Here, Larry Kotlikoff and Ed Leamer describe a different system for financial markets that would eliminate or sharply mitigate recessions and the roller coaster rides in the stock market we've all been on.
Gregory Mankiw says here , in so many words, that he's not going to comment. Step up to the plate and take a swing, Greg. Tell us what's right or wrong, true or false, good or bad about Kotlikoff and Leamer's proposal. Don't be such a fading violet.
Here's my opinion. Kotlikoff and Leamer's proposal makes an enormous amount of economic sense. Who do you suppose will oppose it? That's right; the Fed and the politicians. See if you can figure out why they will oppose it. Who else will oppose it? That's right; stock brokers, investment bankers, commercial bankers, insurance companies, and all the other current financial market intermediaries that continue to fleece we the people daily.
The SEC and FINRA will also oppose the idea. Regulators insist on keeping their ham fists in everything. They would be out of a job. Do you realize that Bernie Madoff couldn't have done what he did if one simple law had been in place? That law would have made it illegal to custody the money of one's own investment advisor cients. Why don't we have that law? That's right; because the regulators don't want such an easy fix and because politicians don't either.
Financial markets do need restructuring. But not because bankers and brokers are greedy and everyone else is Mother Teresa. Financial markets simply need to be structured to take advantage of what we know about risk, human behavior, and economics.
Remember, we can't borrow what hasn't been produced and saved, regardless of how many times the Fed and it's apologist economists say we can. Kotlikoff's and Leamer's proposal would limit borrowing to what households actually save. What an idea. Once again, you see why politicians won't like the idea. How could the U.S. Treasury borrow without limit without the help of the Fed? It couldn't. Hmmm.
Kotlikoff and Leamer have proposed a way that makes sense and would yield massive benefits. How about telling your local congress person and BHO that you will not vote for them again unless they get behind the proposal.