Thinking Outside the Box with Kotlikoff

Laurence J. Kotlikoff makes a habit of thinking outside the box. Never heard of him? He is an economist and professor at Boston University and is possibly best know for his book Jimmy Stewart is Dead in which he introduces his ideas for something he calls Limited Purpose Banking. I have been a big fan of limited purpose banking ever since I became aware of Kotlikoff’s idea about a year ago.  In summary:

Kotlikoff would drain the risk-taking out of commercial and investment banks, hedge funds, and insurance companies—turning them into boring, narrow intermediaries akin to mutual-fund firms. Instead of taking deposits and making loans, banks would connect borrowers and depositors with ultrasafe mutual funds created for those purposes. That would solve the problem of banks not keeping enough money in their vaults to pay depositors if they all wanted their money at once… (source)

The banksters and the statist elite do not like Kotlikoff’s ideas for limited purpose banking, which is all the reason you should need to google it and learn as much as you can. It’s not that his idea is perfect. There may indeed be some flaws. I’m not smart enough to know. But, I do believe he has demonstrated that the status quo concepts of what banks are does not have to be. Smart people could take his idea, identify the flaws if there are any and fix them. Then we would never have to worry about taxpayers having to bail out banks ever again. As fascinated as i am with limited purpose banking, that is not the subject of today’s post.

Yesterday Bloomberg published an article by Kotlikoff titled Five Prescriptions to Heal Economy’s Ills. Typical of Kotlikoff, he pulls no punches. This is his opening salvo:

Desperate times call for creative measures. We’re in desperate times, but we’ve had little creative thinking from the Obama administration on how to fix the economy.

Yeah. These are desperate times and we are in serious need of some creative thinking. Here are two more of his introductory comments:

The president’s new-yet-familiar jobs bill entails more spending and more tax cuts, neither of which is affordable absent new revenue. The president wants the rich to cover the bill’s cost. House Republicans are saying no, dooming the bill to political oblivion.

What about printing more money? The Fed has already printed $1.8 trillion since September 2007. This exceeds by a factor of two all the money the Fed had printed since its creation in 1913. Printing even more money can’t be the answer.

Professor Kotlikoff has a five point plan for overcoming what he calls “coordination failures”. I’m only going to list the headings here. I hope you will read the article, which is not long, and see just how creative this man is.

  1.  Stop paying interest on bank reserves.
  2. Get workers to invest in jobs.
  3. Compel corporate America to invest.
  4. Get prices and wages unstuck.
  5. Achieve fiscal sustainability

Under item 5, there is reference to Purple Plans. You can find Kotlikoff’s health plan here and his tax plan here.

Admittedly some of Kotlikoff’s ideas are a bit out there. I’m not suggesting that they could be done or even that they should be done. What I am suggesting is that this is the kind of thinking our country desperately needs. It’s a synch that Obama is not going to listen to some one like Kotlikoff. But, I would love to see our next President have Dr. Kotlikoff on his/her Economic Advisory Council. I guaranty that those meetings would not be dull and just maybe they could find unique solutions to some of the very serious problems that face our country. The economies of the entire Western world are stalled. Business as usual is not going to turn our economies around.

Well, that’s what I’m thinking. What are your thoughts?


11 thoughts on “Thinking Outside the Box with Kotlikoff

  1. I think Kolitkoff is a brilliant man. You first turned me on to him a few weeks back, and I now read him regularly. I did read the article you cite yesterday and I thought it was just the kind of thinking we need to pull us out of this mess.

    Why can’t government attract people who think like this? Einstein said that it takes a higher level of thinking to get out of a problem than it took to get into it.

    Another awesome thinker is Walter Russell Mead. He’s more into society, political science and government than finance, but he’s the same kind of “outside the box” thinker who does not push an ideological agenda.

    In our polarized world, I do see hope in “purple” solutions, and these men bring them. One thing is for certain: The old order is crumbling, and conventional thinking will only guarantee we are all buried under the rubble.

    Excellent post!

  2. Thanks Jim for the lead on this. I will have to read more of his writings. I have to admit that Economics are not my forte, but I would do well to make more of an effort in this area. This looks like a good place to start.

    1. A funny thing, Bunker, is that in general, I have a very low opinion of economist. Yet, three of my heroes are economist. Thomas Sowell and Walter Williams are,IMO, two of the wisest men in America today. Kotlikoff is not yet ready to join the Club of the Wise, but I do admire that he isn’t restrained by conventional thinking. We are living in very unconventional times and this why someone like Koltlikoff should be an adviser to the White House in my opinion.

  3. I’m so glad you’re giving exposure to Kotlikoff. People should read “Jimmy Stewart is Dead” if they haven’t already. He not only provides what seems to me to be a workable solution to the problems in banking, but he does a great job of exposing why the meltdown of 2008 occurred, and some of the players involved (a pathetic group, I must say).

    I absolutely agree that thinkers like Kotlikoff need to be in the next (Republican) administration. That we need “outside the box” thinking doesn’t quite say it… We need “outside the crumbling walls of the cage that is the status quo” thinking… Because the walls are definitely crumbling, and it’s not because we’re bursting out, it’s because they’re falling in and will crush us.

  4. I confess, most of this is way over my head. (I’m simply not a numbers kinda guy. At all.) However, my thought has been to have local banks only, and eliminate nationwide banks. This way, my money is going to be used for local uses when used as a loan, and my money strengthens my community, not some yahoo in California who wants to create a tofu farm or some other ridiculous notion.

    Like I said, I’m simple.

      1. COF,

        Common sense is worth its weight in academic gold.

        I can deal with common sense. It’s that high-falutin’ elitist ‘oooh, I gots me a degree!’ chatter that kills me! 🙂

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