office. Consequently they are seldom able to address problems beyond the short horizon of the next election.

In a larger sense, the crisis so vividly and exhaustively described in this strangely readable book isn't about economics at all. It is about demographics. With increasingly aging populations, thanks to modern sanitation, cradle to grave health care, plenty of food and safe water, etc., the highly developed countries now have to figure out who is going to pay for keeping the old folks alive and well. The authors present some solutions: make them work longer, print money so that inflation will dilute the financial obligations, massively tax the working generations, etc. What they do not propose is that the elderly be left to fend for themselves, nor do they suggest a modest proposal of the Jonathan Swift variety, say massive euthanasia. Instead they propose a 12% national sales tax. This would be on top of all the other taxes. Imagine in my state (California), where we already have an eight and a quarter percent sales tax, what it would be like adding over twenty percent to the cost of products and services. Guess what? This would put a damper on spending and would greatly increase black market traffic, and probably wouldn't work--which is why Republican think-tankers are scheming to "privatize" Social Security, Medicare and Medicaid, a venture that the authors rightly call "eliminating" Social Security, Medicare and Medicaid.

Well, that's not going to happen. "I'm old and I vote," will say the AARP, and politicians will take notice. And no politician is going to vote for the authors' proposed 12% national sales tax. Read my lips. So what is going to happen?

Nobody knows. The problem is unprecedented in human history, because never before has the ratio of the old and retired to the young and working been so high.

Historically when governments overspend, they reach for the printing press and flood the market with cheap money. This is what I predict will happen. The US, Japan, and Europe will all go massively under the flood of inflation and will, after horrendous suffering, reemerge to restructure their transfers so that all of the suggestions of the authors are put in place including later retirement, responsible taxation, controlled medical costs, and a more modest lifestyle for all. That is, if we don't have revolutions and a return to some sort of absolute state control.

Some examples of the engaging prose spun out by Kotlikoff (who is an economist) and Burns (who is a journalist):

(After documenting the progressive aging of our populations): "This will not be a phase. We will be older forever." (p. 36)

Perhaps the most important truth in the book is this from page 83:

[What is really happening is] a massive redistribution [of wealth] from young and future Americans to currently living adults. Our de facto generational policy has been to indulge the present at the expense of children living and unborn. This gives new meaning to "no taxation without representation."

They really rub it in a few paragraphs later:

[The AARP] has dropped the word "retired" to attract members in their 50s who aren't yet retired but have the same interest as current retirees: ripping off the next generation.

The book ends with tips on how to protect yourself from the meltdown. Interesting enough, the most important tips are on how to stay healthy, since health is the most important capital one can have. But here's a nice economic tip from page 134: "The government is going to need the budgetary resources that only high inflation can provide. Hence, high inflation is going to occur. Indeed, it's likely to occur sooner than later."

Gold mining stocks, anyone?

--Dennis Littrell, author of “The World Is Not as We Think It Is”

[Robert Wechsler · Rating 3 out of 5]

The tone of the book is too pop-annoying and the arguments overblown, but the information is valuable. It certainly showed how irresponsible our elected federal officials are in failing to show the backbone necessary to educate the public and do something now, rather than later, about the Baby Boom generation (my generation, that is). Inter-generational selfishness has probably never been greater. Will the younger generation refuse to pay? Some day, the AARP may be treated much the same as Louis XVI.

[Michael Grady · Rating 4 out of 5]

Good book on the myriad of issues with social security. All of this book is from 2004, the volume of accurate statistics detailing all the problems and how they will grow exponentially are superb. Some of the political record is infuriatingly simple at times for such a good book. The overall proposals for replacing silver social security are not ideal from my viewpoint, but contain most of the most critical aspects needed. The cost is of course frightening as we have let social security collapse despite decades of warning. This book illustrates that there is no magic bullet and that the pain will be quite severe for all involved. Although don't agree with all of it, this is the first adult book on social security reform I have seen.

[Daniel B-G · Rating 1 out of 5]

As with all politics/economics books written by americans, this was too amerocentric to be enjoyable. The numbers lacked meaning in many places, the solutions seemed unrealistic. Not enough was done to build the premise.

[Dale Plotzki · Rating 5 out of 5]

₿uy ₿itcoin

[Alan · Rating 1 out of 5]

I wrote this review back in 2007, but misplaced it and never posted it. New information has come to my attention that prompted me to dig it out of my archives.

This book, hailed by such giants of the economics profession as Paul A. Samuelson and Daniel McFadden (both Nobel laureates), can be condensed to this: Because of the looming crush of Medicare, Medicaid, and Social Security costs, the United States is on its way to bankruptcy. Indeed, say Kotlikoff, a professor of economics at Boston University, and Burns, a personal finance columnist for the Dallas Morning News, we’re already bankrupt, but cooking the books so as to keep it quiet.

One consequence will be, they say, the inevitability of reneging on the promise that those 401(k) retirement funds we’ve all been banking on will be taxed at lower rates when we retire. Forget it, they say. Pay your taxes now, while you’ve got the money to do it, via the Roth 401(k) alternative. Or maybe the government will intentionally create inflation, they suggest, so that the big bill for baby boomers will be paid with an intentionally enlarged money supply.

Using surprisingly glib language for an economist—they must be Burns’s words—the book reminds us: “The most common way to renege on official debt is to create inflation. For a quick tutorial in how to do it, just drop by heaven, purgatory, or an even deeper location that may be housing former president Nixon. Ask him to tell you how he reneged on official debt to pay for the Vietnam War. He’ll tell you that he sold bonds to the public to get the money to pay the military. Then he got his buddy Arthur Burns at the Federal Reserve to print money to buy back the bonds.”

I think I counted something like 14 references to printing more money in the span of this book’s 247 pages, not counting notes and index. I got the message. Indeed, it began to irritate me. Did this economist not know that most money in “circulation” is never printed? It is, rather, a buhzillion electronic ledger entries and checkbook balances, largely created through computer keystrokes and private and governmental borrowing, a miracle of the fractional reserve monetary expansion system.

But more on that digression later.

Having spent seven chapters saying over and over again that we’re all going to financial hell in a hand basket, the authors reveal their prescription for personal salvation in chapter 8: forget the fiction of tax-deferred 401(k) plans; pay off your house before you retire; and buy gold.

That’s it.

Well, almost.

The annoyingly repeated threat of federal money printing really began to grate on me. So I found Kotlikoff’s e-mail address and shot him a note, beginning the dialogue with a question about the need to pay off one’s home when some financial advisors are recommending the opposite. He actually wrote back. Wow.

“Give me a call,” he said. “We can talk about it.” More wow: a best selling author who invites interchange with readers.

I called, and asked my mortgage question again.

“Have you ordered our financial planning software?” he asked.

Oh, jeez. I had been had.

Maybe Kotlikoff sees the future perfectly clear and has precisely the right prescription. But I can no longer take him at his word. Somehow the discovery that he—like everybody else—is trying to sell me something cracked apart his credibility.

Yet he probably called his own forecasting home run on this point: The Federal Reserve ceased announcing the M3 figure in November 2005. M3 is the cumulative amount of money--of all kinds, printed and unprinted—in the economy. Critics of the quiet Fed move say it was intended to keep inflationary facts out of our collective economic psyche. Financial analysts saw a massive money supply increase in October.

And oh, yes. Kotlikoff was using the “print money” threat metaphorically, he told me, as a way to short-hand all those things the government does to influence money supply, like massive borrowing.

As accurate as the book seems to be on the coming generational storm and the in-progress inflation to pay for it, it’s the prescription part—the part they want me to order from their Web site—that keeps me wondering.

It’s worth a read. But read others for perspective.

Addendum, 2016:
I am now reading Modern Money Theory by University of Missouri economist L. Randall Wray. Wray’s theory, to be explained in greater detail in another review later, boils down to (in part) this: All money originates with the government. The government spends it into circulation (or creates it via computer keystroke) and receives it back as taxes. A sovereign government—one with the power to create its own money—can never go into involuntary insolvency and thus Kotlikoff is completely, totally, absolutely wrong. I say Wray is right.

I am really surprised that Kotlikoff believes what he writes, but then he is now in the position of wanting to profit from his prophecy and has to keep pushing it.

[Charles Gonzalez · Rating 4 out of 5]

I read this book several years ago when really no one in DC was really paying attention to the problem...The unfunded liabilities of Medicare and Social Security which were first described in 97-99 during Clinton years, were submerged in the euphoria of the roaring 2000s...well here we are and its worse than ever before. This book attempts, successfully I think, to describe and demolish all the potential solutions proposed, mentioned and hoped for by analysts left and right to rationalize that we really don't have as big a problem....Demography is a bitch....it is, for the most part, irreversible and that is the problem...Our nation's debt problem was secured by 1964 when the last of the baby boomers was born and confirmed with the baby busts of subsequent generations.....add in COLA, increasing life spans, medical technology, and increased promises by both political parties, and wah la we have the "generational storm" of the title. We have done nothing about this situation, keep on putting our heads in the sand and hope that someone will explain it all away....Well that has as much hope of happening as there being real cash in the social security "trust fund". Hint: there is none....yes the authors are dry, academic and perhaps a bit hectoring, but hey its only our kids and grandkids future....I'm not looking for Hemingway...read it and weep.

[Rachel · Rating 2 out of 5]

The premise is that the American population is aging, and that medical advances have made it so that the aging population is the growing faster and living longer. Add to that the social obligations that we have taken on: Medicare, Social Security and drug benefits for Seniors, just to name a few. Compounding the difficulties is that people aren't having as many babies as they once did. This means that there will be fewer working adults paying taxes to support the programs supporting the aged adults. Financial gloom, doom, chaos and disaster, personally and nationally!

I tried to read this book, but it defeated me. I kept waiting for it to come to the point, and the point seemed to be the inevitability of the decline of fiscal America, even if we resorted to raising taxes and reducing benefits on government pay outs. I tried to flip to the end and find out what their conclusion was, but I'd hit my limit.

(I also thought it was a little embarrassing how often one of the authors kept citing his own studies. He may be one of the few -or only- people researching this particular economic issue, but it still seemed self-serving.)

[Josh Crews · Rating 3 out of 5]

Wow, y'all.

Thesis: The US Gov borrowing + the social security/Medicare promises + the retirement of lots of the workforce = an economic nightmare that we are going to start writhing in financial pain around 2015 and it will last for decades.

I think the research/assumptions in the book are all fair, and the we should forecast significantly higher taxes AND inflation in the medium term. The American worker in 2015 is going to forfeit much of their labor to paying for the obligations the US gov has promised the Baby Boomer retirees (mostly in health care).

In 10-30 years America will be more aged and old than Florida is currently. We will be an elderly nation, and those elderly have been promised their entire working lives that the gov't will send $X per month for social security, and cover their medical needs with Medicare.

Also, there seems to be no feasible solution to this problem (at least not one you could believe that the government/voters would actually implement).

[Ridzwan · Rating 4 out of 5]

There is genuine concern regarding the future of America. All may seem fine and dandy on the surface but many do not realise the potential disaster that is brewing beneath.

The country and its people is spiralling into debt. Fiscal policies by the government have so far made no effort to address this. To make things worse, several controversial move by the current administration, like going to war in Iraq, have further elevated situations to beyond critical.

What the book is particularly concerned with is the coming 10 years down the road when the first batch of baby boomers will start to retire and withdraw their pension money. Too may people will be chasing to little money, and too few economically active citizens will be available to support such a high number of retirees. This singular event would have a slow but devastating impact on the stock market.

A good and intriguing read condensed within 302 pages of a hardcover.

[Lindsay · Rating 2 out of 5]

I gave this two stars simply because I wouldn't read it again and it took me a long time to finish it. However, the authors did bring some really important things to light. What I got from it is that I should become a homeowner one day, I should learn to invest in foreign currency, and I have absolutely no hope of ever seeing lower taxes for the rest of my life. I did think it was crazy to learn that for how bad of shape we are in as a country, places like Japan and the UK are in even worse shape. Yikes! If you don't read this book, you ought to at least be thinking seriously about your financial future and be well informed on what is happening in our government that is going to impact the way your monies will be spent. I'm still trying to figure that one out.

[Tim · Rating 4 out of 5]

The reckoning predicted here gets closer and still no politician will mention it. Their economic advisers all see the disaster approaching, but the people are not alerted. Every cent of wealth has been promised to the coming wave of retirees. every cow, every building, every piece of jewelry are pledged to take care of the health care, food and vacations of the politically powerful baby-boomers. Does anyone care?

[Johns · Rating 4 out of 5]

An astounding book filled with demographic truth that will alter and enlarge your perceptions of American families' financial future. Our tenured, lethargic, timid Politicians in Washington, D. C. seem to purposely sail against the winds and ignore rational fiscal policies. All Americans will pay a heavy price for their criminal willfulness in the not-too-distant future! Why do we not throw these bums out of office -- all of them! -- and start our Republic over again?

[Paul · Rating 4 out of 5]

This book should be required reading. It's a little terrifying. The potential implications of the U.S. Government's economic policies over many, many years are detailed in a way that's makes them understandable and very real. It is a fact based book that cuts through the b.s. that is fed to us by politicians from either party. A scary but necessary read for all.

[Alex Winston · Rating 3 out of 5]

An important book with scary statistics and good advice, but it is a book about economics. It is a good read for politically-minded people, but it lacks passion and has a very limited entertainment value.

[Jillybean · Rating 3 out of 5]

Skip the first 5 chapters and read the last 3 chapters for some sound financial advice regarding retirement! Obama needs to read this book to make some helpful changes to Social Security and Medicare!

[Nathan Sharp · Rating 1 out of 5]

I agree with the premise that our rapidly changing demographics are sure to cause huge problems over the coming century but I couldn't stand the author's style. His patronizing tone was incredibly grating. I would never read a book by this author again.

[Christine Hair · Rating 3 out of 5]

A little hard to get through, but very eye opening. A look at what's going to happen when the baby boom generation starts drawing from social security and medicare.

[Audrey · Rating 3 out of 5]

Interesting, but I'm not convinced.

[Jesica · Rating 4 out of 5]

not the typical book I would read, but found it very informative and a little scary!

[BK · Rating 4 out of 5]

apparently, we need to fix social security... and apparently, our government's fiscal policies are not sound. who knew?

[Alex · Rating 3 out of 5]

One thing I learned: fiscal child abuse is a reality. Another: the gold price is way too low.

[Jesse Mckendry · Rating 4 out of 5]

Great book- Geoff Souser should read this...

[Darian · Rating 4 out of 5]

Really good research. And really insightful.

[Jody · Rating 1 out of 5]

Although I agree with the predictions, the book was too dry to be readable. I didn't even get halfway.

[Natalie Jones · Rating 5 out of 5]

Excellent book! Everyone must read it.

[Alice · Rating 4 out of 5]

Their book that predates The Clash of Generations.

[Alexis · Rating 4 out of 5]

7: i disagree with some of their analysis but still very interesting and important topics discussed in a smart way.

[Annie · Rating 3 out of 5]

The content is depressing, but solid. Philosophically leans conservatively, yet, politically points to financial missteps on both sides.