Economist Article: The economic legacy left by the baby-boomers...

[cullennewsom]

The next crisis - Sponging boomers
The economic legacy left by the baby-boomers is leading to a battle between the generations
Sep 29th 2012 The next crisis: Sponging boomers | The Economist

ANOTHER economic mess looms on the horizon—one with a great wrinkled visage. The struggle to digest the swollen generation of ageing baby-boomers threatens to strangle economic growth. As the nature and scale of the problem become clear, a showdown between the generations may be inevitable.

After the end of the second world war births surged across the rich world. Britain, Germany and Japan all enjoyed a baby boom, although it peaked in different years. America’s was most pronounced. By 1964 individuals born after the war accounted for 41% of the total population, forming a generation large enough to exert its own political and economic gravity.

These boomers have lived a charmed life, easily topping previous generations in income earned at every age. The sheer heft of the generation created a demographic dividend: a rise in labour supply, reinforced by a surge in the number of working women. Social change favoured it too. Households became smaller, populated with more earners and fewer children. And boomers enjoyed the distinction of being among the best-educated of American generations at a time when the return on education was soaring.

Yet these gains were one-offs. Retirements will reverse the earlier labour-force surge, and younger generations cannot benefit from more women working. There is room to raise educational levels, but it is harder and less lucrative to improve the lot of disadvantaged students than to establish a university degree as the norm for good ones, as was the case after the war. In short, boomer income growth relied on a number of one-off gains.

Article continues at the Economist. This ought to be fun!

[Hatterasguy]

My generation is stuck with college debt and the national debt, so the baby boomers are on there own.

[Botnst]

Hey Hatt! Thanks for the ride! And thank your presumptive children, too. It's been fooking great!

[Jim B.]

Originally Posted by Hatterasguy

My generation is stuck with college debt and the national debt, so the baby boomers are on there own.

[cullennewsom]

We get to pick your nursing home Jim, Botnst!

[SwampYankee]

Originally Posted by Hatterasguy

My generation is stuck with college debt and the national debt, so the baby boomers are on there own.

Unfortunately not. Your generation, and my kids', are stuck with all of this mess since no one is Washington is interested in doing what it takes to fix it. Even talking about decreasing an increase in benefits is a surefire way to harm their chances at re-election, and that is Job #1.

Just look at the Murphy-McMahon battle here in CT. Each one of them feature snippets, undoubtedly out of context, that purport their opponent would reduce SS benefits and/or increase taxes on those of SS age. If the ads didn't work, they wouldn't be running them. IOW, don't expect any changes because each generation wants what was promised whether it was realistic or not.

Get ready to pull harder because my generation just doesn't have the numbers to support them so it's falling to you and the younger generations.

[Air&Road]

Originally Posted by SwampYankee

Unfortunately not. Your generation, and my kids', are stuck with all of this mess since no one is Washington is interested in doing what it takes to fix it. Even talking about decreasing an increase in benefits is a surefire way to harm their chances at re-election, and that is Job #1.

Just look at the Murphy-McMahon battle here in CT. Each one of them feature snippets, undoubtedly out of context, that purport their opponent would reduce SS benefits and/or increase taxes on those of SS age. If the ads didn't work, they wouldn't be running them. IOW, don't expect any changes because each generation wants what was promised whether it was realistic or not.

Get ready to pull harder because my generation just doesn't have the numbers to support them so it's falling to you and the younger generations.

For the younger people, you don't have to worry about supporting ME. I will draw the Social Security that I paid for myself. Additionally I have paid LOTS of money over the years in taxes above and beyond my SS withholding. Anything I get beyond that in my retirement years I will pay for from my own savings or the sale of my property and holdings if necessary.

MOST people who will draw SS have paid into the program and will be paid an amount determined by how much they paid in.

Okay, all that said, for the most part it is not the senior citizens that the younger people will be paying for. It is the mounting debt that has for the most part been entered into to buy votes for the politicians from many different groups that are standing there with their hands held out saying "gimme."

[barry12345]

Since I was born in 1942 leaves me a little ahead of that pack. The truth unfortunatly is the way the system works is baby boomers represent too large of a voting block for any powers that are or wanna be to ignore.

The rest just have to pay in one form or another. I did not create the situation it is just the way it is. I also suspect the boomers took far too much out of the system. Or there was an absolute lack of proper planning by governments during their prime period.

The only thing certain to me is that the load is there and growing. Younger people are right to question what cost to them it will represent. Not that they will be able to do much about it. If anyone thinks medical cost are high now just hang on to your wallet. They could double with no proper intervention. Todays policies are just fingers stuck into a leaky dam at best.

[SwampYankee]

Originally Posted by Air&Road

For the younger people, you don't have to worry about supporting ME. I will draw the Social Security that I paid for myself. Additionally I have paid LOTS of money over the years in taxes above and beyond my SS withholding. Anything I get beyond that in my retirement years I will pay for from my own savings or the sale of my property and holdings if necessary.

MOST people who will draw SS have paid into the program and will be paid an amount determined by how much they paid in.

Okay, all that said, for the most part it is not the senior citizens that the younger people will be paying for. It is the mounting debt that has for the most part been entered into to buy votes for the politicians from many different groups that are standing there with their hands held out saying "gimme."

SS isn't the only thing, there's gonna be a whole lotta paying for going on!

I'm going with the assumption that there won't be any SS benefits for me. Worst case scenario I've covered myself financially, best case scenario I get back some of that money I put it. There won't be any drastic measures, needed or not, since that wouldn't be politically expedient.

[barry12345]

Originally Posted by Air&Road

For the younger people, you don't have to worry about supporting ME. I will draw the Social Security that I paid for myself. Additionally I have paid LOTS of money over the years in taxes above and beyond my SS withholding. Anything I get beyond that in my retirement years I will pay for from my own savings or the sale of my property and holdings if necessary.

MOST people who will draw SS have paid into the program and will be paid an amount determined by how much they paid in.

Okay, all that said, for the most part it is not the senior citizens that the younger people will be paying for. It is the mounting debt that has for the most part been entered into to buy votes for the politicians from many different groups that are standing there with their hands held out saying "gimme."

I do not think even proper lip service was paid to the expected increasing lifespan of that age group. This alone may mean a third larger payout than originally projected. Add to this todays unknown then cost of medacine factored in and growing. Still it could have been projected as unafordable if most of the control was left in private hands as it seems the intent still is.

The amount of programs like medicare will have to grow dollarwise will be indeed impressive. If the medical system cannot really be rationalised. The economy will be either extremely inflationary or partially collapsed as the medical costs cannot be allowed to become 20-25 percent of GDP and the economy normal.

The governments have not acted responsibly in this area. Especially in the states. You can only allow so many rat holes to exist. At best the average american should be looking at seriously increased levels of taxation in many forms. The alternatives to not doing that are far worse. People may have paid for social security but where is the money today? Especially if the deficit is factored in. The answer from a political perspective has been the times ahead will pay for it. Or kick the ball ahead.

Really it all comes down to governments being responsible and taking responsible measures. Especially in long as well as short term planning when in power. This may be the iceburg that the Ameican economy hits. The money will have to be raised when needed by whatever method is required. The option of non payment just has too many serious isues to even contemplate it occuring. It could also be the final straw that breaks the camels back.

Actually even today at much reduced levels to what will be it may still be currently troublesome. An increasing number of canadians are now finding that they cannot afford to retire. More of them every year in fact. This is a direct problem created by faulty planning or no planning at governments hands. The pensions that allowed retirement do not pay the cost of living in todays economy with its inflating dollar costs on too many things. The government creates inflation by poor planning and application.

[barry12345]

Originally Posted by SwampYankee

SS isn't the only thing, there's gonna be a whole lotta paying for going on!

I'm going with the assumption that there won't be any SS benefits for me. Worst case scenario I've covered myself financially, best case scenario I get back some of that money I put it. There won't be any drastic measures, needed or not, since that wouldn't be politically expedient.

It is reasonable to assume the government will hold there end of that contract up. The question is will the reduced buying power of those dollars be worth a dam.

As mentioned in another thread of mine more and more canadians are finding that the cannot afford to retire on todays pension rights and benifits. Inflation is the cause of this in my opinion. If you meaningfully index pensions to the real rates of inflation they are unafordable from a government perspective. Indexed to the official rate of inflation means that dollarwise the pensions are and have been shrinking for quite some time now and that curve should increase as a result of other things currently going on.

[Air&Road]

You make some very good points Barry!

Everyone SHOULD understand that a balanced budget is necessary for individuals, businesses AND the government. Continually spending massive amounts of borrowed money is not a movie with a pleasant ending.

At this point, it is mathematically impossible to raise taxes without cutting spending and expecting to solve the problem.

The quandary we're in, has several poison pills involved. If we raise taxes on those who have money to invest we will stifle the growth. Cutting taxes on these people is not feasible either. Once the people and businesses with money on the sidelines are comfortable investing it, THEN and ONLY then can we see things boom again. Once they boom, then there will be more money to take the tax slice out of and will increase tax revenue. It is OBVIOUS that these investors are not comfortable investing while B.O. is at the helm.

What Ryan was TRYING to point out last night before being so RUDELY interrupted by asking him if he was Jack Kennedy now, was that both Kennedy AND Reagan PROVED, that cutting taxes could INCREASE tax revenue. That said, I do understand, that the situation today is MUCH different than what it was in either Kennedy or Reagans time. Even so, RAISING taxes on the wealthy is a sure fire way to kill the economy for good.

It's a Catch 22: You raise taxes and you stifle any chance for economic growth. At the same time, the government NEEDS revenue. Since niether of those are viable alternatives what does that leave? Very simple! CUT SPENDING!

This is NOT difficult to figure out. If you're not bringing in as much money as before and there's no way to DO so, your only alternative is to CUT SPENDING!

Romney put forth the obvious smell test for determining what should be funded by the government. Each item needs to be examined and the question asked: "Do we want to do this with BORROWED money.

If you lost your job, or got a severe paycut, would you go out and borrow money to buy a new car when you don't even have enough to pay your current bills? I think that most people have enough grasp of their own reality to answer NO to that question.

[Air&Road]

Originally Posted by barry12345

It is reasonable to assume the government will hold there end of that contract up. The question is will the reduced buying power of those dollars be worth a dam.

As mentioned in another thread of mine more and more canadians are finding that the cannot afford to retire on todays pension rights and benifits. Inflation is the cause of this in my opinion. If you meaningfully index pensions to the real rates of inflation they are unafordable from a government perspective. Indexed to the official rate of inflation means that dollarwise the pensions are and have been shrinking for quite some time now and that curve should increase as a result of other things currently going on.

MORE very good points Barry!

To me, it seems quite obvious that SS money and the other money I have slated for retirement could very easily and in all likelihood WILL be seriously eroded, if not virtually eliminated by inflation. That's why I feel it important to have a good supply of diesel fuel on hand. Working a large garden with diesel for the tractor would be a MUCH easier life than doing it with a hoe.

Retirement is a relatively new thing for most of society. In centuries past, it was something that didn't happen. As people got older and less vibrant, they maybe changed to duties requiring less energy and strength, but they didn't retire. In the farm setting, it meant that when grandpa couldn't work the fields any more, the younger ones took on that task and grandma did some less strenuous chores.

Although I have worked hard and saved hard, I personally am not convinced that I will have liesurely Sunset years.

[barry12345]

Depends on how the accumulated saved money is working for you. I always found my mother a little paranoid about others taking care of her money. She said it was not human nature to do so without them wanting some or all of it. They being the government and private investment houses etc I imagine. Manipulation has become the norm in our times.

As time goes by in the overall scheme of things she may have had a point. My feeling is unless accumulated capital is working well for you in some fashion. It's keeping other than a residual value it in the coming years might be questionable. Our partial solution is to keep income high in todays dollars for a so called retired couple. This has been more of another good coincidence thing rather than totally planned though to be fair. .

Reasonable returns on the open market with reasonable security may be harder today. I figure you really need a reliable 7 percent return to tread water currently on retained capital before taxes to keep pace. Certainly 2 to 4 percent is better than nothing but you are deffinatly falling behind on that. Compounding brings it up somewhat though.

What bothers me a little is I will see things at a given time that obviously in my opinion have a good probable upside. Then when I act on them I do it in too shallow a way. I try to justify it to myself as well at least I acted on it somewhat. Technically it could have either not happened of even reversed on what my thoughts were probably is what inhibits us. Getting on board or averageing in is also okay but you miss the high initial gains. Also we tend to shy away from most of the stock market as valuations are too emotionally impacted. One has to always keep an eye open for any type of deflation on the horizon when acting as well. . Right at this time it seems to be slipping further and further away as a possibility.

[Air&Road]

Yes, the days of an easy 8 or 10%, low risk return are gone. It wouldn't be surprising if they never return in my lifetime.