Baby boomers came of age with the arrival of the generation gap, a time when many went by the motto “Never trust anyone over 30.” Well, my generation is now long past 30, and we seem to be on the opposite end of a new war between age groups.
This time, Americans in their 50s and 60s are charged with ruining the lives and future prospects of today’s twenty- and thirtysomethings. The proponents of generational warfare believe that the projected commitment of U.S. government resources to the elderly will leave nothing for anything (or anyone) else, including investing in the young.
I’m not buying it.
The ‘Screwed Generation’
Maybe you’ve seen some of the old vs. young articles in places like Esquire and The New York Times. The economic and political system is “rigged to serve the comfort and largesse of the old at the expense of the young,” wrote Stephen Marche in Esquire. Newsweek and The Daily Beast just dubbed Millennials “the Screwed Generation,” pointing the blame squarely at boomers. Boston University economist Laurence J. Kotlikoff and columnist Scott Burns have echoed the sentiment with their new book, The Clash of Generations.
(MORE: Talkin’ Bout Our Generation: The Myths Versus Reality)
“Younger Americans don’t realize that they’re coming of age in an era in which both parties have pre-committed virtually all public resources to seniors,” fumed Washington Post columnist Mark Miller. “Sorry, kids, the till is empty.”
Young college graduates aren’t saddled with hefty student loan debts because Social Security is paying retirement benefits to a growing number of retirees. It isn’t the fault of 50-year-old workers that newly minted college grads are struggling to land a job. The task of putting the federal government’s finances in better shape doesn’t require pitting the young against the aged.
The stoking of generational resentment obscures something far more important — the common fears and shared experiences that should unite twentysomethings and sixtysomethings on economic matters and public policy.
The Long History of Generational Battles
To be sure, fights between the young and their elders over resources and values have a long history. (This tension has been a dramatic device in literature, too, from Sophocles to Amy Tan.)
When agriculture ruled the U.S. economy in the early decades of the Republic, aging farmers were reluctant to pass on ownership of their land, fearing their heirs would push them aside too soon. The 19th Century industrial economy witnessed a concerted effort by corporate management and its elite allies in government and medicine to shed older, “unproductive” workers for younger, “efficient” employees. The Woodstock generation of the 1960s defined its era by loudly rebelling against their parents' values.
The current narrative of intergenerational conflict, with federal spending as its centerpiece, first emerged during the troubled economy of the 1970s. Since then, the kids vs. canes rhetoric has grown more heated every time the U.S. economy tanks and federal finances deteriorate.
(MORE: The Cost of Bestowing an Inheritance)
“The intergenerational equity argument comes up when people think the most important thing in the world is the federal budget deficit: ‘Children are being hurt by spending so much on the elderly,’” says Joseph White, director of the Center for Policy Studies at Case Western Reserve University.
The Truth About Social Security
Social Security retirement benefits for boomers is a popular target.
“The biggest boondoggle of all is Social Security,” writes Esquire’s Marche. “The 2011 report by the Social Security trustees estimates that, under its current administration, the fund will run out in 2036, so there’s just enough to get the oldest boomers to age 90.” Translation: Younger Americans will be left behind with no support in their old age.
Bill Keller, a columnist for The New York Times, is in Marche’s camp, quoting from a recent think tank study on the issue. "By 2030, when the last of us boomers have surged onto the Social Security rolls," he writes, "entitlements will consume 61 cents of every federal dollar, starving our already neglected investment and leaving us, in the words of the study, with 'a less-skilled work force, lower rates of job creation and an infrastructure unfit for a 21st-century economy.'”
Terrible, isn't it? The problem is, this accusation is misleading on a number of levels.
For one thing, there will be enough revenue flowing into the Social Security system even after 2036 to pay nearly 80 percent of legislated benefits. That isn’t a desirable outcome, but it’s far from a demographically determined bankruptcy.
For another, commentators like Marche, Keller and Miller seem to think that boomers are rolling in dough. Yet the median 401(k) and IRA balance for households approaching retirement is $120,000, roughly the same as in 2007, according to the Federal Reserve’s recently released 2010 Survey of Consumer Finances. That sum would provide only $575 in monthly income, assuming a household purchases a joint-and-survivor annuity, calculates Alicia Munnell, director of the Center for Retirement Research at Boston College.
Most disturbing of all, it’s unclear “how cutting spending on Social Security and Medicare will help young adults get jobs,” says Jill Quadagno, a sociologist at Florida State University. “The state of the economy is a much bigger issue.”
There are plenty of options for straightening out the government’s finances without pitting one generation against the other.
For example, one way to address Social Security’s funding shortfall is to raise the income ceiling for the Social Security payroll tax from its current level of $110,100 to $250,000. The increase alone would extend the date of trust fund exhaustion by four decades.
Ways to Trim the U.S. Deficit
Another option is to hike taxes on the wealthy. Or the government could cut deep into defense spending, since Social Security and defense each take up about 20 percent of the federal budget.
Don’t like those options? Okay, how about following the recommendation of the major bipartisan deficit reduction plans: Get rid of some tax deductions and credits, and tax capital gains on investments at the same rate as other income.
Why not concentrate on the government’s real long-term financial problem: health care?
Reform of the health care system is critical for everyone from a 27-year-old employee at a small business without health insurance to a 65-year-old retiree filing for Medicare.
The U. S. pays more than twice as much per person for health care, on average, as other wealthy countries. If America’s health care costs were comparable to those of Germany or Canada, the U.S. government would be looking at long-term budget surpluses, not deficits.
“If we have health care fixed, we wouldn’t be talking about intergenerational warfare,” says Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C.
You may like or hate some of the options I’ve put forward to deal with the federal government’s debt and deficit. The bottom line remains the same: Many potential public policy fixes don’t rely on the nostrum of intergenerational warfare and would lead to far superior outcomes than shredding the old-age safety net.
What the Generations Have in Common
I find it striking how much the old and the young share when it comes to jobs and the economy.
Both groups have been badly battered by the Great Recession and an anemic recovery. Layoffs are less common among older workers than among their younger colleagues, but it takes laid-off older workers longer to find jobs — and the new jobs usually come with steep pay cuts.
The negative effect of a bad U.S. economy will also impact both generations for years to come.
The young will feel it in their paychecks. Yale University economist Lisa Kahn found that 17 years after graduation, those who had entered the workforce during bad times still earned 10 percent less, on average, than those who graduated in good times.
The boomers, too, will feel it in their paychecks. Many won't be earning as much as they did previously, and some will continue working longer than they expected.
Two bear markets and two recessions in less than a decade have devastated the retirement portfolios of the leading edge of the baby boom generation. (Ah, to have retired during the great bull market of the ‘80s and ‘90s.) Aging boomers know they’ll have to work well into those traditional retirement years.
Time to Talk Sensibly
None of this is to say that America isn’t doing wrong by its children.
State and local governments have cut far too deep into their spending on everything from early childhood education to public universities. The nation devotes far too little resources to lifting poor children and their families out of poverty. These problems are all too real.
Yet the solution isn’t to decimate an already porous safety net for aging Americans. Generational warfare is a red herring. So let’s trash the clash and start talking together about sensible ways to fix the economy and reduce the deficit.
Next Avenue Editors Also Recommend: