I concluded a while back that Kotlikoff was nuts and not worth paying attention to, and I wondered why he was getting so much space over at the PBS website. But this is so bad I feel compelled to point out what's wrong here and why PBS should not be covering it this way.
A few years ago, an epic scam was exposed. You probably heard about it, involving the name Madoff. The way these things work is a bunch of people invest money with someone "trustworthy" (read: charismatic in a suit, but not in a Damon Albarn sort of way, in a I'm An Accountant So You Must Trust Boring Ole Me sort of way). In the story that Kotlikoff tells, the amount is $40,000. Over the course of years, the Marks ("investors") receive "statements" that their money has "grown". They may even withdraw some, or in the case of the story, all of the money referred to in these "statements". But the statements are fiction. If they withdraw money, it is their original investment and potentially the original investments of other Marks.
Eventually, the whole thing implodes, usually due to too many Marks withdrawing all at once. Then regulators come in and attempt to make it so everyone gets made "whole", which is to say, the "investors" get back their original investment, minus a more or less even percentage loss due to the Charismatic Guy in the Suit living a high life, renting an office, buying pens and business cards and a place in the Hamptons. Also fur coats, jewels, etc. for the wife and kids who had No Idea Any of This Was Going On.
Kotlikoff, however, presents the Marks as actual investors, and the "statements" as real return on investment. No such thing! This is sort of horrible that Kotlikoff is representing these people as somehow being innocent victims, as opposed to a party to a scam. They are _both_. The money that Kotlikoff wishes they could keep has been conned out of several other pairs of "Frank and Sally" "investors". There is not enough money for all of the "Frank and Sally" "investors" in Madoff's scheme (or other schemes of a similar nature) to keep all of what their "statements" say they "earned". Someone is going to lose. The Trustee is there to make it even, to discourage people from knowingly participating, getting out early, and then feigning ignorance. See, family above.
Do we feel bad that "Frank and Sally" were chumps? Yes. Should "Frank and Sally" who were lucky enough to get out before the whole charade collapsed get to keep "Frank and Sally" who were later to the game's money? Fuck no! Should taxpayers bail out "Frank and Sally"? Different question. Not sure. I think better enforcement to catch Madoff and his scammy colleagues is probably our best bet. I don't like the idea of taxing people working for low wages to compensate "Frank and Sally", who are probably way better off than they will ever be. OTOH, if you want to tax _every_ financial transaction to fund compensating Marks, I might be in favor of it, because that might create a better self-policing incentive, so the fund can be kept small and the per transaction tax low.
In the meantime, keeping the money in a different account would not have solved the problem. The problem was that they got it from Madoff, and Madoff stole it from people like them.