I know that everyone hates baby boomers, including me, and I am a card carrying one. But social security is one issue where I have to stand up for my spoiled generation and say that we're getting a bum deal in this downturn and there are people out there trying to make it worse. If anyone has had it sweet, it was the Greatest Generation, not us, with huge pensions, massive government spending and a bunch of kids who made sure that social security was well funded and fat during their golden years. I don't begrudge it to them, they deserve it. But everyone deserves to have a decent retirement and having at least a portion of it guaranteed in the form of social security is a necessity if you want people to spend their lives taking some risk in a dynamic, capitalist system.
Dean Baker sums it up perfectly:
Remember all those headlines about how the baby boom cohorts just lost several trillion dollars in home equity due to the collapse of the housing bubble and how they lost trillions more in their retirement accounts as a result of the stock market crash? Most people probably don't remember those articles because most of the media have failed to notice the stories.
This should have been an easy one for the media to see. The people who take the biggest loss when home prices plummet will be the people who have equity to lose. This will mean mostly older workers or people who are already retired, since these are the people who will most likely have paid off much or all of their mortgage.
Similarly, the loss of stock wealth would have been concentrated among older workers and retirees. Few workers manage to accumulate any substantial stake in the stock market in their 20s or 30s. This means that loss when the stock market collapsed was almost entirely born by older workers and retirees.
Given the massive loss of wealth incurred by the baby boom cohorts that are nearing retirement, it would be reasonable to think that President Obama and Congress are trying to develop plans to ensure that they can still enjoy a secure retirement. In fact, the opposite appears to be the case. There are reports President Obama is considering establishing tasks to examine Social Security and Medicare with an eye toward making cuts in both programs.
However, there is one step that President Obama can take to boost the economy without going through Congress: He can reaffirm his support for Social Security and assure the baby boomers nearing retirement that he will not allow their benefits to be cut. If this huge cohort in their late 40s, 50s and early 60s knows that they can count on getting their promised benefits, they will feel more comfortable spending and supporting the economy at a time when it badly needs a boost.
Workers are likely to be especially fearful about the prospects of getting their Social Security benefits now, due to an all out assault on the program financed by billionaire banker Peter Peterson. Peterson has spent much of the last two decades trying to cut Social Security, Medicare, and other benefits for the elderly. He recently contributed a billion dollars to a foundation bearing his name that is primarily committed to this goal.
Peterson's investment has paid off both in exposure from the media and, more importantly, attention from many members of Congress and their staffers. There are now dozens of senators, members of Congress and staffers running all around Capitol Hill crafting creative new ways to cut Social Security. Baby boomers are right to fear that Peterson and his crew will take away their benefits.
The idea of taking away Social Security benefits from baby boomers was always outrageous. After all, this is a generation that has paid into Social Security at the current 12.4 percent tax rate for almost their entire working life and will be forced to wait until age 66 or even 67 to get full benefits. Their average returns are projected to be lower than the generations that follow and far lower than the generations that preceded them.
Even more importantly, because of the incompetence of Mr. Peterson's friends in the financial industry and the regulators and economists who could not see an $8 trillion housing bubble, the baby boom cohort has just experienced the largest loss of wealth of any age group in the history of the world. Much of the $8 trillion in lost housing bubble wealth belonged to the baby boomers, as did much of the $7 trillion in wealth lost in the stock market crash.
The loss to the baby boomers is a gain to younger generations. They will, on average, be able to buy up the housing stock for prices that are 30 to 40 percent lower than what they would have faced three years ago. They will be able to buy the wealth of corporate America at a discount of more than 40 percent.
If policy were responding to reality, then this massive redistribution from older generations to the young should cause the government to focus more attention on helping the elderly. But the agenda of Peter Peterson and his ilk never had anything to do with generational equity. The point was always to gut Social Security and Medicare. These programs stand out as key targets precisely because they are hugely effective and popular programs.
When I was young, I didn't believe social security would be there for me. After all Ronnie Reagan and all of his friends told me so, over and over again. And it made some sense. Our generation was so huge, forming such a bulge in the population, that it seemed impossible that younger people could shoulder the burden. But as it turned out, they upped the retirement age (I don't get benefits until I'm 67) and raised the payroll tax on us to create a "trust fund" (which they've been using for other purposes since then) and it's now comfortably funded until long after the boomers have shuffled off their mortal coils. But more importantly, it turns out that the population fall-off that was expected wasn't as steep as everyone feared. Why? Immigration. Guess what, you can bring in younger people from foreign lands, put them on the grid and they pay payroll taxes just like everyone else. It's not a bad deal for them --- or for us.
The boomers got a huge leg up in life from their parents, who lived most of their adult lives in a time of great American propserity. They did fight a war and many of them went through the depression. But those things happened when they were quite young and once that was over, they had very smooth sailing from then on, with a vast, growing economy, a government that was generous and many opportunities to remake themselves over and over again if they needed to. We boomers, on the other hand, had it easy in our youth, but things stagnated in our working years and now are starting to really fall apart for us as we get old. Perhaps it's just desserts for being embarrassing dirty hippies, but it is what it is. Now there is a huge cohort of ex (and current) hippies out there, having just suffered a huge hit to their retirement income. You can't kill em and they don't have time to earn it all back.
Nonetheless, boomers are still sitting on a vast pile of wealth that's badly needed to be put to work investing in this country. But it's shrinking dramatically and it's making people very nervous. As Baker writes, if one of the purposes of the stimulus is to restore some confidence in the future, then talk of fiddling with social security and medicare is extremely counterproductive. If they want to see the baby boomers put their remaining money in the mattress or bury in the back yard instead of prudently investing it, they'd better stop talking about "entitlement reform." This is a politically savvy generation and they know what that means.
If they perceive that social security is now on the menu, after losing vast amounts in real estate and stocks, you can bet those who still have a nestegg are going to start hoarding their savings and refusing to put it back into the economy. They'd be stupid not to.
Update: If you didn't get a chance to read this piece by James Galbraith at FDL this morning, make the time.