April 2, 2012

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The Old People are coming – and they won’t stop until they take up an increasingly large portion of America’s economic resources.

In “The War Against Youth,” a new piece for Esquire, Stephen Marche makes the case that the American economy offers “unaffordable Greek-style socialism for the old, virulently purified capitalism for the young.” The War versus The Olds has a zero-sum logic:

The federal government spends $480 billion on Medicare and $68 billion on education. Prescription drugs: $62 billion. Head Start: $8 billion. Across the board, the money flows not to helping the young grow up, but helping the old die comfortably.

Marche calls this “the predictable outcome of thirty years of economic and social policy that has been rigged to serve the comfort and largesse of the old at the expense of the young.” Judging by voter turnout, you could also call this democracy.

It’s true that young people’s prospects are disturbingly bleak. But youth is cheap, while heart transplants are expensive. And as Dean Baker explains, a lot of the substance of Marche’s article is simply false.

The Boomers-as-resource-sucking-vampires argument would be a lot more persuasive if there were great evidence of the “comfort and largesse” Marche says older Americans enjoy. Americans 65 and over suffer from the longest of long-term unemployment, older Americans still owe some $36 billion in student loans and pension funds are simultaneously becoming riskier while delivering lower returns.

Which is to say, ignore the warnings of a scourge of aging Boomers stealing away the hard-earned fruits of your youthful and vigorous labor. This isn’t the Hunger Games.

And on today’s links.

Congress just made it easier for startups to conceal accounting regularities from the public – WSJ

The entire global financial in one single, infinite run-on sentence – Housing Story
Americans 60 and older still owe $36 billion in student loans – WashPost

Your pension fund is now riskier, with lower returns – NYT

EU Mess
EU banks searching for novel ways to kick the can – including lending to bullfighting fans – WSJ

…earlier this year, a Seville bullfight company, Empresa Pagés, struck an unorthodox deal with its lender, Banca Civica, soon to be part of national giant Caixabank SA. The bank agreed to lend money to cash-strapped bullfight fans to help them buy season tickets, which cost several hundred euros apiece. Empresa Pagés gets the ticket revenue upfront. The fans generally need to repay the loans, with interest, within a year.

Related: Euro zone PMI tanks, unemployment hits 14-year high – FT Alphaville
Holders of Greek debt are still fighting a bond swap – WSJ

Rational Markets
We challenge you to make sense of these bizarre emergency room charges – LAT

Debbie Cassettari had outpatient foot surgery to remove a bone spur. She arrived at the surgery center at 8 a.m., left at 12:30 p.m., and the bill came to $37,000, not counting doctor fees. In recovery now from sticker shock, she’s waiting for her insurance company to do the tango with the clinic and figure out who owes what to whom.

Crisis Retro
AIG wants back in to the mortgage market – FT

The crisis-era $1.3 billion bond deal that’s haunting Goldman – Fortune
Goldman sells investment in company that owns a sex-trafficking site – Reuters

Dan Loeb creates an entire website dedicated to bashing Yahoo’s leadership – Value Yahoo

Ashton Kutcher to play Steve Jobs – Variety

Alternative Currencies
Traders are maybe, possibly buying Bitcons – Reuters

Big Brother Inc.
How playground casinos get you to gamble more – Wired

Old Timey
Charles Merrill wanted brokers to be called “service representatives” – Bloomberg

Don’t. Ever. Bet. Against. Bernanke – Market Montage
The most valuable committees in Congress – NPR

Reuters Opinion
The recession killed journalism – and saved it – Paul Smalera
The euro zone should beware the “F” word – Hugo Dixon
Politicians placing bets – David Cay Johnston
Manufacturing redux – Chrystia Freeland
The hope and beauty of an Iran stalemate – Ian Bremmer

Kickstart a meta-analysis of the question: Does aid work? – Kickstarter

Fourteen lawmakers voted against every single budget plan that was under consideration last week – The Hill

Judge says he never intended to imply that bloggers can’t be journalists – NYT

Mohamed El-Erian: Kim is a “second best” nominee – Project Syndicate


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There was a lot of hyperbole in the Esquire article, but I think a measure of truth (and I speak as a baby boomer). We should probably invest more in our youth than we do, although it’s not clear that would do anything but further enrich our universities, which largely refuse to adapt to changing times and needs. Perhaps the current education loan circumstances will ultimately force the change that our brightest minds refuse to embrace.

And it’s not some mass conspiracy of the boomers, as implied. Politicians have always known where their votes come from, and that particular state of affairs didn’t start with the boomers.

And the spending on seniors originated because of the poverty many faced fifty-plus years ago. Today most boomers facing retirement years have had ample information and opportunity to plan ahead, if they so choose.

Posted by Curmudgeon | Report as abusive

One of the changes that this article does not reflect is the change from defined benefit to defined contribution retirement plans.

The former were not counted as assets/wealth, the latter are.

So, the older get wealthier because they have gotten screwed on retirement.

Posted by Matthew_Saroff | Report as abusive

“The federal government spends $480 billion on Medicare and $68 billion on education”

As curmudgeon says, there’s a measure of truth in this article, but this particular comparison is a blatant attempt to mislead people. It compares federal spending on Medicare – a 100% federal program – with federal spending on education, which is mostly funded by state and local government.

The best data I can find show that total government spending on education (by all levels of government) totals $940 billion, of which $590 billion is pre-K through 12th grade. _spending_2012USrn_13rs1n_20#usgs302

The biggest underlying issue is retirement age relative to life expectancy. We’ve kept operating Social Security and Medicare with retirement ages that reflect a shorter life expectancy, and the result is that retirement accounts for a larger percent of people’s lives than was ever intended when establishing these programs. The result is that certain age cohorts are getting a tremendous return from these programs in terms of benefits received relative to taxes paid. In the long-run, that has to change, as future age groups pay off the accumulated deficit of these programs via higher taxes and/or lower benefits. I think that a large part of this change will be accomplished by pushing up retirement age to reflect increased life expectancy.

Posted by realist50 | Report as abusive

Dean Baker makes a pretty basic error of his own. In his own words..

“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.”

If it is bad for journalist to make such basic errors it is horrible for an economist to make such a basic error.

Posted by apeman1 | Report as abusive

What is the error to which you refer, apeman? Ignoring the pensions? (They still exist, though mostly in the public sector.) The assumption that the typical household lives in a median home? The suggestion that the net worth be put exclusively into the home rather than used to pay living expenses?

Posted by TFF | Report as abusive

Hey, TFF – the richest group in society (the elderly) is going to compel the poorest (the youth) to sacrifice their present and their future so we Boomers can maintain the self-indulgence that we have become (in our own minds) “entitled” to. Next thing one expects is you’ll be tossing about silly terms like “morality” and “ethics”.

OBTW: Does the term “justifiable homicide” strike any responsive cords?

Posted by MrRFox | Report as abusive

@MrRFox – As realist50 points out, SS and Medicare have to change, along with cultural expectations of the value of older people in the economic society. Government programs take a long time to change, although we’ve started to see some positive developments in that direction.

Even so, I’m not sure how to best invest in youth. I don’t think a massive investment in aid for education is the right way, until we can see some fundamental changes in the education system (both primary and higher) that better reflect the requirements of today and the future, and do so in a way that takes better advantage of today’s culture and technology. I don’t hold out hope that will happen soon.

Perhaps in health care and health education? But health care has many of the same institutional problems as education.

I don’t see any need to bandy about inflammatory words, as the Esquire feature does. The elderly as a group are the richest because they’ve had a lifetime of productive work to accumulate that wealth, in preparation for a less productive retirement. Many need SS and medicare to have a basic standard of living, and others use it to supplement a lifetime of restraint, as well as protect from catastrophe. The so-called war between these generations may well be ephemeral, due to a combination of present economic turmoil and a hidebound education system that doesn’t believe it needs to change in response to anything.

Posted by Curmudgeon | Report as abusive

@realist50, Your data is wrong.

It’s a convenient lie.

People look at life expectancy at birth, and go, “See how much longer we are living”.

If you look at life expectancy at birth, you get an increase of about 29 years. If you look at life expectancy at 29 years, you get 17 years.

If you look at life expectancy at 60, which is where the alleged problem is (if people die before this, the government “wins”, as they pay in and get no benefits) you get a 5 year delta, and most of that applies to the top 20% of earners. (see 4/25/expected-age-at-death-at-various-ag es/)

Basically the delta in life expectancy effecting the fiscal viability of those programs is 90% a lie, and the other 10% could be handled by removing the earnings cap on social security, and applying both SS and Medicare taxes to non wage remuneration like stock options for the 1%.

Posted by Matthew_Saroff | Report as abusive

@Matthew_Saroff, why are you focusing on life expectancy?

Medicare costs are up primarily because we have more available medical technologies than we had 30 years ago.

The Social Security model is unsustainable because of the slowdown in birth rate following the Baby Boomers. Pyramid schemes fail when their base stops expanding.

A five-year increase in life expectancy doesn’t help, but it isn’t the root of the problem.

Posted by TFF | Report as abusive

I did mention removing the earnings cap as well, and applying the taxes to non wage remuneration, which would largely fix the problem.

Of course, the cap, as well as non-wage remuneration means (by an overwhelming margin) rich people who earn out of/evade such taxes.

So the issue of the solvency of these programs is largely an artifact of income inequality.

BTW, if SCOTUS invalidates the mandate (I think that they will, and they will also invaldiate the conditions on Medicaid funding) and you go with Medicare for all, both the escalating cost of private insurance, and the funding of medicare get killed in one fell swoop.

Posted by Matthew_Saroff | Report as abusive

@Matthew_Saroff, when the Health Care Reform passed, I predicted that we would see fully nationalized health care within a decade. Killing the mandate will simply advance that by five years.

We are approaching the limits of what can be managed under the current system (in which the bulk of health care costs are placed on employers). This creates a variety of perverse incentives (and coverage gaps) in the system that the reform bill was meant to address. But the mandate was a key piece of that — and I agree it won’t (shouldn’t) pass muster.

Scrap the whole system and rebuild it on a different model.

Posted by TFF | Report as abusive

“Scrap the whole system and rebuild it on a different model.” (TFF, last above)

Aren’t we all avoiding the elephant in the drawing room? The US is spending North of 17% of GDP on health care right now, headed toward 25% – this is like double anywhere else in the world, isn’t it? SS we can fix – it’s just math. Health care is vastly larger and more difficult.

Forget about who pays for health care – it all comes from GDP in the end – how do we cut per capita spending on it in half? IMO, until we credibly address that question – we’re not even acknowledging that the elephant is in the room.

Posted by MrRFox | Report as abusive

@MrRFox, that’s exactly what I’m saying… The present model for health care is unnecessarily expensive and ultimately unsustainable. I don’t believe it CAN be fixed without overhauling the whole system.

Posted by TFF | Report as abusive


How embarrassing. After you asks those questions I went back a re-read what Dean said more carefully. For some reason (I blame being tired) I read him as arguing that the liability of the mortgage cancels out an individuals net worth. This is self evidently false.

But now that I am more awake, I see that he is just arguing that a house is all the net worth that the over 65 crowd really has. So really it was me that was the idiot.

I still don’t think the facts support that argument. Stereotypes not withstanding, the bulk of the over 65 in this country do not live in expensive Florida. Instead they live in aging rural America and in the aging industrial cities. Their average house value does not even approach the national average (100 grand for a nice three bedroom house an aging city near me at the height of the housing boom back in 2006/2007) in a neighborhood that is mostly old people). Moreover, a lot of the over 65 crowd has pensions. They only went away for the younger crowd.

But that is arguing over the interpretation of facts, not basic logic. Bottom line was that I made the big error, not Dean Baker.

Posted by apeman1 | Report as abusive

Ah, makes sense apeman! Thanks for the reply.

Posted by TFF | Report as abusive