Reprinted with permission from the Center for Economic and Policy Research (March 30, 2012)
By Dean Baker
This could well have been the want-ad Esquire used to attract a writer for its story titled, “War Against Youth.” This lengthy piece is the best compendium of warped logic and misplaced facts on this topic since the Peter Peterson financed film, IOUSA.
The whole story is given away in the first paragraph:
“In 1984, American breadwinners who were sixty-five and over made ten times as much as those under thirty-five. The year Obama took office, older Americans made almost forty-seven times as much as the younger generation.”
That sounds really awful. Thankfully it is not true, as readers could find by looking at the chart that accompanies the article. This is a ratio of wealth not income.
This is a huge difference. Wealth adds up a household’s total assets. This means the value of their home, their 401(k) and other savings, their checking account and car. The calculation the n subtracts liabilities: mortgage debt, car loans, credit card debt, and student loans. This is very different from income, which for most people means their wages and for older people their Social Security.
If the writer, the editor, the fact checker or anyone at Esquire had a clue, they would have caught this mistaken first paragraph and killed the piece. As their chart shows, the median net worth for households over age 65 was $170,494. That merits repeating a couple more times. The median net worth for households over age 65 was $170,494. The median net worth for households over age 65 was $170,494.
Again, net worth refers to total assets minus liabilities. This means that if we add up the home equity of the typical household over age 65, their 401(k) and all other savings, the value of their car and any other possessions they might have, it comes to just over $170,000. This is a bit more than the price of the median home.
In other words, if the typical household over age 65 took all of their wealth, they would have enough money to pay off their mortgage. After that they would be entirely dependent for their living expenses on their Social Security benefit, which averages a bit more than $1,200 a month.
To take another comparison, the lifetime accumulation of wealth of the typical household over age 65 would be approximately equal to what the CEO of Goldman Sachs earns in two days. A top hedge fund manager, who makes $3-4 billion a year, can pocket this much money in ten minutes. Yet, Esquire tells us that it is the high living retirees getting by on their $1,200 a month Social Security checks who are responsible for the questionable future facing the young.
Even this comparison of net worth is misleading. It shows that the net worth of households over age 65 increased from $120,000 in 1983 to $170,000 in 2009. However these numbers do not include pension wealth. A household over age 65 in 1983 was far more likely to be receiving money from a defined benefit pension than a household today. The loss of pension wealth would offset much of this modest gain in wealth over the last quarter century.
Also, using the ratio of the wealth of households over age 65 to the wealth of households under age 35 is just a foolish exercise. Households under age 35 never had much wealth. Their 1983 median wealth of $11,500 was not going to carry them far in life. The fact that it fell to $3,660 is not of great consequence compared to their career opportunities.
This would be like saying that homeless people are in trouble because the median amount amount of money they had in their pockets fell from $1.20 to 60 cents. Just as the main factor that will determine the well-being of homeless people is not the amount of change in their pocket, the main factor that will determine the well-being of the young is not their wealth.
A 25-year-old Harvard MBA with $150,000 in student loan debt will do just fine. The relevant issue for young people is their career prospects. These will not be very good if the 1 percent continue to get most of the gains from economic growth.
But the first paragraph is just the beginning. This piece is a true cornucopia of bad logic and misinformation. It tells readers that:
“The biggest boondoggle of all is Social Security. The management of entitlement programs, already weighted heavily in favor of the older population, has a very specific terminal point that coincides neatly with the Boomers’ deaths. The 2011 report by the Social Security trustees estimates that, under its current administration, the fund will run out in 2036, so there’s just enough to get the oldest Boomers to age ninety.”
Social Security is projected to first face a shortfall in 2036, according to the Trustees projections (2038 according to the Congressional Budget Office), but it does not “run out in 2036,” even in the absurdly unlikely event that Congress never does anything to address the shortfall. (The share of beneficiaries in the voting population will be about 50 percent larger in 2036 than it is today. Any bets that Congress won’t pay full scheduled benefits?)
There will still be plenty of tax revenue being paid in 2037. This will be sufficient to pay about 80 percent of scheduled benefits. With benefits projected to be close to 40 percent higher (after adjusting for increases in the cost of living) in 2037, the payable benefit in 2037 would still be higher than what the typical retiree gets today.
Perhaps even more importantly, today’s beneficiaries paid for their benefits. The return on their payroll taxes is reasonable (@1-3 percent, after adjusting for inflation), but hardly excessive. This is why it is absurd that Esquire tells us that:
“According to a 2009 Brookings Institution study, ‘The United States spends 2.4 times as much on the elderly as on children, measured on a per capita basis, with the ratio rising to 7 to 1 if looking just at the federal budget.’”
Yes, using the Brookings Institution methodology the United States spends about 1000 times as much on billionaires as on children, measured on a per capita basis.
Figure it out yet? Billionaires own government bonds. The government pays them interest on these bonds. A billionaire like investment banker Peter Peterson might well get tens of millions of dollars a year in interest on these bonds. It’s true that Peter Peterson paid for these bonds, but the Brookings Institution and Esquire says this does not matter.
The next golden nugget of ignorance comes in the very next paragraph:
“But the government’s future ability to pay is decreasing rapidly precisely because the Boomers splurged so heavily during the Bush and Clinton years. Public debt per person in the United States currently stands at $33,777. George W. Bush inherited a public-debt-to-GDP ratio of 32.5 percent and brought it up to 54.1 percent during a period of economic growth.”
If the measure of splurging is the public debt, then Esquire is on the wrong planet here. The gross debt of the federal government was equal to 64.1 percent of GDP at the end of 1992. It had fallen to 57.3 percent of GDP by the end of 2000. How could they get something so simple so wrong?
Of course the debt is not a measure of intergenerational equity. At some point everyone alive today will be dead. The bonds that they hold will end up in the hands of the next generation. This means that the debt will be paid from some members of younger generations to other members of younger generations. There can be an issue of intra-generational equity, for example if Bill Gates’ children and grandchildren own all the debt, but there is no issue of inter-generational equity here.
What matters for inter-generational equity is the overall state of the economy and the physical and natural infrastructure that we hand down to future generations. By the first measure, we are doing quite well. Productivity is increasing at the rate of close to 2.5 percent annually. This means that after 30 years, the average worker will be producing more than twice as much in an hour of work as they do today. If this gain is relatively evenly shared (i.e. the distribution of income gets no worse), then the typical worker in 2041 will enjoy a standard of living that is close to twice as high as what workers today enjoy.
It’s true that if we ignore global warming then this may not be the case. Similarly, if the U.S. manages to antagonize the rest of the world with its foreign policy, people here may not be able to enjoy the fruits of productivity growth. But this will have nothing to do with the Social Security and Medicare benefits received by baby boomers.
There is way too much other nonsense to address in this post, but one item is too delicious to pass up. There is a box with the heading:
“How to disenfranchise a generation.”
The box then discusses the measures proposed by Republicans in many states to impose more restrictions on voting, most importantly requiring a government issued photo ID card to vote. Incredibly, Esquire tells readers that this rule is aimed at young people, as though they expect these measures to keep the children of Wall Street traders and Fortune 500 CEOs from having a vote.
In fact, these laws are quite obviously targeted at minorities of any age. The Republicans are not trying to keep their kids from voting. There are trying to keep the kids of African Americans and Hispanics from voting, as well as parents and grandparents. Does Esquire really not know this?
This article is a shameful effort to transform the realities of class war, where the wealthy have been rigging the rules to secure themselves most of the gains from economic growth, into a generational issue. The combination of ignorance and dishonesty in this piece is truly extraordinary.
Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. He is frequently cited in economics reporting in major media outlets, including the New York Times, Washington Post, CNN, CNBC, and National Public Radio. He writes a weekly column for the Guardian Unlimited (UK), the Huffington Post, TruthOut, and his blog, Beat the Press, features commentary on economic reporting. His analyses have appeared in many major publications, including the Atlantic Monthly, the Washington Post, the London Financial Times, and the New York Daily News. He received his Ph.D in economics from the University of Michigan.