Wednesday, January 28, 2009
Having been a target of commercial opportunity during its entire sentient existence, the Baby Boomer generation's lasting legacy may well be to have been the first American generation to have consumed more, or at least as much, as it has produced. (Of course, it is impossible to calculate the precise economic production of a "generation" or its consumption, but it certainly looks as though the net savings of the group born between 1945 and 1965 were far smaller than is necessary to retire from paid work long before the recession we are enjoying now.) Our general unwillingness to save as individuals or a political constituency has led to a massive indebtedness that will have to repaid, either by actual repayment or debasement of the currency, over the next generation. Either way, we will have done great damage to the standard of living of younger Americans, including those not yet born. If generations actually had their own moral legacy, we Boomers would be the dependent loser -- the one kid who could never hold a job and never save a nickel and was always asking for a "loan" -- of the American family. If we had a generational sense of duty (which we do not, obviously), we would realize that we need to surrender the long-tail entitlement benefits that bear down on the American economy. My thoughts on that subject are here.
MORE: The Financial Times has an interesting article about American debt and how it might be liquidated, with this rather compelling graphic:
Let us start with some facts. The ratio of US public and private debt to gross domestic product reached 358 per cent in the third quarter of 2008. This was much the highest in US history (see charts). The previous peak of 300 per cent was reached in 1933, during the Great Depression.
Nearly all of this debt is private. That reached an all-time high of 294 per cent of GDP in 2007, a rise of 105 percentage points over the previous decade. (bold emphasis added)
Of course, neither the graphs nor the article directly address generational culpability, but there is no denying the overhang. Again, short of an unexpected quantum leap in economic growth in the United States, the question is unavoidably one of generational equity: Who should bear the burden of paying all of this back? People who are roughly 45-65 today (loosely, my generation), or people who are younger? Justice requires that the Boomers, who for better and for worse are the deciders in today's economic and political establishment, ought to bear most of the burden in their own standard of living rather than passing it off to our children and grandchildren.
Blaming the baby boomers? Maybe you should fault their parents. We were raised by people who made it through the Depression and World War II and who saw their sacrifices as making it possible for us (their children) to lead lives that weren't all about sacrifice and deprivation. They gave us a lot and expected little in return. We Baby Boomers have never really thought of ourselves as accountable for anything. Because that's pretty much what we were taught.
As a boomer I'm not at all trying to give the boomers a pass, but I think there is more than enough blame to go around. The tune they play was introduced by the Progressive's and made part of the American way in the New Deal, engrossed by the Great Society and pushed to obesity by Compassionate Conservatism. The boomers had the misfortune to be the pig that burst the python, the generation unable to find a chair when the music finally stopped, in no small measure because their time to leave the labor force finally arrived.
Sure boomers didn't prepare. But preparation had not been necessary for the prior two generations who lived off the swelled social security taxes paid to them by boomers and the ridiculously inflated prices the boomers had to pay for their houses, underwriting their retirements and teaching all the wrong lessons.
Most boomers, having not been taught history well by their forebearers, are still only dimly aware of what awaits. But they are also fast learners. For me the proof will come in the next few years when Medicare goes bankrupt with the Greatest Generation mostly gone. Will boomers demand their entitlement to an additional two years of life as serfs of the government financed medical system or will they allow the rollback of the Bismarkian welfare state? I truly do not know the answer, but I know the future of America's ability to be the exceptional City on a Hill hangs on the answer. (If I've left out any metaphors I apologize to those offended.)
I'm not ready to give up on the boomer's ability to finally get it right. Or the X'ers and Millenials ability to shove it down their throat.
Baby boomers may have overindulged, but the tax burdens imposed since baby boomers have come of age have been significant. In 1965, the Social Security and Medicare tax rate was 5.4% on income up to the first $4,800 of income. Today, it is 15.3% on the first $106,800. For the majority of people, they pay 15% of their income for other people’s retirement. How can a family buy a house, save for their children’s (ridiculously expensive) college and save for their own retirement?
The frustrating part is that if everyone saved 15% of their income and put it into their own retirement account of T-Bills or CDs, they would have a comfortable retirement. Instead, we have a ponzi scheme called “Social Security”.
Both great comments, and I agree with them. I also think that the Late Boomers, who are borderline Gen X, have a different take on it because they are still 20 years from retirement. Or perhaps 30 years, depending on how well they have managed to save.
The biggest lie ever told was that one's home is a useful vehicle for retirement savings. It randomly has for people who were lucky in their time and place, but in the absence of leverage housing is a terrible investment. If we learn that from the current mess and take from it that we ought to save by means other than "investing" in our abode, we will be better off.
Dear Tige, normally you and I is on the same page on most issues. I differ in opinion about us boomers in that there has been no lack of work ethic in us . In fact in every arena of expertise and competition and bravery and invention,
( computers, and their subsequent offspring, medicine, charity, by any measure you care to use) we have contributed mightily: where we get the ultimate rag is that ours is the first generation to pay MOST of our earnings in taxes. This socialist experiment's failure cannot be laid at our feet. Socialism transferred wealth to an underclass that by in large refuses to un-under itself. The fact that the Democrat party considers this to be a main portion of its constituents is well known. So there; unfair taxes on everything that has devalued our standard of living almost by 75% since the seventies. (I used your chart). One buck then almost 4 bucks now. Save, most families save and then pay tax multiple times on the same dollar to feed the outrageous appetites of the monster we call "Republican representative government" Think about the extent of the taxes we pay. Not just state, federal, city, county but the taxes of every provider of service, goods, jobs in every price on any good. Then if we manage to save and invest the post tax dollar's interest earned is taxed again as capital gains. Great...The Artman
"I also think that the Late Boomers, who are borderline Gen X, have a different take on it because they are still 20 years from retirement"
Being a tail-ender of the BB generation is like attempting to make a lifelong journey preceded a horde of locusts. The BB'er have sucked the oxygen out of everything in their path, leaving little but chaff in their wake.
College was proportionatly much more expensive than for my immediate predecessors, work was hard to find when I graduated (with an engineering degree), there was an almost impenetrable mass of BB middle managers in just about every field I worked in, all fiercely protecting their jobs much more than doing them, and when I finally reach retirement age, SS and medicare, having served the majority of the bell curve of BB'ers, will just be going bust.
It's been a blast.
Now, I don't blame the BB generation - they are just doing what comes naturally, like locusts, but that does not mean that I have to like it.
I am looking forward to forced euthanasia of oldsters, which programs will be firmly in place by the time I reach old age.
Could'a been worse - imagine being born before the invention of aspirin, or as a prehistoric man, when health care meant rubbing dung into your wounds. Still, if my parents had reproduced earlier, that 'me' would probably have been much better off.
(1) Thanks TH. If nothing else, it's nice to read a BB acknowledging what his generation did to mine.
(2) Hearing a BB blame it on her parents like Sally did is just amusing. Really amusing.
Sally's comment is not just amusing. It is a confirmation of TH's point, that Boomers (not individually, but collectively) foist blame and responsibility off on others.
Victor Davis Hanson talks about it too: http://corner.nationalreview.com/post/?q=ZGRjZTJiZjlkN2UxMDEyYTkwZmIxMzc3YjYyZWU5OWM=
It remains to be seen whether MY generation does any better.
Hearing a BB blaming everyone else is amusing.
I suppose the underclass that refused to un-under itself, the tax burdens imposed, the Democrats and their constituents, and the entire socialist experiment surely came from some other source and not the BB'ers themselves.
How every 1960's. Classic BB logic; "it wasn't me man, I didn't do anything."
Tige, can you explain a bit more the statement you made above:
"The biggest lie ever told was that one's home is a useful vehicle for retirement savings. It randomly has for people who were lucky in their time and place, but in the absence of leverage housing is a terrible investment."
I'm trying to imagine how much leverage you need before leverage is "absent" -- isn't 20% down a fair amount of leverage? Unfortunately, another of the biggest lies every told is that buying equity in companies is any better. The thing is, it all depends on time & place and —though luck is NOT the only factor in either housing or stock—luck...
As a member of Gen X, I like to think of them more as "The Worst Generation", to borrow on Brokaw's phrase. The Greatest Generation spent the blood, sweat, and tears in the Depression, WWII, and the post-war years to make sure their children would "never again" experience what they went through. They spared the rod and spoiled the children. The Worst Generation went to the best schools, but chose to drop acid and drop out. When their peers went to war, they didn't have the courage to go with them nor the good grace to support them -- instead spitting on their former friends as they returned home. When they grew up, their rampant narcissism made sure both Mom and Dad were at work so my generation was parented by the boob-tube after we let ourselves in the front door with the key latched around our necks. Their leadership in their graying years has produced the Tech Bubble, the Housing Bubble, the initial blindness to Islamic terrorism, and led to the biggest financial crisis since their parents were young. Now that they're retiring, they want someone else to foot the bill for their ease and largess, even unto their grand children's generation.
They're Generation Me Me Me. Generation Can't-log-on. Generation Whine. Generation Unreconstructed Hippies. Generation Debt.
The. Worst. Generation.
Their retirement from the affairs of this nation can not come soon enough.
As a Gen-X'er I agree with the locusts analogy.
I'm not sure which generation is worse tho - the security blanket-sucking Boomers, who don't know the answers to everything but are sure it must involve a lot more government, or the gormless hopey-changey millenials, who don't seem to know much outside of what John Stewart tells them.
I wish I could see what my generation's reputation will be fifty years from now. I have a feeling it will be quite different from what the dominant voices think it will be.
And West, you left out the fact that BBs are talking about not retiring, thus imposing further hardships on later generations who want those jobs. This is one of my beefs against Noam Chomsky. OK, he's older than the BBs, but he thinks like them. He stayed on and on as a professor, even though he could have retired and made a living just writing books and giving talks.
"The biggest lie ever told was that one's home is a useful vehicle for retirement savings."
Good for you, TH. I try to tell this to my clients: "Your home is housing. It's not an investment: there's no safety of principle and no rational expectation of dividends; it lacks all the criteria of an investment. Get it paid off as soon as you can and forget it. Unless you are willing and able to sell something on 1 week's notice, it isn't yours and it belongs in the net worth of your heirs." They never want to believe it, they always mutter about selling it later and moving to a condo, and 80% of them never do sell it later. As with most social trends, you see this at its comic extreme in CA, where people with houses even now valued at more than $1.5 million want government programs to provide them with more monthly income.
to have consumed more, or at least as much, as it has produced.
I'm not sure this is so. The signs of vast wealth are all around. Maybe it was all borrowed, but the value of the nanotech revolution first developed in computational electronics (with much else to follow) is of incalculable value. Transistors and integrated circuits were pre-boomer but much of the rest of the development is ours.
Nanotech will help in the realm of health, too.
Unless we experience a rapid decline in wealth over the next few decades, we have to be counted as an economic plus.
I do think we will work longer anyway without prompting if only to keep up our debt service. I'm certainly not intending to retire.
I'm not much concerned about government debt service. With 1/3 of US real property in its portfolio and all those 200-mile exploitation zones and continental shelf development rights off our (many) coasts, the Feds are good for it.
Since I was a kid in the 80s I have said that my generation will put the retired boomers to work in 'boomer' factories to pay off their dept. Of course, the debt they had accumulated back then was much less than it is today, but my generation will figure out a way to equal things out :) The boomers worked as little as they could, so that instead of moving up the scale, they were still in the starter family jobs so that my generation could get none. In California, they passed tax rules that put the highest property tax burden on new families starting out, and also that promoted boomers staying in large, family rearing homes long after they had finished raising them, to avoid selling and resetting their property tax at a higher level, depriving again families starting out of a market of less expensive older homes, leaving them with mainly new home construction at a much higher price. To the boomer complaining about how hard they have it, how taxes are so high, imagine starting out today, with these rates, no slowly coming to this point over a number of years. The burden on GenX is huge, the stress of trying to start a family today is incredible. But we're used to being surrounded by the pile or garbage you've made everything. We'll clean it up, and use your generation in the stories to our children and grandchildren, about a spoiled prince who had it all, and spent it all on himself, leaving his children to live as beggars, and still, in his old age, complained to his beggar children that his life was so hard, and that they weren't doing enough to take care of him. Time will not be kind to the boomers I don't think.
And just wait,we'll soon be treated to a literal biblical flood of BB autobiographies.
They will all begin "I had a dream..."
and end "...and that's why it's NOT my fault!"
Sally isn't entirely wrong,but whining "we was raised that way!" may work at 18,maybe even 20 or so,but at 50?55?60?
I have to agree with the point that the Baby Boomers were the first generation to have most of their income confiscated as taxes. That is a truth that had never before occurred to me.
My parents generation did not contribute their fair share to the government entitlements they have demanded. Many of them worked for government and industry in the halcyon days of guaranteed retirements, for which we are now paying. And the percentage of their incomes paid in taxes was a fraction of our own.
Is it any wonder that we have little or no savings?
The truth of the matter is that since the government instituted the New Deal, Great Society, and ever expanding "entitlements", we the workers have been fleeced of our own money. We have a truly Socialist system but it is not based on the Marxist concept of "to each according to their need, from each according to their ability", but instead "to each according to their vote, from each according to threat of imprisonment for failure to pay the tax man".
For a nation founded on a tax revolt and the concept of each man being sovereign, we have fallen so far that our founders would not recognize the baby that they birthed.
boomers are THE WORST. as an elder millenial, let me tell you my impressions of the modern workplace:
Milenials: the grunts. We're in our twenties, so gruntwork is expected, but we are often astounded by how technologically backwards and inefficient companies have become under boomer management. ie: still using type-writers and carbon paper, the TPS reports in Office Space etc. because "that's just how we do it"
Gen-Xers: the players. the brokers, salesman, underwriters, account executives, programmers etc. etc. These are the people that do all the real work in the organization and take all the responsibility, without corresponding pay. They are patiently waiting their turn to get into management, but secretly suspect (and rightly so) that the boomers plan on passing the baton past them to their own children, the millenials.
Boomers: tend to be in middle or upper management. it is unclear what work they ever did for the company. Most of their stories about the good old days when they paid their dues tend to involve drinking a lot of alcohol, taking 3 hour wet lunches and sexually harassing secretaries. Now, having "paid their dues" they feel that it is their right to basically not do any work whatsoever once over the age of 50-55, but continue to draw salary. their biggest concern is that someone could displace them in the office politics and take away their meal ticket, so they fiercely defend their turf, while being completely negligent in their duties.
The Founders: tend to be either greatest generation, or the "lost" generation. They have retired, sold all their stock and don't draw a salary, but can't stop themselves from coming in to work for the company. They take a great amount of pride in the business name, and feel personally attached to it. Most of them were exceptional in their early careers and left to found their own company. Have a strong protestant work ethic, tend to be thrifty and are well respected by the other generations.
btw, for anyone truly interested in this topic as it relates to the broad sweep of American History, I cannot recommend the book href="http://www.amazon.com/Generations-History-Americas-Future-1584/dp/0688119123">Generations: The History of America's Future, 1584 to 2069 too highly. It has changed the way I view history more than any book I have read. For those who are judgmental, read it and you will understand why generations are the way they are. It won't make things better, but it will make them understandable. It's probably 30 years old now and it is full of projections to 2069 as the title implies. So far they're very on target. Anon 12:24 should really appreciate it.
The Boomers are also the first generation to perceive of children as dangerous liabilities, not assets. They were to be "carefully planned", aborted if not. They didn't reproduce, and never thought what that meant to their appetite for ponzi-scheme styled "entitlements." As a corollary, they never gave serious thought to developing a child-friendly society. We are now a society of dual-income families with one or two kids, in an economy that demands extensive, expensive education for our kids (and the value of that education is increasingly dubious considering its cost).
And West, you left out the fact that BBs are talking about not retiring, thus imposing further hardships on later generations who want those jobs.
So you're saying it would be better for those people to stop making an honest living and glomming off the government instead? Isn't this what got us in this mess in the first place?
It's time to change the concept of retirement as we know it now; if someone is in good enough physical health to do his/her job, there's no reason that people can't work till at least age 70. It's not like a lot of people have the money that my parents' generation does to tour the world and play golf in retirement, so why not keep people in productive society as long as possible?
And it sounds like you're saying that older people owe it to younger people to "get out of the way" and relinquish jobs to them. Nonsense. Create your own job. Make the pie bigger.
"Your home is housing. It's not an investment: there's no safety of principle and no rational expectation of dividends; it lacks all the criteria of an investment. Get it paid off as soon as you can and forget it. Unless you are willing and able to sell something on 1 week's notice, it isn't yours and it belongs in the net worth of your heirs."
This may ultimately be true at the moment, though plenty of people have gottten rich through real estate, and in fact it has been a great engine to produce wealth for some (though when the market dries up it has caused many people to be left holding the bag).
The problem I have with this statement though is that the housing market is based on real estate being a growth vehicle (in addition to being used for lodging) and if you take away that incentive you will always have a stagnant housing market, which is supposedly the problem now. How do we get people to stop defaulting on their houses so that the housing market can rebound.
To buy a house is prohibitively expensive for many requiring a huge down payment, and if there is no potential that you will get your money back on the deal more people will simply rent as opposed to buy as its otherwise not worth the cost required, when one can simply rent and get the same value. Then again the more renters, the more valuable a house becomes to the owner who can rent it out, so a house again becomes an economic vehicle worth purchasing for the benefit of renting it out.
In all cases, whether its a strong housing market, requiring buyers willing to purchase houses, or a need for rentals there will always be an incentive to view houses as economic vehicles and that incentive will drive the market.
You won't get rich on a salary.
As an entrepreneur you should be able to retire before 50--even today. If you don't, it's your fault. You're too cowardly to take risks.
Many of my entrepreneurial friends retired in their late 30s. Others like me continue to work at their own companies for the fun of it.
P.S. Remember, TH, the top federal income tax bracket was 70 percent from 1971-1981. If you lived in California, the top state income tax was somewhere between 7 and 11 percent. (I forgot the exact number for the state.) And you had spiraling inflation. Try saving money with that tax burden.
The Boomers gave you Reagan. With Reagan the top federal income tax rate went down to 33 percent in 1987.
Were it not for government meddling in the form of grandfathered ad valorem taxes, anti-development zoning, rent controls, mortgage interest deductions, and CRA/GSEs, housing prices would better reflect the intrinsic value of housing. The first three items represent our pulling-up the ladder behind us. The last two represent our collectivist instinct to help others by spending other people's money out of the kindness of our hearts (yes, sarcasm) as well as our knowledge that we'll fill our own pantries with some of that mighty fine government cheese when the truck comes to town.
The meddling created an alternate reality rife with unintended consequences. This bizzarro world was bound eventually to clash with hard reality. That clash is what put us here. At best, more tinkering will only kick the can down the street a bit.
The idea of the "Greatest Generation" helped Brokaw sell a lot of books, but I suspect that lumping us all into cohorts by age provides only so much insight. There's still a lot of variability among people my age -- born 1957. I can find a lot in common with many who are younger and older than me, often much more so than someone who just happens to be 51 right now.
Not everyone in the Greatest Generation grew up poor, nor did hard fighting in WWII. I have slightly older boomer friends who did hard fighting in Vietnam. Go figure ...
The more meaningful distinction right now is between "people who gets checks from the government," and those who don't. The former group is set to grow a lot, and our commitment on healthcare will only drive per capita costs up. The former group also includes a lot of connected businessmen ... it's not all welfare queens. Obama & Co want to increase the ranks of "people who gets checks from the government" even faster, with a tax rebate plan for people who don't even pay taxes.
I have a personal story that makes me cynical about all this. My parents died when I was in college, and I had three younger siblings ... one was only eight. To help balance the Social Security budget at the time, the Greatest Generation had no problem with eliminating Soc Sec payments to the 18 to 21-year old children of deceased parents who were still in school, a long-standing benefit of the program. So my parents had paid in, but we as a family saw little out. In fact what was promised, was cut. At the time, we could have used the money ... especially my 18 and 19-year old sisters.
I expect we'll have an age cohort war over benefits at some point, and I expect myself and my siblings to get screwed once again ... old enough to have paid a lot in, but too young to get much out. I actually invite this and would rather have it happen sooner rather than later, so my children have a brighter future. If we stay on our current course, we'll turn the USA into nothing more than a socialized waiting room.
But it bothers me that I'm forced to pay into a ponzi-scheme I know will fail in order to to pay for the retirements of the Greatest Generation, and that we're just supposed to accept that they're all wonderful because they were born in 1930, but I somehow am suspect for being born in 1957.
The legacy of debt and the social security ponzi would be bad enough, without having to endure the constant stream of advertising for Flomax, Cialis, and other products aimed at the most-medicated generation. Must we really spend the next 25 years hearing about limp dicks and weak streams?
"Must we really spend the next 25 years hearing about limp dicks and weak streams?"
No, CV, you can move to Zimbabwe, where you can hear about cholera and crocodiles until a mob beats you to death for practicing witchcraft.
Permit me a few comments from a leading edge Baby Boomer.
1. The Total U.S. Debt chart is just what it says. Therefore, the public sector debt is about 60% of total GDP, which, if memory serves is about $12 trillion/yr. Also it does not, of course, include the pinata party currently underway in Washington, D.C. Unfortunately, this chart does not contain any analysis of the upcoming tide of unfunded liabilities, which may be $55 trillion. The FICA tax now provides a surplus. This surplus will begin to shrink o/a 2010 and go negative, i.e. outflow exceeds inflow, in 2016-17. The "debt" problem is actually much worse than the chart indicates. What we are experiencing now may well be the warning rumbles prior to Mount St. Helens.
2. There is reason to be resentful of the Boomers. However, we can be cut some slack because the motor of this debt machine was installed progressively beginning in the 1930s, or, if you will, turbo-charged after Lyndon Johnson dreamed up the War on Poverty - the birth of the concept that, Constitution be damned, it was the government's job to do something! That said, the Boomers have had enough time to see the road ahead and lead the charge to develop the necessary structural reform, but... not now, later, please.
3. As a retired ex-pat let me clue in any other near retirement Boomers. The secret is... retirement in a developing country. I had the advantage of stingy (or, more appropriately fearful of risk) parents and 3 years of life in the Peace Corps. Both experiences combined to teach me the principle of "basic human needs," i.e. food, clothing and shelter. EVERYTHING else is a luxury. Luxuries must be rationed. A good place to stretch your savings and learn the lesson of prioritizing luxuries is in the developing world. We have a pension and savings, two houses (beach and mountains), two vehicles, household help at both, and a conservative lifestyle combined with 0 debt. My advice to those who may be planning retirement: learn Spanish and examine residency options in Central America, or further afield if you wish. Good luck.
FDR gave us Social Security.
LBJ gave us Medicare and the War on Poverty.
Greenspan gave us bubble baths.
Nixon gave us price control and OPEC via Kissinger.
Stevens gave us bridges to nowhere.
Byrd gave us edifices with his name on them.
Not a boomer in the bunch.
Clinton, while morally reprehensible, gave us our first budget surplus in living memory along with Newton. These are boomers.
In 1977 boomers were saddled with Social Security tax increases that were designed so that that generation would pay its own way.
Government spent it all, not boomers. We did our part.
Regrettably Carter, Reagan, Bush I, and Bush II spent it all and then some.
Blaming boomers for this mess is like blaming the farmer for a bad crop when it doesn't rain. The farmer and the boomer did all the right things. Other things out of their control cause the failures.
Kev: “So you're saying it would be better for those people to stop making an honest living and glomming off the government instead?”
Not at all. I think they’ve had their chance to earn their retirement money, and they should now retire on that.
“It's time to change the concept of retirement as we know it now.”
Well, as you can see from the many hostile comments from members of later generations that have been posted here, changing the concept of retirement is not as easy as it sounds. Keeping on retired people means not hiring younger people.
“And it sounds like you're saying that older people owe it to younger people to ‘get out of the way’ and relinquish jobs to them.”
Yup. That’s exactly what I’m saying.
“Nonsense. Create your own job. Make the pie bigger.”
Why not tell those who don’t want to retire to create their own jobs? Why is the onus on the younger generation and not the older generation?
Also, this idea may work for certain industries. In others, such as academia, it’s not clear how you create a job. There just happens to be a certain number of jobs and they exist in certain places. The example I gave was of Noam Chomsky. How exactly should a young linguist create a job, given that people like Chomsky stay on longer than they should?