Lawrence Kotlikoff is a smart economist who sometimes has useful as well as creative ideas. But his notion of government intervening even more deeply in the economy by compelling businesses to step up hiring and investing gets it dreadfully wrong.
It is not quantity of hiring and investment that matters most. It is quality. You cannot get quality hiring and investing decisions by compelling businesses to spend.
At the moment the economy is a mess because the governments around the world, led by the US and China, blew up economic bubbles. These bubbles were primarily created by printing too much money but by other means as well, and they eventually collapsed. During the Tech and Housing Bubbles, we had a large quantity of hiring and investing. But guess what? It was not quality hiring and investing. Much of the money was wasted. Now the loans that were financed with newly printed money cannot be paid back.
The last thing the economy needs now is to follow up these bubbles with forced hiring and investing. That would be disastrous. The way out of the current problem is for government to stop intervening in the economy. Then the price and profit system can reboot itself and it will be possible once again to make quality hiring and investing decisions.
This is what happened in the US during the Depression of 1920-21, which was over in short order. It happened again in East Asia after the late 1990’s crisis because governments did not pursue Keynesian interventions but instead let the market clear itself.
How can we expect markets to work if governments keep overriding the price system by suppressing interest rates and manipulating currency rates among many other destructive interventions? If we adopt Kotlikoff’s ideas and order hiring and investment, we will have abandoned the market system entirely and will have marched into full blown economic fascism.
Hunter Lewis 9-28-2011