Monday, September 17, 2012

Young vs. Old: Class Warfare?

A number of articles have appeared recently that focus on the relative wealth of retirement age citizens compared to the apparent lack of wealth in younger people. This difference is projected to continue growing and cause discontent between the two groups as youth must sacrifice in order to transfer their wealth upwards to satisfy the demands of the smug and comfortable elderly. There could be an interesting story to tell here, but those who insist on telling it seem more intent on conjuring up scenarios that support political or economic beliefs than interpreting any hard data.

A good example of the politically motivated conclusion is provided in an article by Robert J. Samuelson in the Wilson Quarterly: The Withering of the Affluent Society. Samuelson makes this claim:

"As it is, the generations are in an undeclared war. Americans in their late forties, fifties, and sixties believe that the contract made with them should be kept. They want their Social Security and Medicare benefits. They are angry when what they thought were career jobs are unexpectedly terminated; corporate buyouts and firings weren’t part of the bargain. Meanwhile, their children and grandchildren are befuddled and frustrated. Their unemployment rates are high, and their wage levels—compared to those of the past—are low. Yet they feel guilty advocating trims to Social Security and Medicare, even when the transfers go from the struggling young to the comfortable old."

The term "war" seems a bit extreme given the content of that paragraph. Is there any data presented to support his assumption? No. Perhaps he is just guessing, but one suspects that he wishes to use the notion of conflict between generations as a means to convince people to take actions that would be consistent with his political and economic philosophy. Our youth are trotted out as props to use in the conservatives’ arguments that we must cut social benefits.

Consider some of his other statements.

"Even assuming a full recovery from the Great Recession—possible, though not certain—the resulting prosperity will be qualified by greater competition for scarce economic resources. Massive federal budget deficits are only the most conspicuous sign of a society that has promised itself more than it can afford."

"The future of today’s young has been heavily mortgaged. The grimmest prospect is a death spiral for the welfare state. That could happen if we continue to pay for promised benefits by increasing taxes or deficits, further retarding economic growth and thus spurring still more tax and deficit increases to sustain benefits."

Samuelson makes valid but arguable points about our economic condition, but where is this intergenerational war?

David Leonhardt injects cultural differences between young and old in an article in the New York Times: Old vs. Young. He indicates that of all the things that divide our society into segments, there is one that has not received sufficient attention.

"But you can make a strong case that one dividing line has actually received too little attention. It’s the line between young and old."

"Draw it at the age of 65, 50 or 40. Wherever the line is, the people on either side of it end up looking very different, both economically and politically."

"Throughout the 1980s and ’90s, younger and older adults voted in largely similar ways with a majority of each supporting the winner in every presidential election. Sometime around 2004, though, older voters began moving right, while younger voters shifted left. This year, polls suggest that Mitt Romney will win in a landslide among the over-65 crowd and that President Obama will do likewise among those under 40."

Leonhardt refers to exit poll data from presidential elections to indicate differences in the voting pattern of young and old. The data really only supports a distinctive difference in the 2008 election. That is one data point—two if one anticipates the 2012 results. But does this polarization by age indicate some fundamental shift in attitudes by young and old, or is it merely a response to the shift to the right by the Republican Party and a greater emphasis on controversial "values."

Nevertheless, the term "war" must arise.

"If there is a theme unifying these economic and political trends, in fact, it is that the young are generally losing out to the old. On a different subject, Warren E. Buffett, 81, has joked that there really is a class war in this country — and that his class is winning it. He could say the same about a generational war."

Both authors discuss the growing gap in wealth between young and old. CNN provides us with some data in an article titled Older Americans are 47 times richer than the young. This graph is provided:

Thankfully, the attempt is made to explain this data rather than turn it into a political axe.

"Perhaps the biggest factor leading to the wealth gap between the ages though, is the housing market, the Pew Center said."

"While rising home equity helped drive wealth gains for the older generation over the long-term, younger people had less time to ride out the housing market's volatility -- especially its most recent boom and bust."

Most of the wealth that is possessed by the senior citizens consists of their home equity—if they own a home. That is not something that they took away from the young. Most depend heavily on Social Security checks just to get by. That is not indicative of a smug generation greedily guarding their pot of gold. The conservative voting pattern of the elderly can easily be explained by fear of losing what little they have.

The gap between old and young has also been exacerbated by changing economic factors faced by the young.

"Whether by choice or due to the weak economy, today's young people are getting their independent lives started later in nearly all respects, taking out more debt, living with parents longer and putting off key milestones like employment, marriage and home ownership longer."

The young are having a harder time getting started. Education is more expensive, it takes longer to complete, and jobs are harder to find. Are these the fault of the elderly? Remember, the elderly are the parents and grandparents of these young people. Yes, those who help with the education costs and allow their children to live at home if necessary. It is hard to see those as conditions that would ignite warfare.

A refreshing counterpoint is found in a Businessweek article by Chris Farrell: Why Young and Old Americans Have More in Common Than You Think.

Farrell recognizes that this supposed intergenerational warfare is used to further political agendas. The supposedly disastrous future Social Security and Medicare expenses that will consume resources that could have been spent on the young are, in fact, manageable.

"Raising the current ceiling on the Social Security payroll tax from $110,000 to $250,000 would extend the date of trust fund exhaustion by some four decades, according to the Congressional Budget Office."

And as for Medicare, Farrell makes a point that has been made here many times before:

"The main factor behind long-term federal budget deficits, as well as state and local government fiscal pressures, is health care. Health-care reform is critical for everyone from the 27-year-old worker to the 65-year-old retiree on Medicare. The U. S. pays more than twice as much per person for health care as the average for other wealthy countries, and if America’s health care costs were comparable to costs in Germany, Canada or elsewhere, the U.S. would be looking at long-term budget surpluses, not deficits...."

And then there is this summary:

"What matters is that there is no good reason for pitting younger Americans against aging Americans in the pursuit of a more conservative fiscal path for the federal government. Plenty of alternatives are available to policy makers. ‘Young people aren’t blaming their grandparents for the bad economy,’ says Jill Quadagno, sociologist at Florida State University and senior policy adviser to President Clinton’s 1994 Bi-Partisan Commission on Entitlement and Tax Reform. ‘If anything, parents and grandparents are supporting their children and grandchildren’."

I couldn’t agree more.

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