Monday, November 14, 2011

Should the boomers get off scot-free?

Oftentimes in the presidential debates you’ll see politicians talking about trimming government spending while promising retirees that their social security payments, medicare, and other government-supplied largess will never be cut or compromised. These promises are made by politicians of all stripes as retirees generally have one of the highest voter turnouts of any age group. The pandering to this age group, like most pandering, is shameless because it essentially consists of trying to win votes by promising stuff. But, you say, don’t seniors need a little extra help cause they’re not working, and maybe even a discount at the movie theater? Well, no.

Once upon a time, before social security was around, there were a striking number of seniors living in poverty (yes, despite the formerly ubiquitous pensions of yesteryear). See the chart above. As the chart also shows, the poverty rate has plunged for those over 65. The Pew Research Center recently published a study which compares wealth levels among different age groups and concludes that from 1984-2009 households headed by adults 65 and older saw their median net worth rise by 42%. In households headed by someone under 35, the median net worth had declined by 68% over the same period (notice the rising poverty rate in the chart). This results in the fact that older households have around 47 times more wealth than the median household in the youngest bracket. In 1984 this ratio was only 10. Pretty odd, no?

Surely some of this is the seniors’ good timing. They were able to take advantage of the stock market boom of the 80s and 90s and the bond market boom of the last 30 years. They also were more likely to enjoy the housing market gains make throughout the 2000s (as the young likely bought closer to the top). Current seniors also have their health care taken care of and don’t have to worry about skyrocketing tuition costs (two of the biggest burdens on the young). Surely, though, and this is related, the data reflect some of the consequences of the baby boomer mentality over the last few decades. On average, they consistently spent more than they earned and it worked out fine cause the economy provided palliative debt-fuelled growth. They pulled massive amounts of consumption forward in time, benefitted from the associated stock market gains, and have left the subsequent generation with not only the debt leftover from their party, but also an economy too sick to provide relief. Any presidential candidate who promises future social security cuts, while not asking current seniors to sacrifice, is doing so not out of fairness, but because they're pandering for votes. Don’t let politicians implement anything but shared sacrifice. Considering the gains they reaped and the mess they left, the older generation, if anything, should be asked to sacrifice more than the young.

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