A Review of Jimmy Stewart is Dead by Laurence Kotlikoff

I loved the author's The Coming Generational Storm, so I was really looking forward to reading this.  I was sadly disappointed.  Perhaps Professor Kotlikoff suffered blunt trauma to his head in the intervening years?  Because I cannot believe that the insightful author of The Coming Generational Storm could produce this nonsense.  This is the kind of ivory tower, pie-in-the-sky, impractical, oversimplified tripe that gives academics a bad name.

Where to start? Perhaps the most important criticism is that the scheme outlined in this book provides no replacement for the fractional reserve system, which generates 97% of the money circulating in our economy.  Individual entities functioning as lenders cannot create money through fractional reserve accounting. Only banks as they exist today can do that.  If only individual entities loan money (which by the way would require them to take time away from whatever specialized work allows them to make money and become experts on lending - another catastrophic failure of Kotlikoff's idea), we could only create 3% of the loans that currently exist. The real economy would have to shrink by 97%!

In light of a failure so abysmal, perhaps it's not necessary to say anything else, but the other flaws in his system while perhaps not as catastrophic do illustrate how little thought he's given this conception.

* Without risk-taking banks can only make a profit through the fees they charge on the pass-through products he proposes. Many of them would be completely unworkable. As the most obvious example: who would PAY to have a bank hold their cash? DUH!

* His idea that people would buy pass-through products that would replicate credit default swaps and life insurance would require everybody to become a PhD quant.  What makes him think this would work any better than the current system?

* Finally, our system failed because of human's intrinsic nature to find and take advantage of the misincentives and flaws that are endemic to any human enterprise. The idea that smart guys won't find the holes in his system and exploit them just like the current parade of criminals did with our existing system is naive to say the least.

In short, the premise of this book is irreparably broken.  The book is not worth the paper it's written on.