They Never Quit

by digby

I don't want to get into another generational spat today, but there seems to be a building meme that the people to blame for the economic problems are the undisciplined baby boomers, which is simplistic at best and truly devastating if it catches on. This is because it plays into the hands of the fiscal scolds who want desperately to drive a wedge between the generations so they can use this crisis to finally destroy social security.

Here's CNN yesterday:

ROMANS: Let's talk a bit about how the boomers could slow down a recovery. Could that be a factor?

HOLTZ-EAKIN: I think it's going to be a very real factor. We know that households in general have lost an enormous amount of wealth in this recession. Their housing value, their stock market portfolios got hit hard and they started with a lot of debt. We would expect everyone to save more to rebuild that wealth going forward but the boomers are closer to retirement and they're a big chunk of the population so we'd expect them to save more and have a bigger influence. They say that is less spending and I expect consumer spending will be sluggish going forward.

ROMANS: The two sort of factors here, we talk about blaming the boomers for this whole thing and there is the fact they rejected the frugality of their parents and really perfected the art of spending someone else's money then there is also just the big size of the cohorts that they say demographics, just this huge size and they start to slow down to retire, when they start to take their money out to live on. That has a huge impact for the rest of the country.

HOLTZ-EAKIN: It's a huge impact for the country. It's a huge impact for the world quite frankly. The United States has been the last retail market for a decade now. China, India, Europe, Japan you name it, they counted on selling goods into the United States. As we come out of this recession the whole world has to find a different way to do business. We are going to need export more to other countries and we are going to need to have spending by businesses instead of just households.

ROMANS: Let's talk about the baby boomers' health care and Social Security needs. This is big, too. The youngest boomers start turning I think they start turning 45 this year so you're talking about 15 or 20-year period where there will be more pressure on health care and Social Security?

HOLTZ-EAKIN: We've seen this coming for a long time. It is really vivid in the federal budget, past 2011 you see the Medicare lines ramp up, you see the Social Security spending ramp up. And to be quite frankly we are not in a position to pay those bills. There needs to be serious work on Medicare and that's part of the health care reform debate this year. It's obvious that we need to fix Social Security and we probably should do it quickly.


So, what we have is the idea that the boomers were a bunch of spendthrifts who gambled all their money thus causing the recession, but now they are going into retirement and are not going to be spending as much money so they are prolonging the recession. You can't win. And the youngest boomers who are turning 45 will be spending into the fund for the next 23 years or so are chopped liver whose contributions into the system count for nothing --- as do those who paid all that extra money in over the past 25 years so the government could put it in a "lockbox" for our retirement, which they promptly spent on wars and tax cuts for rich people.

Look, it's not that some of this isn't true. They have been a hugely affluent generation and lived it up, often to excess. (A lot of us are going to pay for that in our old age in more ways than one.) Their contribution so far to the political leadership in middle age has been fraught with stale battles that long ago lost their salience, no doubt about that.

But it should be remembered that the affluence in which they grew up was heavily subsidized by the government which used to tax those who benefited but somewhere along the line decided that it would be better to borrow the money instead. The Greatest Generation wasn't frugal like their parents, who were traumatized by the depression and kept their money under the mattress. The Greatest Generation had the best public subsidies and private pensions in American history and they raised their standard of living accordingly. Their progeny assumed they would have that too, but America being the "exceptional" place we all know it is, they also apparently believed Ronnie and Newtie when they said they could have it without paying taxes.

This is a big topic and probably beyond my ken. But I do know that the young are actually beneficiaries of this recession, at least so far. Dean Baker wrote a great piece about this a couple of months ago:

Finally, the recent collapse of the housing bubble and the resulting stock market plunge have reduced the wealth of older workers and retirees by close to $15 trillion. This is a transfer to the young, since they will be able to buy the housing stock and the corporate capital stock for a far lower price than they would have expected to pay just two years ago.

Remarkably, the granny basher crew has somehow failed to notice this enormous transfer of wealth from the old to the young. They just continue their crusade to cut Social Security and Medicare as though nothing has happened.

It should be evident that the granny bashers don't care at all about generational equity. They care about dismantling Social Security and Medicare, the country's most important social programs. It is important that the public recognize the granny bashers' real agenda so that they can give them the respect they deserve.


Indeed, CNN itself featured evidence for that in their previous segment today:

WILLIS: I want to talk to you about a study out from Harvard University, the Joint Center for Housing studies, there, they say the silver lining here, the people that are going to save the market are Gen-Y. these are the folks that are going to come in and buy these homes boomers want to unload. And yet, I mean, you just said it, they've got college debt, they've got credit card debt, this is a tough time for them because of the recession. What would you advise people who are in that age category really want to buy?

MCBRIDE: Well, here's the thing. Three or four years ago a lot of those same people thought they'd never buy a house. Right? Because prices were so high. But, prices have come down, 30 percent, 40 percent, 50 percent in some markets, mortgage rates are low. So, they have a lot of tail winds.

You know, buying a house is like getting married, don't do it if you're not ready, you got to be in for the long haul and you have to be prepared for the financial commitment. So, if you have those two things, low mortgage rates are another boost to you...


Of course, you need a job and a down payment, and not all that many people do, but eventually people will buy houses and they will be buying them at lower prices. And the older folks who are selling them are often selling them at a loss, certainly of expectations if nothing else. Every transaction has two parties, right?

There is blame to go around on this and the boomers certainly bear their fair share. But I would hope that younger people don't fall for the Fiscal Scold propaganda that says we have to dismantle the safety net because the baby boomers ruined the economy. Keep in mind that if these cranks actually succeed in destroying the safety net, you youngsters are going to need that big house you thought you could never afford because your aging parents are going to be living in the basement. And you'll be changing their bedpans because medicare won't be worth a damn either. It's in every American's long and short term self-interest to make sure the safety net is strong.


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