“You have to believe in facts. Without facts there’s no basis for cooperation. If I say this is a podium and you say this is an elephant, it’s going to be hard for us to cooperate.” — Barack Obama
It is amazing the way effect of decades of public policies and economic and social trends, all to the benefit of some generations at the expense of others, stays out of the news. Even as, anything, everything else is blamed for the situation so many people find themselves in. For the most part what you get is silence, and an attempt to change the subject to anything, everything else. People and groups who on the surface are at war with each other, and unable to cooperate, somehow all agree to keep certain facts out of the public discussion.
If you look closely enough, however, some cracks are beginning to appear in the Omerta. The fact that Generation Greed is leaving those coming after so much worse off hasn’t gone viral, but it is beginning to bubble up under the surface. The rest of this post will quote from some examples I’ve come across.
One can find the generational equity discussion bubbling up most in the business press. Business executives may not want you to know the facts about them, but they certainly want to know the facts about everything else, in order to run their businesses and make money. Take this article on Bloomberg News, for example.
Alicia Munnell, the director of Boston College’s Center for Retirement Research, recently lamented that government inaction on Social Security means “that most baby boomers have escaped completely from contributing to a solution.” This month, she offered some depressing advice to younger Americans about what they can do to make up the difference: Work longer. The reaction to her earnest advice was rage.
Wait, this is the good news?” read one indignant post on Twitter, echoing many others. Slate’s Jamelle Bouie called it “a great example of ‘we turned the economy into a miserable hellscape and you’re just going to have to deal with it.’”
Ouch. But Munnell assured young people that they don’t need to cancel their retirements entirely. “In fact, my research shows that the vast majority of millennials will be fine if they work to age 70,” she wrote for Politico. (Small solace given that life expectancy for Americans recently took a turn for the worse.)
More on Munnell and the Center for Retirement Research later.
Wide swaths of the country are getting sicker and dying younger than just a few years ago, with a widening health gap between educated, affluent Americans and everyone else. Alcohol abuse and obesity, upticks in suicide and an epidemic of drug overdoses have all played a role in an ominous milestone: Year-over-year declines in American life expectancy while the rest of the world lives ever-longer.
There is some good news for younger generations, though. As they focus on the hand they’ve been dealt, they will find there is one good card to play, one that may allow them to address the myriad problems they face: numbers.
“I think you’re going to see growing conflict,” said Susan MacManus, an emeritus professor of political science at the University of South Florida. One sign that “this huge generation is awakening to things is that we have seen record levels of younger candidates stepping up to the plate and running for office at every level,” she said.
And she said these young people, just now realizing how bad their prospects are financially, are increasingly angry.
Today, however, you find more awareness of just how disadvantaged later-born generations are over in the UK, where in the wake of the Great Recession the Tory government actually increased public spending on seniors while slashing public services and benefits for everyone else. And then voted to leave later-born generations with a Brexit they didn’t want.
Today we reveal the true economic plight of Generation Yand how a combination of debt, joblessness, globalisation, demographics and rising house prices is depressing the incomes and prospects of millions of young people across the developed world, resulting in unprecedented inequality between generations. But why?
Millennials are picking up the tab for the western world’s most stunning accounting disaster to date. No one expected people to live as long as they are, and in such great numbers. Pensionsthat were promised in the past, and seemed ordinary at the time, are now onerously over-generous, and that is hurting young adults today.
Jonathan Gardner, a senior (Generation X) economist at Willis Towers Watson, one of the world’s largest insurance brokers and pension advisory services, said the retired are hoovering up so much cash there is no money left for salary increases.
Gardener said: “For various reasons, not enough was paid in, in the past, which is leaving deficits and the company [employer] has to pay. People say the company should pay this and the company should pay that, but it’s like most things: if the company is paying something, the money comes from somewhere, and it tends to affect workers.”
In the end, said Gardner: “It’s the young who are bearing the burden of those past [pension] mistakes.”
Pensioner demands are not just beating down the financial prospects of new employees. Retirees are also winning more from governments than they did a generation ago. Our figures show double-digit, real-terms growth in social transfers – what governments give out – over 30 years to pensioners aged 65-79, ranging from as low as 26% in Germany to 146% in the UK.
And once again, young people are the ones paying the price. Laurence Kotlikoff (baby boomer), a professor of economics at Boston University, is astounded at what has happened, especially in America. “The US is out to bankrupt its children.”
Paying more to the richer generations who went before, out of their smaller incomes, here and there.
“That global workforce is easier to tap than ever,” said Pomeroy. “That means it’s not so good for your ‘in-demand’ 25-year-old.” The result: a slump in real wages over the past three decades for 25 to 29 year olds in several countries.
Once again it is only Generation Y suffering this fate. Using figures from 2010, most five-year cohorts from 40 to 65 posted positive pay growth compared with people of the same age 30 years earlier. In the US, Spain and Italy, the older you are in the workplace, the higher those wage increases have been.
The U.K. even has an interest group that is attempting to call attention to generational inequities in an attempt to stop older, richer generations from taking even more.
Younger generations are under pressure like never before. IF has been established to draw policy-makers’ attention to this, and to get a fairer deal for young people.
We’re a charity that researches fairness between the generations. We cover housing, health and higher education, employment, taxation, pensions, voting, transport and environmental degradation.
We’re non-party-political and vehemently independent. We simply provide the evidence needed to say enough is enough.
We think it’s only fair that younger generations should have the same standard of living as generations who have gone before. That means creating a new, fairer contract between the generations that provides for tomorrow as well as today.
The Guardian has connected the fact that later-born generations are so much poorer, and are faced with higher taxes for public diminished services and benefits, with the global crisis of demand. For the most part, you don’t see this kind of understanding here in the United States.
All this prompts an immediate question about the sustainability of economic growth as a whole. For example, what will happen to consumption?
Middle-aged western consumers who are at the peak of their earning potential have been the central plank in the development of the world’s postwar economy. They have been key to purchasing all sorts of goods from washing machines, microwaves, cars and houses, to life insurance, as well as putting money away in savings.
It’s their appetite for more that has powered global growth for decades. What then happens in a few years when millennials get older and don’t have the disposable income to repeat the same purchasing exercise? Some economists believe that the effects of this are already playing out and, as a result, the developed world’s economies may now be grinding to a halt.
Prof Diane Coyle, the author of The Economics of Enough and a former adviser to the Treasury, agrees that the underlying facts are blunt. Older people, she said, can’t take all the returns of the stock market. “When you’re a pensioner you can’t eat the stock market, you need young workers in the economy to be creating economic output that’s available for consumption at that time.”
Pomeroy added: “If you have a load of people who are 20, 25 and they are becoming your core consumer over the next 15 to 20 years and they are less well off than the current crop of people in that age group, then that’s not great for growth … you’re in big trouble.”
“We just don’t know whether we can continue growing the economy in the same way we once have.”
But the real estate industry has a work around – just continue to serve the richest generations in U.S. history, those who have always served themselves first, with more housing for their needs.
In 2029, just 11 years from now, all baby boomers will be at least 65 years old, with the vast majority beyond age 65. This group will represent 20 percent of the U.S. population, and that is when the wave may start to resemble a tsunami. Demographers agree that circumstances are favorable for growth in the seniors housing market, and the real estate industry is responding.
Baby boomers are unlike any generation before or after them. Many have abundant discretionary incomes, more than any previous generation, and are accustomed to purchasing whatever they want or need. For most, moving into a senior community is more of a lifestyle choice than a medical necessity. They want well-appointed spaces with amenities and programs that enhance their lives. They are redefining life after retirement. And developers are responding.
After decades of purchasing whatever they want or need, however, not all Baby Boomers will be able to afford their lifestyle. And a large share of that generation and the one preceding had been unlike any generation before or after them with regard to doing and having whatever they want or need when their children were young, rather than putting those children first. So who is going to pay for their needs and wants when they are old, at the expense of what else?
Today’s parents or grandparents will be part of a historically large surge in the senior population poised to transform the housing market, and, according to many caregivers, architects, and researchers, challenge our system of low-income assistance. More broadly, this surge may change our attitudes toward aging. Solutions will require not only more support from state and local governments, but also a rethink of how we design spaces for this population.
“We can’t go back in time and recreate the social glue between families,” Hollwich says. “What we can do is come up with a new idea of family, and design spaces that allow for neighbors to have the same kind of emotional responses as family members. Half of nursing home residents are there because of social deficits and the loss of their social net, not because of health issues; we need to find ways to help them connect.”
So if strapped later born generations are struggling to meet their own needs, and perhaps resentful of the fact that their elders didn’t meet their needs when they were younger, those elders will simply vote to have the government force them to turn over more and more money, and deal with it somehow.
But what shape are those state and local governments in? Broke, often as a result of debts, inadequate past infrastructure investment, and underfunded and retroactively enriched pensions engineered by Generation Greed to its own benefit. And, in some cases, the tax cuts they demanded for themselves.
You would think that within the generation that prided itself with disrespecting authority, more whistle blowers would have emerged to protest generational inequities and fight for their own children and the future of their communities. But such people have been rare.
In the sedate world of actuarial science, Jeremy Gold was a bomb thrower. He regularly accused public-pension-fund managers of taking too much risk and underestimating their liabilities to current and future retirees.
“Where are the screaming actuaries yelling in these burning theaters?” he asked in a 2015 speech at the Massachusetts Institute of Technology. He cited the pension shortfall faced by state and local governments, usually pegged today at between $1.6 trillion and $4 trillion. Some governments ran up those debts by paying less than actuaries recommended.
Others made payments endorsed by actuaries based on projected returns that never arrived. “Actuaries should have been the cops here…applying science while all around them were doing politics,” Mr. Gold said.
He was a wild child of the 1960s who flunked out of college before getting his act together. He became “a maverick with a message…that we need to face up to the wreckage that public pensions face,” said Olivia Mitchell, a professor at the University of Pennsylvania’s Wharton School and an expert on pensions. “His work changed the way the profession thinks about retirement systems.”
With seemingly everyone in politics in on them, somehow the consequences the past political deals – deals those actuaries failed to warn about — on current and future New Yorkers are kept out of the news here. But more and more those consequences are in the news elsewhere. While demands for more and more money and higher and higher taxes are taken at face value in New York, in California people are being told where their money is actually going.
With the stroke of a pen, California Gov. Gray Davis signed legislation that gave prison guards, park rangers, Cal State professors and other state employees the kind of retirement security normally reserved for the wealthy.
More than 200,000 civil servants became eligible to retire at 55 — and in many cases collect more than half their highest salary for life. California Highway Patrol officers could retire at 50 and receive as much as 90% of their peak pay for as long as they lived.
Proponents sold the measure in 1999 with the promise that it would impose no new costs on California taxpayers. The state employees’ pension fund, they said, would grow fast enough to pay the bill in full.
They were off — by billions of dollars — and taxpayers will bear the consequences for decades to come.
Cities, counties and school districts across California are in the same financial vise. After state workers won richer retirement benefits, unions representing teachers, police, firefighters and other local employees demanded similar benefits, and got them in many cases.
Today, the difference between what all California government agencies have set aside for pensions and what they will eventually owe amounts to $241 billion, according to the state controller.
When the legislature considered SB 400 in 1999, Democrats championed the expansion of pension benefits. Most Republican legislators voted for it, too — a reflection of the economic optimism of the time.
In Illinois, one of the beneficiaries was willing to fess up.
I contend that many, maybe most, of us who participated in Illinois politics and government over the past half century share at least a sliver of the blame for our present parlous situation.
Unfortunately, we have been part of a state political culture that considers it OK to take advantage — legal advantage preferred — of our state and local governments for personal gain, just about whenever we have been able to do so. State employee pensions offer prime illustrations.
Our pension crisis is the huge albatross around our collective neck. Moody’s, the financial ratings agency, has estimated that Illinois has $250 billion in unfunded pension liabilities. That works out to about $50,000 for each of our 5 million households.
This happened for four fundamental reasons: state government failed to contribute its share of funding; we had unrealistic expectations about growth in our pension assets; we made flawed assumptions about employee mortality; and there was a feeding frenzy from the 1980s to early 2000s to enact scores of richly sweetened employee benefits.
And just about everybody in the political game has either sought these benefits or, like me, turned an indifferent, not-my-issue blind eye as they were larded on.
Of course there were similar feeding frenzies of tax cuts and breaks, and spending on everything older generations might want or needto an extent unlike any generation before or after them.
How bad is it in Illinois? Some economists at the University of Chicago proposed a way to pay for the massive hole in that state’s pension fund. A statewide property tax on homes at 2.0 percent of their value, one assessed as a surcharge everyone would see and that would cause the value of existing houses to fall.
Why the Property Tax?
– Its transparent. The payments would be known as well as the duration. The tax would be capitalized into real estate values which would prevent people leaving the state to avoid paying for the liability. Similarly new entrants would be able to purchase real estate at a discount.
– It’s generationally fair. The liability reflects services already consumed that weren’t paid for by previous taxpayers. Other tax bases would not recover taxes from beneficiaries of an era where government services were not fully paid for.
There are several good reasons to pay off Illinois’s pension debt through a statewide residential property tax:
Fairness: Illinois residents who have benefited most from the past services of governmental employees are more likely to be homeowners, so it seems reasonable that they should pay a larger share of the costs.
Efficiency: Standard economic theory predicts that home values go down in response to new property taxes (that is, they are “capitalized” into home values). Current homeowners would not be happy about this, but it would be a good result for the Illinois economy. That’s because the new taxes wouldn’t affect people thinking of moving to Illinois. While they would have to pay higher property taxes, that would be offset by not having to pay as much for their new homes. In addition, current homeowners would not be able to avoid the new tax by selling their homes and moving because home prices should reflect the new tax burden quickly. (We included this “tax penalty” effect in our calculations below.)
Transparency: The payment amounts and duration of the tax would be known in advance.
Certainty: The property tax would be dedicated solely to paying for the state’s unfunded pension liability.
Equity: Wealthier people would pay more. The plan could also be modified so that the tax rate is graduated rather than flat (for example, by exempting the first $50,000 of home value or exempting households with incomes below a certain threshold).
Do Illinois homeowners have the ability to pay these larger tax bills? Our calculations suggest that, even under the best-case scenario, the additional tax bill is quite high, and some households would certainly struggle to pay it. But given the choice between paying off the debt via higher income, sales, or property taxes, we maintain that the property tax is the best of three painful options.
Under the Federal Reserve economists’ baseline scenario, this tax alone would cause the value of housing in Illinois to fall by 18.1% immediately, thought it would later recover gradually. Other specifically and separately taxed burdens of the past with no services in return would presumably cause even more property value declines. This proposal is similar to what I have proposed for New York, New Jersey and the MTA over the years, so people could actually see why they are paying so much compared with what they were getting in return.
In Illinois, the political response was outrage.
Homeowners with houses worth $250,000 would pay an additional $2,500 per year in property taxes, those with homes worth $500,000 would pay an additional $5,000, and those with homes worth $1 million would pay an additional $10,000.
Are they blind to human consequences? Confiscatory property tax rates have already robbed hundreds of thousands, maybe millions, of Illinois families of their home equity — probably the lion’s share of whatever wealth they had. Property taxes in many Illinois communities already exceed 3%, 4% and even 5% of home values. Across Illinois, the average is a sky-high 2.67 percent, the highest in the nation.
Of course Generation Greed has made one economic, social and public policy decision after another, collectively and in many cases individually, all while being blind to human consequences for the generations that followed. And they don’t want to hear about it either. So they can keep taking even more. Here, from Connecticut, is the sort of proposal that is likely to be more acceptable to those who still control the federal, state and local governments, and the media.
Surging retirement benefit costs represent one of the fastest-growing major expenses within Connecticut’s budget — a problem that stems from more than seven decades of inadequate state savings.
Pension programs for state employees and municipal school teachers, collectively, hold assets equal to just 41 percent of their long-term obligations.
If Connecticut follows its current funding policy, pension contributions that currently represent about 33 percent of payroll could approach 80 percent by 2033. Over the same period, these costs would consume a greater share of state revenue, jumping from 14 to 20 percent, the report warned.
Gov. Dannel P. Malloy, state employee unions and the legislature agreed in early 2017 to restructure payments into the state employee pension fund.
The deal is designed to keep the annual pension contribution — projected in one report to grow from $1.6 billion in 2017 to as much as $6.6 billion by 2032 — capped closer to $2.4 billion per year during that period.
To get that relief, though, Connecticut would ask a future generation to pick up at least $14 billion of today’s obligations after 2032.
“This report clearly shows that Connecticut’s pension costs are the result of generations in which we did not adequately pre-fund the systems,” said Chris McClure, spokesman for Malloy’s budget office. “Over the last eight years the Malloy administration has made mighty strides to address this problem.”
Besides two new employee tiers with “sharply reduced” pension benefits and higher employee contributions, the administration has reduced the executive branch workforce by 12 percent since 2011, McClure said.
So there you have it. To reduce pension contributions between now and 2032, while some members of Generation Greed are still around, public employment (and jobs for younger people and services) are being cut, the pay and benefits of future public workers and their take home pay have been “sharply reduced” and $14 billion in pension contributions were shifted to after2032. After generations in which we did not adequately pre-fund the systems have had a chance to sell their houses to screwed younger generations at higher prices and leave for Florida.
Who suggested this? Alicia Munnell and the Center for Retirement Research. And what was their rationale for shifting costs shirked by older-richer generations to poorer later-born generations? Generational equity. It isn’t fair to current Connecticut residents to try to cover all the cost of past self-dealing in just 15 years. It was more fair to shift more of the burden to those who were never a party to or beneficiary to that self-dealing at all. And hide that future bill so they’ll pay more for real estate to those cashing out and heading for Florida.
“As these surging pension costs become unaffordable, Pew analysts wrote, extending them into the future — at even greater expense — becomes a likely choice. Connecticut is one of two states, along with Pennsylvania, analysts added, where “The risk of permanent high costs is most acute.”
The state already has begun options to cap teacher pension contributions as well, and shift billions of dollars in added expenses onto future taxpayers. The $1.2 billion annual contribution Connecticut faces now could top $6.2 billion by the early 2030s according to a 2015 study by the Center for Retirement Research at Boston College.
How could Generation Greed, seeking to borrow even more money to spend on themselves right now, guarantee bond buyers that future, poorer generations would be forced to pay it back, regardless of the consequences? Even after Generation Greed finally loses its control of the federal, state and local governments and the media?
Connecticut is making a new promise to bondholders in exchange for $500 million: self-discipline.
The cash-strapped U.S. state is preparing to issue new debt that requires Connecticut to limit its spending, cap future borrowing and funnel excess revenues into a reserve fund. The $500 million bond issue priced Tuesday and will be delivered to investors June 20.
It is a rare step in the world of municipal debt. No other state has attached such fiscal austerity measures to an outstanding bond issue, according to analysts at S&P Global Ratings. The restrictions will stay in place for the next five years.
The unusual offer has the potential to lower borrowing costs for Connecticut in the near term and enforce fiscal discipline following a bitter state budget battle in 2017. The covenants helped win enough support to end the stalemate.
But the restrictions could also hamstring the state in the event of a future crisis. The only way to suspend certain covenants is with a three-fifths vote of the legislature and a declaration of fiscal emergency from the governor. The current governor, Dannel Malloy, is scheduled to leave office in January.
Enshrining the rule in bond documents was quicker and easier than a constitutional amendment that requires a popular vote, said Democratic Sen. John Fonfara. Mr. Fonfara championed a provision of the covenant limiting the budget’s reliance on certain income-tax collections.
“How do you bind future legislatures? The covenant was the means by which we intend to do this,” Mr. Fonfara said.
But violating any of these covenants would amount to a default on the bonds and could prompt investor lawsuits. The new restrictions could also make it more difficult to act quickly if a new emergency arises. Lawmakers later reduced the length of the fiscal austerity covenants to five years from 10 years as a way of adding more flexibility.
Other states are watching Connecticut to see how its experiment fares and whether borrowing costs drop, analysts and government finance officers said.
How do we bind future legislatures? How can we guarantee that younger generations who are poorer, facing old age with vastly diminished retirement benefits, paying higher taxes, dealing with collapsing schools and infrastructure, will be forced to meet our needs first? Regardless of the consequences. Who can we force them to pay more and more with nothing in return, as a result of our something for nothing?
Out of the hearing of those later born, politically apathetic (or diverted by social and tribal issues) younger generations in New York, that’s the question Generation Greed is starting to ask.
The boomers inherited a rich, dynamic country and have gradually bankrupted it. They habitually cut their own taxes and borrow money without any concern for future burdens. They’ve spent virtually all our money and assets on themselves and in the process have left a financial disaster for their children.
We used to have the finest infrastructure in the world. The American Society of Civil Engineers thinks there’s something like a $4 trillion deficit in infrastructure in deferred maintenance. It’s crumbling, and the boomers have allowed it to crumble. Our public education system has steadily degraded as well, forcing middle-class students to bury themselves in debt in order to get a college education.
Then of course there’s the issue of climate change, which they’ve done almost nothing to solve. But even if we want to be market-oriented about this, we can think of the climate as an asset, which has degraded over time thanks to the inaction and cowardice of the boomer generation. Now they didn’t start burning fossil fuels, but by the 1990s the science was undeniable. And what did they do? Nothing.
“I think there were a number of unusual influences, some of which won’t be repeated, and some of which may have mutated over the years. I think the major factor is that the boomers grew up in a time of uninterrupted prosperity. And so they simply took it for granted. They assumed the economy would just grow three percent a year forever and that wages would go up every year and that there would always be a good job for everyone who wanted it.
This was a fantasy and the result of a spoiled generation assuming things would be easy and that no sacrifices would have to be made in order to preserve prosperity for future generations.
I’ve always seen the boomers as a generational trust-fund baby: They inherited a country they had no part in building, failed to appreciate it, and seized on all the benefits while leaving nothing behind.
This is a generation that is dominated by feelings, not by facts. The irony is that boomers criticize millennials for being snowflakes, for being too driven by feelings. But the boomers are the first big feelings generation. They’re highly motivated by feelings and not persuaded by facts. And you can see this in their policies.
Take this whole fantasy about trickle-down economics. Maybe it was worth a shot, but it doesn’t work. We know it doesn’t work. The evidence is overwhelming. The experiment is over. And yet they’re still clinging to this dogma, and indeed the latest tax bill is the latest example of that.
Time after time, when facts collided with feelings, the boomers chose feelings.
Finally, here’s one from across the pond, for my summer reading list.
The world’s leading economies are facing not just one but many crises. The financial meltdown may not be over, climate change threatens major global disruption, economic inequality has reached extremes not seen for a century, and government and business are widely distrusted. At the same time, many people regret the consumerism and social corrosion of modern life. What these crises have in common, Diane Coyle argues, is a reckless disregard for the future–especially in the way the economy is run. How can we achieve the financial growth we need today without sacrificing a decent future for our children, our societies, and our planet? How can we realize what Coyle calls “the Economics of Enough”?
More in my generation, Generation Apathy, should have listened to Jimmy Carter. As for Generation Greed, whatever happened to the Beatles “Money Can’t By Me Love?” Haven’t heard that one on the radio in while.