by futurist Richard Worzel, C.F.A.
In 1998, former news anchor Tom Brokaw wrote a book called The Greatest Generation. In that book he said, ‘‘it is, I believe, the greatest generation any society has ever produced.’ He argued that these men and women fought not for fame and recognition, but because it was the ‘right thing to do.’’ [1]
In contrast, I believe that when history looks back on the baby boomers, we (for I’m one of them) will be labeled the greediest generation. We have systematically taken more out of our economy and society than we have put back, looting it for our comfort, convenience, and self-indulgence. And the day is fast approaching when we will be held responsible for the financial debacle ahead of us.
Of course, this is a broad generalization about an entire generation. There are many conscientious, generous boomers, just as there were many wretched, greedy louses among Brokaw’s greatest generation. And this is not to imply that other generations are or were angelic in comparison to the boomers, because that’s not true, either. Nor am I trying to say that the boomers had everything easy. We are called the Sandwich Generation for a reason, because we’ve found ourselves serving, and in many cases, supporting our parents, our children, and even our grandchildren. That has not been easy, and it has required real sacrifices from us to do it.
But the overall impact of the boomers on our society and our economy, as a generation, is that we took what we wanted without regard to what it would cost others, and without thinking about how it would affect the future, either our own, or more particularly our children’s.
My assertion will infuriate many boomers, and I will undoubtedly get nasty messages from people who will cite all the wonderful, selfless things that they or we have done, or how we had no choice but to do what we did. None of that changes the macro-effects of the way we have lived our lives. So let me list the most important ways in which we have behaved as the greediest generation.
Public Pensions
The Social Security System in the United States is a ticking time bomb, underfunded, and overly generous. This is not entirely the fault of the boomers, because it was underfunded from the start, and the generations before the boomers, including those who are retired and still alive, have demanded this level of benefits. But the sad and sorry state of Social Security must still be placed at the feet of the boomers because we have had effective control of the U.S. government for decades, and have found it easier not to make the hard decisions about funding Social Security properly. The last time this issue was seriously tackled was back in 1983, when a Senate committee led by Daniel Patrick Moynihan curtailed benefits, and raised entitlement ages. Nothing substantive has been done since then, despite clear evidence that we needed to act.
As a result, the Public Trustees of the Social Security Administration, who are responsible for its management, said in the most recent report that ‘those now entering the Social Security system as workers will contribute more in taxes (in present value) than they receive in benefits under current schedules’. [2] In other words, the boomers will collect more than they paid in, yet a worker starting today will collect less than they pay in.
But what’s worse, and indicative of how the boomers have managed things, is what happened to the money collected by the Social Security Administration (‘SSA’) intended to (partially) fund Social Security pensions. In theory, it has been invested in U.S. Treasury bonds and bills, backed by the full faith and credit of the U.S. government. In practice, though, all of this money has been spent by Congress, and the SSA has been left with worthless IOU’s.
Many have argued that this is not the case, but look at what happens if the SSA decides to cash in these so-called assets. To redeem these IOU’s, the government would have to: 1) raise taxes; 2) cut spending; or 3) borrow an equivalent amount of money on the open market at a time when U.S. government debt is at the highest peacetime level in history. None of these is politically or financially feasible, but eventually either choice 1 or 2 will have to be made. The open markets would not accept an additional $28 trillion [3] of debt borrowing in the open markets on top of America’s current deficit financing.
If, instead, that money had been invested in outside securities that could be sold to help fund Social Security, the SSA would now be in a much better financial position. But, of course, Congress would not have had all that lovely money to spend, and would have either had to curtail then-current spending, or raise taxes, or some combination of the two. This is typical of the kinds of decisions that boomers have made: spend money on what we want right now, and to hell with the consequences later.
In comparison, the Canada Pension Plan, which was established in 1965 by the government of Canada, was headed down the same path as the SSA until 1996. The monies collected from payroll taxes (called contributions) were handed to the provincial governments in exchange for their worthless IOU’s, which could never be successfully cashed because it would have created a financial and political crisis. Fortunately, in 1996 the Chief Actuary of Canada reported that the Plan could not be sustained as it was. Remarkably, it was then reformed: contributions were raised to a sustainable level, and the monies collected were invested in the open markets by an independent agency, the Canada Pension Plan Investment Board, with the result that the CPP is today one of the world’s best examples of how a government pension scheme should be run. A public pension can be run responsibly. The boomers chose not to do that with Social Security.
Civil Servant Benefits
What do you do if the people you hire want more money, but you don’t want to pay them? You promise them big pensions and retirement benefits at some distant, later date. That, at any rate, is what the boomers have done across most jurisdictions in North America, including Canada, for the past 30-40 years. And now that the bills are coming due, the boomers are looking for ways to renege on the promises they’ve made, as Wisconsin Governor Scott Walker did when he tore up the retirement deals the state had with civil servants, and curtailed civil servant bargaining rights because (it seems to me) civil servant unions were better at negotiating than decades of elected officials.
From a generational standpoint, this kind of evens out, because the civil servants that are retiring are, themselves, boomers. Yet, the fact remains that the boomers, as a generation, made promises that they knew (or should have known) could not be kept. Now the people who made those promises are long gone from office, or at the very least, approaching retirement. They may be reviled for the choices they made, but they won’t be the ones that have to face the music, and they won’t be the working stiffs that have to pay the majority of the taxes to pay for promises made by the boomers.
How big are these promises, and how much will they cost? No one knows, but they easily run into the trillions of dollars. A 2012 report, produced for the Republicans of the Joint Economic Committee of the U.S. Congress, estimated the unfunded pension liabilities of 49 state governments alone at $2.8 trillion dollars.[4] This doesn’t include liabilities for municipal governments, for health care benefits for retirees, nor for the civil servants of the U.S. federal government. A 2012 study by Harvard University [5] said that estimates of unfunded public liabilities could range as high as $4.4 trillion. Whatever the (unknown) truth is, the amounts are staggering, especially as they are in addition to other explicit and implicit liabilities.
Health Care
Everyone’s greedy when it comes to health care, not just the boomers. Indeed, the defining question everyone wants answered (but no one wants to ask) is: ‘How can I get someone else to pay for my healthcare?’ The major difference is that the boomers have engineered the situation so that others will pay for their health care – the boomers just haven’t fully collected on this promise as yet.
By my estimates, the annual cost of health care, per person, by age, remains reasonably steady (with some noticeable blips, as for men at around age 40) until around age 55, at which point health care costs start going up almost exponentially. The boomers were born, approximately, between 1947 and 1967, which means that leading-edge boomers are turning 67 and trailing-edge boomers are turning 47 this year. Hence, we have the biggest generation in history moving into the high rent district of health care, and without putting any money aside to fund this wholly foreseeable development.
In America, this has been ameliorated somewhat by Obamacare, which sensibly (for an insurance scheme) includes the young and the healthy in the insurance pool. But the fact remains that health care costs are going to explode as the boomers age – and the boomers are OK with that, because they’re the ones that will collect. And, of course, we expect to be gone when it comes time for succeeding generations to collect on health care.
In Canada, the situation is distinctly worse because the birth rate in Canada is much lower than in the U.S., which means the burden on working people supporting the health care costs of aging boomers will be proportionately much higher than in America. Indeed, in a 2003 report by Peter S. Heller for the International Monetary Fund, Canada’s implicit net governmental debt load, counting unfunded and contingent liabilities, amounted to more than 3 ½ times Canada’s Gross Domestic Product (GDP), much of it due to the future costs of its health care system. Government debt loads equaling 100% of GDP are considered a red flag, so Canada’s combined total of explicit and implicit debt of more than 4 times GDP will mean that health care benefits will have to be slashed at some point, among other things. When that happens, count on boomers to strenuously object at the ballot box. And because the boomers vote, and younger generations haven’t yet started to band together for self-protection, it’s likely that the boomers will get their way – which means unaffordable health care could bankrupt Canada’s governments.
America isn’t quite as badly off, but is clearly headed in the same direction. It’s more a matter of degree than sustainability. Both health care systems will crash and burn. Canada’s will do so sooner, and more spectacularly.
Infrastructure
In 1990 the U.S. Department of Transport (‘DOT’) gave the I-35 Mississippi River Bridge, across the St. Anthony Falls in Minneapolis, Minnesota, a ‘deficient’ rating, citing significant corrosion. Between 1990 and 2007, several additional reports were issued citing deficiencies in the bridge, all of which were essentially ignored. Then, on August 1st, 2007, in the middle of the evening rush hour, the bridge collapsed, killing 13 people and injuring 145. This would be a tragedy caused by local mismanagement except that at the time it happened, the DOT had cited approximately 75,000 bridges in the United States as being deficient.
One bridge collapsing through neglect is a local problem, but having 75,000 others in the same risk category can only be attributed to a deliberate policy of neglect.
Canada is in much the same boat, with bridges and tunnels in Montreal collapsing or being reported as being under threat of collapse as the highest profile examples.
And it’s not just bridges and tunnels that have been neglected. The city of Toronto had, in the 1960s, a rapid transit system that regularly won awards for being the best in North America. Yet today Toronto’s traffic gridlock is rated as being among the worst in the developed world, even worse than that for New York City or Los Angeles. And a big part of the reason is, as various reports noted, that Toronto should have been investing in at least one kilometer of subway extension a year, but actually invested in only a tiny fraction of that.
Meanwhile, most cities in North America have underinvested in water and sewage systems for decades, and are now having to pony up big-time to repair ancient, leaking systems. And they have no choice; without water a city becomes a ghost town.
Infrastructure is probably the least sexy thing taxpayers are asked to pay for, but one of the most critical. Yet, repeatedly, in city after city, state after state, and province after province in North America, governments have elected to defer, postpone, and avoid infrastructure investments – until now, when the bills are coming due. When bridges start falling into rivers and onto other roads, when tunnels start collapsing due to inadequate inspection and repair, and water costs start skyrocketing due to large, unseen leaks below-ground, you have no choice but the pay the piper. The boomers are responsible for all of this, and more, yet we are trying to duck out, hoping to leave the bill for the generations that follow.
Taxes
I can hear the angry reply by boomers already: ‘It’s not my fault! No one asked me – blame those corrupt politicians! They did it!’
But as one commentator remarked centuries ago, we get the government we deserve. You can lay the blame on one government for slipshod management and deceptive accounting, but when governments of all political stripes, elected over decades, all make the same choices, you have to conclude that it is the voters who are to blame.
‘But we didn’t know!’ Not true: the boomers didn’t want to know – and did want unreasonably low taxes, and voted that way. Even today arguing against taxes is a good way for politicians at any level of government, and in every jurisdiction, to get elected, from Tea baggers in America to Mayor Rob Ford in Toronto. Ignoring the long-term good, or the long-term costs, and focusing on the immediate appeal of unsustainably low taxes, must ultimately be laid at the feet of the voters who elect politicians on low-tax platforms. And since the biggest voting block of the last 30 years and more has clearly been the boomers, the fault is ours. We did it, and we did it deliberately, not caring what the long-term costs would be, or who would bear those costs.
Climate Change
If there’s a place where short-term gain for long-term pain is evident, it’s climate change. For too long, we have doubted, scoffed at, and chosen to ignore the warnings of climatologists and geophysicists. And now that their warnings are clear enough, and blunt enough, and the results are obvious enough, that we can no longer ignore them, we are hiding behind excuses, either pretending we’re not at fault, or claiming poverty. ‘Climate changes all the time – it can’t be our fault!’ runs the excuses of the first. And ‘It’ll hurt economic growth’ runs the second. Both arguments are flawed and self-serving.
Bottom line: we are, once again, postponing meaningful action in hopes that someone else will foot the bill. Yet Mother Nature won’t be put off; she always gets paid.
Setting A Bad Example
But our culpability goes beyond just public policy and taxes, for our greedy ways have also set a bad example for other generations, with movie character Gordon Gecko being the clearest example with his declaration that ‘Greed is good.’ Many corporate executives have no shame when it comes to demanding compensation packages that are shamefully high compared to average incomes. In 1980, a typical American CEO’s pay was 42 times that of an average blue-collar worker’s pay. By 2010, it had exploded to 345 times blue-collar pay.[6] Were the CEOs of 2010 more than eight times better than the CEOs of 1980? No; they were just more than eight times greedier.
In 1914, Henry Ford said ‘There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.’ Can you imagine any major CEO saying that today? Neither can I.
And our bad habits don’t stop with CEOs. We talk on our cellphones in public places, annoying the people around us. We cut off other people in traffic, because we don’t care if it’s our turn or not, and text and phone while we drive, putting other people’s lives at risk. We bring young children to fancy restaurants, then don’t supervise them, ignoring how they annoy other diners. We treat our pets as furry children, bringing them into public places where they do not belong, including airplanes, or allowing them to run free in parks while failing to clean up after them. We are, in short, a selfish generation, and our parents – the ‘greatest generation’ – would be ashamed of us. But we are not ashamed of ourselves, which speaks volumes for just how steeped in bad behavior we have become.
Are we the only generation that has ever been greedy? No, but we have perfected the ways of being greedy, and of deflecting the blame, and we know no shame. We have shown the generations that follow us the how to do these things, which they are now mimicking. Our evil ways will lead to tears, both for us and for the generations that come after us.
It used to be that each generation sacrificed so that their children would have a better life. Instead, we have sacrificed our children – and their children – so that we can have a better life. They will not thank us for it.
We are the greediest generation. Look upon our works and wail.
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[1] Wikipedia entry on The Greatest Generation.
[2] http://www.ssa.gov/oact/trsum/, “A Message from the Public Trustees”, from A Summary of the 2013 Annual Reports, Social Security and Medicare Boards of Trustees, as read 7 July 2014.
[3] This is one estimate of the amount of “assets” held by the SSA that will have to be redeemed to keep its operations financed.
[4] Shackford, Scott; “$2.8 Trillion in Unfunded State Pension Debts: Congressional Republicans Look to Block Federal Bailout”, 27 Sept. 2012, http://reason.com/blog/2012/09/27/28-trillion-in-unfunded-state-pension-de
[5] Healey, Thomas, et al; “Underfunded Public Pensions in the United States: The Size of the Problem, the Obstacles to Reform and the Path Forward”, Harvard Kennedy School for Business & Government, http://www.hks.harvard.edu/centers/mrcbg/publications/fwp/2012-08
[6] AFL-CIO Executive PayWatch database, as cited by yahoo! Finance, http://finance.yahoo.com/blogs/daily-ticker/ceos-more-350-times-average-worker-afl-cio-144537573.html, viewed 7 July 2014.
© Copyright, IF Research, July 2014.
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