By James Bowden
The United States' political system is controlled by two major political parties, one generally politically liberal and one generally politically conservative. That is the way we think of the political policy-making process: the left and the right fight for enactment of their policies and, ever so rarely, compromise. Query: what if the actual conflict implicit in the U.S. political and policy-making process wasn't the conflict between right or left, or rural versus urban, or racial, or any of the main dichotomies that we use to try to make sense of policy making. Here's the surprise: the main conflict is really generational. Presented in customary bullet-point format for your perusal:
Why does the conflict of generations matter? Think of the impact on public policy, including tax policy, entitlements policy, public finance, education and fiscal policy, just to name a few, if the debate is cast in the contrast of decisions' impacts on different generations. The next decades are going to see important legal developments involving the enforcement of promises made to the public through entitlement programs, the protection of wealth, and innovations in mechanisms for the passive investment in wealth-generating assets. If attorneys can advise their clients and legislators from a perspective of the benefits and detriments to them and their constituents based on the disparate impacts on generations, long-term results are likely going to be better for clients and everyone in general. If not, someone is definitely getting hosed.
- The Wealth Gap. Forget the 1% versus the 99%. Even the fact that the top 1% of wage earners own more of the nation's financial wealth than the bottom 50%, or that in 2007 the top 1% of all income earners in the U.S. made 23.5% of all income, more than the entire bottom 50%. The starkest statistic is the difference between the change in wealth of the old and the new generations over the past several decades. Since 1984, older people have seen a 42% increase in their net wealth while their younger counterparts have experienced a 68% decrease. I sure hope they aren't planning to take it all with them.
- Debt and Taxes. For the past decade, tax increases have been the most-hated villain in Washington. Really, it goes back further than that. Since 1986, maximum marginal tax rates have been historically low, particularly compared to what the Greatest Generation paid. Over the same period, the U.S. debt has increased seven fold. The average baby boomer was between 22 and 40 in 1986; their prime income earning years have overlapped with an uninterrupted period of historically low taxation, over which period public debt exploded. Now the baby boomers are cashing out--the first of the baby boomers became eligible for Medicare and Social Security in 2011. They are retiring, and won't be paying in anymore. Guess who picks up the tab by default?
- The Fiscal Battle. We saw a battle over raising the debt ceiling this summer, and are facing sequestration if the “supercommittee” that resulted from the compromise fails to agree on cuts to federal spending in excess of $1 trillion. What is on the chopping block? The big losers are defense (which is a large employer of younger workers), education (which is supposed to provide the younger generation with opportunities), and spending on programs designed to reduce unemployment (which, as discussed below, effects the younger generation inordinately). What are the sacred cows? The spending items that are bringing the committee to loggerheads are entitlement programs like Social Security and Medicare (which benefit the older generation effectively exclusively) and the possibility of raising taxes (which, as discussed above, has the effect of benefiting the older generation).
- The Cost of Success. The saying goes that there are two kinds of good debt--debt the incurrence of which produces a positive net change in wealth. One is a mortgage and the other is student debt. The saying is getting pretty difficult to stand behind these days. Grad PLUS loans are not dischargeable in bankruptcy and guaranteed by the most credit-worthy institution in the world--the full faith and credit of the United States of America. They carry an interest rate of 8.5%. The interest rate on the last car I bought was 7.1%. That means that in 2007 a non-dischargeable, absolutely guaranteed debt carried an interest rate 140 basis points higher that a dischargeable loan secured by a depreciating asset which was likely underwater the moment it rolled off the car lot. Since then, it has gotten worse--most interest rates have dipped over the past few years, but student loan rates are fixed. A person's cost of capital for a fancy new car is lower than for an education, and the average indebtedness of a law school grad is $100,000, which buys a pretty fancy car. Or two. Or three. That is insanity.
- The Tyranny of High Expectations. Just like every generation [allegedly] works to pass a better world on to their children, each generation is expected to make good use of the benefits they receive from the generation that went before them. I never thought I would do this, but I am going to paraphrase Cracked.com: members of the young generation were told they needed to go to school and work hard so they didn't have to flip burgers. Now that the younger generation has gone to school and worked hard, the economy is feeble, the impact of unemployment inordinately falls on them (young adults age 20-24 have an unemployment rate of 14% compared to 9% for the population overall and 7% for people over 55), and they are being criticized as entitled for ... you guessed it: not wanting to flip burgers.