Generational Theft

In my lifetime, we have witnessed the greatest intergenerational transfer of wealth ever seen. Seniors have benefited. Our youth have taken it on the chin.

Oddly, even so-called conservatives don’t seem to mind this massive redistribution of wealth. It enjoys broad support. The reasons are obvious; 1) older people vote at a higher rate than young people and 2) people (both voters and their elected representatives) tend to vote their self interest.

Hence, at least thus far, the Boomers and their parents’ generation are doing just fine, the recipients of massive transfers; the youth are massively in debt and on the hook for trillions of obligations owed to what I call the dying generations.

I’m not going to get into the numbers here. If you want to catch a glimpse of them, you can watch this video of renowned investor Stanley Druckenmiller (a former Pittsburgher so he must know what he’s talking about!).

But you shouldn’t have to be convinced. Just think for a moment of the massive transfers that take place in the form of Social Security (people take out far more than they pay in), Medicare, special benefits extended to seniors by state and local governments (e.g., real estate tax breaks) and the less visible countless tax breaks and subsidies that inured mainly to the benefit of the Boomer and their parents’ generations, both in earlier times (education in particular) and now as they age and die.

The result?

  • Massive unfunded public liabilities (pensions and entitlement programs), which eventually will fall on the shoulders of today’s younger generations (as well as those yet to be born).
  • Abandonment of many of our public school systems, for the sake of charter and private schools that are beyond the reach of the masses.
  • Massive defunding of higher education at the state level, resulting in nearly $1.4 trillion of student debt.
  • Less money for investment in our future (infrastructure, basic research, children, etc.).
  • Upward pressure on health care costs fostered, in part, by heavily subsidized aging consumers who aren’t forced to bear (for themselves or their generation) the cost of their decisions.
  • Possibly (likely in my opinion), a major financial crisis in the future when the nation’s cost of borrowing begins to reflect the actual debt of the obligors (unfunded liabilities are not reflected on the public balance sheets today, for purely political reasons).
  • Major future tax increases to pay for all of this (inevitable unless we attempt to dig out via extraordinarily high inflation), which will place an additional burden on our younger generations and further erode their standards of living and privileged position in the world.

It’s a car wreak in the making and, instead of intervening and trying to avert the crash, everyone’s headed to the hilltop to catch the best view.

So, Vera, apparently the best I can do is apologize, on behalf of myself and my and my parents’ generations. I’m sorry. I’m sorry for leaving this fiscal mess for you and your parents’ generations.

It’s not that we can’t do anything about it. Rather, it’s that we won’t.

In the best of times, this would be a tough political nut to crack. In the worst of times, it’s an impossible challenge.

We’re in the worst of times politically. We can’t even agree on simple stuff. The odds of agreeing on fixes to this mess are negligible.

Of course, some of the younger folk, including perhaps even you and your parents, will be O.K., because some will come into nice inheritances from the privileged generations (mine and my parents’). This article estimates the amount at $30 trillion. That should help offset the higher taxes that are coming and the other unfavorable financial consequences of our recklessness.

But the ones without rich parents or grandparents will draw the shortest straw. They’ll be the ones carrying the heaviest load with less capacity and opportunity to handle it. Expect the lower class to grow over the next generation or so. And, no, President Trump isn’t going to make it all right. In fact, he’s likely to make it worse.

The one unknown in forecasting the future and our reaction to this obscene imbalance is politics. We’ve already witnessed the unimaginable with the election of Donald Trump. If things get worse, what will transpire politically?

It’s impossible to know, but one can’t discount the possibility of political earthquakes that make the current chaos look like child’s play — which means, perhaps, those who can afford it should always have an exit plan in mind.

Interestingly, quite a few of the wealthy do. Some have bought escape estates in New Zealand and other out-of-the-way places. I think you’ll find that more of the rich start thinking about it now.

That’s a last resort, of course. But one should never go through life with blinders on. Being a Pollyanna is a risky way of living.

There are fixes to all of this. It’s never too late to deal with it. On the other hand, there can be no assurance that we will deal with it, that is, until we have to. And that day will come. We can’t stop it. How it will unfold is anyone’s guess. But it won’t be pretty.

If only we could come together as a society and address these problems when they’re manageable. If only. Yet the modern-day extreme polarization of politics, which began with Newt Gingrich and accelerated under the auspices of the right wing of the Republican Party, all but guaranteed our inability to come together on most things.

We reap what we sow. And what we have sowed isn’t good.

So the ablest and most fortunate among us will take steps to minimize the damage to them individually and, indeed, the savviest within that group may even find ways to profit from others’ misfortune.

We reap what we sow.

In the meantime, I hope for a shift in the political winds, and the appearance of wiser, more worthy leaders. And for a citizenry that comes to understand what it takes to run a country, and stops electing small people to office — people who are good at destruction but clueless when it comes to building and fixing. I hope that this insane age of ideology and irrationality will be supplanted by one of reason, optimism and a can-do spirit.

Pollyannish? Probably. But sometimes hope is the best we have. Failing that, all I can do is say, I’m sorry.

 

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