Oct 6, 2012

Don't Blame the Baby Boomers for Everything

A perennially popular topic these days is blaming the Baby Boomers for screwing up the country. Here's the latest example:
Ultimately, members of my father’s generation—generally defined as those born between 1946 and 1964—are reaping more than they sowed. They graduated smack into one of the strongest economic expansions in American history. They needed less education to snag a decent-salaried job than their children do, and a college education cost them a small fraction of what it did for their children or will for their grandkids. One income was sufficient to get a family ahead economically. Marginal federal income-tax rates have fallen steadily, with rare exception, since boomers entered the labor force; government retirement benefits have proliferated. At nearly every point in their lives, these Americans chose to slough the costs of those tax cuts and spending hikes onto future generations.
The Dow Jones industrial average rose twelvefold from the time the first boomers began working until last year, when they began to cash out their retirement. (The growth trend over the 12 years since I entered the workforce suggests that the Dow will double exactly once before I retire.) They will leave the workforce far wealthier than their parents did, with even more government promises awaiting them. Boomers will be the first generation of retirees to fully enjoy the Medicare prescription-drug benefit; because Social Security payouts rise faster than price inflation, they will draw more-generous retirement benefits than their parents did, in real terms—at their children’s expense. The Urban Institute estimated last year that a couple retiring in 2011, having both earned average wages, will accrue about $200,000 more in Medicare and Social Security benefits over their lifetimes than they paid in taxes to support those programs.
Those retirees and near-retirees bequeath a shambles to their offspring. Young people are unemployed at historically high levels. Global competition is stronger than ever, but American institutions have not adapted to prepare new workers for its challenges. Boomers have run up incomes for the very wealthiest Americans, shrunk the middle class, and, via careless borrowing and reckless financial engineering, driven the economy into the worst recession in 80 years. The Pew Research Center reports that middle-class families today are 5 percent less wealthy than their parents were at the same point in their lives, after adjusting for inflation, even though families today are far more likely to include two wage earners. Another Pew report shows that those ages 55 to 64 are 10 percent wealthier today, even after the Great Recession, than Americans of that age bracket were in 1984. Those younger than 35 are 68 percent less wealthy than the same bracket was in 1984.
I of course wouldn't dispute any of those facts. The economy of the Bush years was horrible, and only the recent depression makes that time seem better. The American economy is a shambles. What I would dispute is the interpretation of these facts. Here's a chart decomposing the top 10% of earners from 1917-2008:

And here is labor's share of national income since 1940:

You can see in those graphs that there is a paradigm shift around the mid-70s and early 80s. The top one percent of earners' slice of income heads into the stratosphere (where it was before the New Deal and WWII), and labor's share of income is crushed into the dirt. What we're seeing now is the logical endpoint of those trends. It doesn't seem to matter who is president or who is in Congress; broadly speaking, for the last 40 years the stinking rich have been getting richer at the expense of the broad mass of society. This says to me that these forces are in a sense mechanical.

It's true that when the Boomers came of age, America was right in the middle of its greatest-ever economic boom. This is a direct result of the massive fiscal stimulus of WWII, the debt scrambling of the Great Depression, and highly regulated finance. For awhile everything went well, but eventually people forgot about the Depression, and bankers figured out again just how much money could be made standing astride the bloodstream of capitalism. The rich were eventually stripping so much money out of the economy that they choked off wage growth, which eroded consumer demand. Thus the rich started loaning to the middle class, which got weak, slow growth going, but led to a debt bubble and crisis.

Or, as Kevin Drum explains:
  1. Income inequality goes up.
  2. As a result, earnings of the middle class become sluggish....
  3. And earnings of the rich skyrocket, a trend reinforced by lower tax rates on both labor and capital income.
  4. Rich people eventually run out of sensible things to invest all this money in (because consumer demand is sluggish, see #2), so they get stupid.
  5. Stupid money finances stupid loans to middle-class borrowers who can't afford them (because their incomes are sluggish, see #2).
  6. This all works great until it doesn't. When it doesn't, the economy goes kablooey.
All this is to say that these things are not the fault of the Boomers in particular. They just happened to be in line for running the country when the underlying faults in the economy went kablooey. It's just as much the fault of the people who originally loosed the chains of finance back in the 70s, and in particular Paul Volcker, the man who more than any other broke the back of labor in the early 1980s. So cut the Boomers a little bit of slack.

(Of course, the flip side of this argument is the old people who feel entitled to complain about how young people are lazy and irresponsible these days need to put a fucking sock in it.)

No comments:

Post a Comment