Tuesday, July 17, 2012

Hope I die before I get old

It doesn't matter what Roger Daltrey and Pete Townshend sang back in the mid 60s -- whether they really hoped that they died before they got old, it didn't happen. They are still with us, along with the many millions of "my generation."

Joel Kotkin, whose work I've admired for a long time, points out that a different generation is looking at some tough times because people seem to be so cold:

Today’s youth, both here and abroad, have been screwed by their parents’ fiscal profligacy and economic mismanagement. Neil Howe, a leading generational theorist, cites the “greed, shortsightedness, and blind partisanship” of the boomers, of whom he is one, for having “brought the global economy to its knees.”

How has this generation been screwed? Let’s count the ways, starting with the economy. No generation has suffered more from the Great Recession than the young. Median net worth of people under 35, according to the U.S. Census, fell 37 percent between 2005 and 2010; those over 65 took only a 13 percent hit.

The wealth gap today between younger and older Americans now stands as the widest on record. The median net worth of households headed by someone 65 or older is $170,494, 42 percent higher than in 1984, while the median net worth for younger-age households is $3,662, down 68 percent from a quarter century ago, according to an analysis by the Pew Research Center.
Net worth is only one measurement, however. The larger issue is that the boomers and their older brothers and sisters intend to get paid.


The screwed generation also enters adulthood loaded down by a mountain of boomer- and senior-incurred debt—debt that spirals ever more out of control. The public debt constitutes a toxic legacy handed over to offspring who will have to pay it off in at least three ways: through higher taxes, less infrastructure and social spending, and, fatefully, the prospect of painfully slow growth for the foreseeable future.

In the United States, the boomers’ bill has risen to about $50,000 a person. In Japan, the red ink for the next generation comes in at more than $95,000 a person. One nasty solution to pay for this growing debt is to tax workers and consumers. Both Germany and Japan, which appears about to double its VAT rate, have been exploring new taxes to pay for the pensions of the boomers.
And it happens at all levels of government, too:
The huge public-employee pensions now driving many states and cities—most recently Stockton, Calif.—toward the netherworld of bankruptcy represent an extreme case of intergenerational transfer from young to old. It’s a thoroughly rigged boomer game, providing guaranteed generous benefits to older public workers while handing the financial upper echelon a “Wall Street boondoggle” (to quote analyst Walter Russell Mead).
It is a thoroughly rigged game, an intergenerational Ponzi scheme that is not sustainable, in large part because there aren't enough Boomer offspring to pay for the system.

But there's another problem -- the younger generation is getting screwed before they even enter the workforce. Back to Kotkin:


Then there is the debt that the millennials have incurred themselves. The average student, according to Forbes, already carries $12,700 in credit-card and other kinds of debt. Student loans have grown consistently over the last few decades to an average of $27,000 each. Nationwide in the U.S., tuition debt is close to $1 trillion.

This debt often results from the advice of teachers, largely boomers, that only more education—for which costs have risen at twice the rate of inflation since 2000—could solve the long-term issues of the young. “Our generation decided to go to school and continue into even higher forms of education like master’s and Ph.D. programs, thinking this will give us an edge,” notes Lizzie Guerra, a recent graduate from San Francisco State. “However, we found ourselves incredibly educated but drowning in piles of student loans with a job market that still isn’t hiring.”

This is something I struggle with, because my kids are approaching college age. Do we really want to send them into this mess?

So what do you do if you can't get a job, or if your B.A. in Ethnic Studies limits you to barista work? Well, you delay adulthood:
Inevitably, young people are delaying their leap into adulthood. Nearly a third of people between 18 and 34 have put off marriage or having a baby due to the recession, and a quarter have moved back to their parents’ homes, according to a Pew study. These decisions have helped cut the birthrate by 11 percent by 2011, while the marriage rate slumped 6.8 percent. The baby-boom echo generation could propel historically fecund America toward the kind of demographic disaster already evident in parts of Europe and Japan.
There's a lot more in Kotkin's piece than I can cover this morning, but it's worth noting something else:
While economists may waste lots of hot air debating this, that and the other about the future growth trajectory of the US economy, in the aftermath of Goldman's cut of US GDP to just a 1.1% annualized rate of growth. And with the fiscal cliff, debt ceiling, Europe, China, and a plethora of other unknowns up ahead, this number will certainly decline further. Now here lies the rub: as the chart below shows total US marketable debt has doubled in the past 4 years, or an annualized growth rate of just above 21%.
The overall economy is larger than the amount of debt we have, but not by much. We're on an unsustainable path. If you're more concerned about what Mitt Romney might have done a decade ago than you are with these larger trends, then you deserve what's coming.

There's a lot more at the first link -- it's all worth your time, especially this last bit:
So far, the Great Recession has driven young people around the high-income world to the left. Generations growing up in recessions appear more amenable to arguments for government-mandated income redistribution. And since so few young people pay much in the way of taxes, they are less affronted by the prospect of forking over than older voters, who do. This left-leaning tendency has been on display in recent European elections. In France, 57 percent voters 18 to 24 supported the Socialist Fran├žois Hollande, one of the reasons why the conservative Nicolas Sarkozy lost. Similarly, 37 percent of those in that age category voted for Syrizia, the far-left party in Greece.
It will be interesting to see if this trend continues here, in this cycle.

12 comments:

Anonymous said...

This is the true moral issue that we face today in our times.

Anonymous said...

If there are any real economists out there, I wonder what would happen if the US simply repudiated its bonds held in the Federal Reserve? Most of them are of the phony, "printed money" kind, anyway, money that's already been spent by Obama and his cronies. So what's the harm in simply getting that debt off the books? Then, reform Medicare, Medicaid, Social Security and the student loan program, and the problem is largely solved. And if you want the economy to take off you cut back on regulations and enact a simple flat tax or FAIR tax.

Mr. D said...

I wonder what would happen if the US simply repudiated its bonds held in the Federal Reserve?

You want to tell people holding bonds, many of whom are individual investors, that their investment is Charmin? Really?

Not gonna happen. We'll handle the problem the responsible way -- inflate the currency so that the bonds are paid in full, with dollars that are the equivalent of Weimar Republic deutschmarks.

Gino said...

its the preboomers and early boomers that are cashing in.

basically, anybody who sold their home and retired before 2006.

those of us still in the personal wealth building stages got hosed, and will be getting even it further...

Mr. D said...

those of us still in the personal wealth building stages got hosed, and will be getting even it further...

Yep. Good and hard.

Brian said...

I don't think Kotkin is wrong--or at least not completely wrong--about what has pushed the younger generation to the left, globally. But in America, you really cannot overestimate the extent to which the GOP's intransigence on social issues is a deal-breaker for an awful lot of the under-40 crowd. Really.

Mr. D said...

But in America, you really cannot overestimate the extent to which the GOP's intransigence on social issues is a deal-breaker for an awful lot of the under-40 crowd. Really.

I'm sure of that, Brian. He mentions that in his article, although I didn't pull that part -- heck, I'd pulled enough.

My point would be this -- the social issues aren't going to mean much if people are wage slaves to a leviathan government and crushing debts.

YMMV, but I'd say this -- it's easier to chase away a bluenose than it is to chase away a bill collector, especially if the bill collector has the power of the state behind it.

Anonymous said...

Brian, eventually living under slave like conditions imposed by the state is going to be a deal breaker for the under 40 crowd as well.

Brian said...

He mentions that in his article,

Right you are...didn't get that far in my speed-read (obviously).

As to this:

"the social issues aren't going to mean much if people are wage slaves to a leviathan government and crushing debts."

I'd argue that's an easy thing to say from--and please excuse me, I don't pull this one out very often or lightly--a place of privilege: specifically that of a non-immigrant, straight, white male. Which over half of the country is not.

Mr. D said...

I'd argue that's an easy thing to say from--and please excuse me, I don't pull this one out very often or lightly--a place of privilege: specifically that of a non-immigrant, straight, white male. Which over half of the country is not.

To which my response would be the same as I posted earlier, to wit:

YMMV, but I'd say this -- it's easier to chase away a bluenose than it is to chase away a bill collector, especially if the bill collector has the power of the state behind it.

And to which I'd also add, "non-immigrant, straight, middle-class white male." Because there are a hell of a lot of people who fit the other categories who don't have much in the way of privilege in this country. Which is the larger point of Kotkin’s piece, of course — the path to the middle class is getting a lot harder.

W.B. Picklesworth said...

A lot of justice issues in America are a luxury. I recognize that this statement would be perceived by many in America as a nasty thing to say, especially from a white male. What right do I have to speak about someone else's justice? As much right as anyone else, as it happens. And I think it's important to speak for generations to come. Our selfishness and pet projects are destroying their world before they have a chance to live in it. We have busily been destroying the family, respect for civic institutions, and the financial future. Our intentions have been good. And it's not as if we don't have anything to show for it; we've certainly made cultural changes that have been beautiful and true. But what the right has been giving the left hand has been pilfering.

Gino said...

Mr D: education and college is a nice luxury for your kids to have.
but from what i'm seeing out there, if you want them to actually afford a luxury or two for themselves, i suggest trade schools.
auto mechanics would be a start...