Professor links US fiscal woes, China-Unocal flap

Bob Tippee

China's unsuccessful bid for a US oil company last year bodes ominously for American fiscal health, argues Laurence J. Kotlikoff, a Boston University economics professor.

Without fiscal reform and large infusions of foreign capital, Kotlikoff writes in an article in the July/August issue of the Federal Reserve Bank of St. Louis Review, the US may be headed for bankruptcy.

Forget measurements of national debt and policies based on them. According to the professor, a country's solvency is better assessed in terms lifetime fiscal burdens faced by current and future generations relative to resources of those generations. If burdens exceed resources or even get high enough to prevent full collection, "the country's fiscal policy will be unsustainable and can constitute or lead to national bankruptcy."

From research by two former government economists, Kotlikoff puts the US "fiscal gap"—the present-value difference between all future government expenditures and all future receipts—at $65.9 trillion.

To close that "red hole," he says, the US might immediately and permanently double personal and corporate income taxes, cut Social Security and Medicare benefits by two thirds, or slash all federal discretionary spending by 143%.

None of those remedies seems likely. And Kotlikoff thinks immigration, often viewed as a cure for fiscal problems, can't do the job. Even productivity growth won't help much if federal expenditures rise with consequent wage increases. The trick is to break that link and find a reliable source of productivity improvement, such as external investment.

That's where China enters Kotlikoff's analysis. The country holds dollar-denominated financial reserves of nearly $500 billion and craves foreign investment opportunities. The US government, however, acted averse to Chinese direct investment when it resisted state-owned China National Offshore Oil Corp.'s bid for Unocal Corp. CNOOC withdrew the offer under political pressure 1 year ago (OGJ, Aug. 22, 2005, p. 32).

Besides assessing its fiscal health through "generational accounting" rather than debt, Kotlikoff proposes that the US government overhaul tax law, Social Security, and health care—and, of course, welcome foreign investment.

"Fear of Chinese investment in the United States," he says, "seems terribly misplaced."

(Online Aug. 18, 2006; author's e-mail:

Related Articles

Obama urged by IPAA president to lift ban on US crude exports

07/07/2015 Commending the administration for its actions allowing some condensate to be exported as a petroleum product, Independent Petroleum Association of ...

MARKET WATCH: NYMEX, Brent oil prices take dive on world oil oversupply concerns

07/07/2015 US light, sweet crude oil prices plummeted more than $4/bbl on the New York market July 6, marking a 5-month low, while Brent crude oil prices on t...

Emerging producers offered guidelines for governance

07/06/2015 Like most worthy endeavors, governing oil and gas activity at the national level is easier said than done-especially where oil and gas never before...

MARKET WATCH: NYMEX oil prices fall on rise in US rig count

07/06/2015 US light, sweet crude oil prices edged down going into the July 4 holiday weekend on the New York market after Baker Hughes Inc. reported July 2 th...

Twists of activists’ dogma freshens view of global warming


Fresh perspective on global warming, a topic that needs it, comes from a geologist.

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...

Survey begins of collaboration on the UKCS


Deloitte has begun a survey about collaboration in the oil and gas producing industry of the UK Continental Shelf.

MARKET WATCH: NYMEX, Brent crude oil prices slump on Greek default fears

06/30/2015 US light, sweet crude oil futures and Brent crude oil futures for August delivery each settled down by more than $1/bbl on June 29, with Brent slid...
White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by
Available Webcasts

Operating a Sustainable Oil & Gas Supply Chain in North America

When Tue, Oct 20, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.


On Demand

Leveraging technology to improve safety & reliability

Tue, Sep 22, 2015

Attend this informative webinar to learn more about how to leverage technology to meet the new OSHA standards and protect your employees from the hazards of arc flash explosions.


The Resilient Oilfield in the Internet of Things World

Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.


Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected