Generations of Progress? - July 19, 2010

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One of My Occasional Grey Papers1


Generations of Progress?


Bruce A. Smith -- basmith81@hotmail.com -- July 19, 2010


"If there is no struggle, there is no progress." ~ Fredrick Douglass


After I finished my last paper, "Economic Eyeglasses for our Fiscal Myopia," I've been thinking more about why it's been so difficult for us citizens and our elected politicians to resolve our longer-term fis-cal/economic issues. It struck me that this difficulty is really founded on demographic and generational differences.2 Culturally and economically, it is inevitable that tension arises when one generation that has enjoyed the fruits of power and influence begins getting challenged and eventually displaced by the up-coming generation. Although I don't believe this has "officially" started in the US, as the clock continues to tick, it's underway. To set the stage, here are simplified descriptions of the three generations affected by the fiscal issues I've been talking about.


 Baby Boomers – folks born in 1946-1964 inclusively; in 2010, aged 46-64, ~78M people, account for 29% of the US population; remain the majority of the work force; and since Boomers came on the scene, remain the largest age-related demographic the nation has ever seen. Although technically I missed Boomerdom by about 5 weeks, I consider myself a Boomer. Needless-to-say, we're very used to wielding influence and power and getting attention.3


 Generation X (aka, Gen X, the Baby Bust Generation and the 13th Generation (the 13th generation since the US was created) – folks born right after Boomers, 1965-1981 inclusively; in 2010, aged 29-45, ~46M people. The dates are not completely agreed-upon, an alternative is 1961-1981.4


 Millennials (aka, Gen Y and Echo Boomers) – folks born in 1982-2001 inclusively; in 2010, aged 9-28, ~60M people. The dates are not completely agreed-upon; an alternative is 1982-1995. Gen Y is composed mostly of kids of Boomers.5


We Boomers will soon be the most affected generation (MAG) when it comes to receiving entitlement expenditures (principally, Social Security, pensions and retirement health care) – the predominant long-er-term fiscal issue facing government – when the first of us turn 65 next year. We vocally expect to re-ceive our full, promised Social Security, pension, health-Medicare and other entitlement benefits and tell others it cannot be any other way – it's owed to us after all. For some of us, this vocalization is hypocriti-cally coincident with our simultaneous disparagement of "big government" (but for heaven's sake, don't decrease our big government benefits). Also, this expectation is in part based on the fallacy held by many people that they've already "paid our dues" over the years for our own social security; they don't (or choose not to) realize these rich benefits will be mostly paid by the next generation(s).


In contrast, Gen X and the Millennials will soon be the MAG when it comes to paying for Boomers' Social Security-pension-health care and related entitlement expenses. As a consequence of the Boomers long-time demographic, social, economic and political predominance, most elected officials are loath to pro-pose changes that would inimically affect them. But any discussion about impending problems in paying for Boomers' expected entitlements certainly arouses Boomers' attention and reaction.


Starting next year, the distinctiveness of Boomers, principally related to our large numbers, relative to subsequent generations, will begin turning from a macroeconomic asset that has generated impressive


1 GreyPapers are less formal than White Papers; hopefully not as heavy as Black Papers.


2 The importance of demography is echoed in Matt Bai's column in the July 18th New York Times, "When It's About Race, It's Probably About Age, Too." http://www.nytimes.com/2010/07/18/us/politics/18bai.html?_r=1&scp=2&sq=matt%20bai&st=cse


3 http://www.bbhq.com/whatsabm.htm


4 http://en.wikipedia.org/wiki/Generation_x


5 http://en.wikipedia.org/wiki/Generation_Y


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amounts of private income and tax revenue for decades to a likely liability when Boomers start being eli-gible for Social Security and Medicare. Demographers have known this for a very long time, of course. But the unfortunate coincidence of the lingering Great Recession has added to the risk associated with how to pay for these escalating public entitlement expenditures to Boomers.


The generational schism between Boomers and Gen X and Y will be far more prominent once noticeable public decisions get made about reducing the above risks. This is because there are only two solutions for achieving this – (1) by reducing entitlements and/or (2) by raising taxes to pay for them. The first way initially affects only Boomers; the second will mostly affect Gen X and Y. The Boomers, understandably, don't want our entitlements reduced in any fashion, we want the promised benefits paid without changes and paid by the next generations. Notions that we can allay some of these risks by increasing the retire-ment age, increasing contributions by beneficiaries for health care and public pensions, or directly reduc-ing benefits are all changes that will first affect Boomers. Paying for entitlement benefits by increasing various taxes (including FICA, income and sales) will mostly leave Boomers unaffected and instead place the burden predominantly on Gen X and Y. Solutions that cross the generational divide.


Politically, who is better organized for this confrontation? Gen X is the smallest of the three, pre-middle-age and perhaps on the way to having identifiable political influence. The Millennials (Gen Y) are a larger group (still almost 25% smaller than Boomers) but because they're the youngest, historically least likely to vote, or vote consistently. The Boomers are masters at rallying political support for their causes, espe-cially when they feel threatened (witness the disproportionate attention being given to the tea partiers, 75% of whom are older than 45), and reliably vote to make sure it happens. At this point, the Boomers easily win the "best organized" blue ribbon that can have a substantial influence on how politicians will decide on our longer-term fiscal issues. Of course, this will simply magnify the politicians' usual proclivity to push costs into future generations rather than more effectively and efficiently deal with them now.


Will this be a good thing? I think not, certainly not in the long-run. Within ten years, deficits will likely bal-loon, states will start running out of money for Boomers' entitlements, and eventually others (public bond-holders beyond our borders) will start imposing new requirements if nothing is done.


So, can this generational schism be trimmed? It's a long-shot in any case, but only by now spreading the fiscal sacrifices across many segments of our population – as I mentioned in my "Eyeglasses" paper – and thus across generations. That, of course, means Boomers need to stop unrealistically vowing we can have all our benefits without any cost consequences. It also means Gen X and Millennials need to step to the political plate and state they won't agree to foot the bill for the Boomers – who include their parents. Are we Boomers smart enough to look beyond our own cohort and our own narrow, short-term self-interest and consider what's best for all US citizens? When I look at what's reported in the media, I'm not confident. In no small part because no public authority – the President or someone else (certainly not any Republican) – is courageous enough to say what will realistically happen to everyone if our longer-term structural deficit isn't fixed.


If we want progress, all of us – the Boomers, Gen X and Millennial generations – will need to struggle with providing some fiscal sacrifice in the form of reduced entitlement benefits and increased contribu-tions/taxes. The broader the sacrifices are spread, the less the pain of each one will need to be. If we Boomers obstinately refuse to budge, everyone including us will suffer.