From the December 2013 issue of Research Magazine • Subscribe!

November 25, 2013

The U.S. Economy Is Stuck in the Past

A backward-looking society underinvests in the future

Societies that abandon their elderly members are immoral; ones that invest in their old while neglecting their young have no future. Our one man/one vote democracy, combined with demographic trends, threatens to make the United States a backward-looking society and an unproductive economy.

Some 15 years ago, I wrote an op-ed for The New York Times debating a paradox at the heart of our electoral system. Many of the seniors taking part in today’s elections will not live long enough to see the politicians they vote into office serve out their full term—not just their senators and presidents, but their congressmen, too.

On the other hand, children who are not allowed to vote will end up governed by politicians they didn’t elect and living with polices they had no hand in choosing. A kid who was four years old in 1980, when Ronald Reagan became President, and 16 when Bill Clinton was voted in, is now a 37-year-old adult whose life is, to a large extent, regulated by a Supreme Court majority appointed during his lifetime by presidents he had not elected.

Family Vote

While we all come into the world that has been shaped by previous generations, the demographic makeup of today’s electorate is becoming skewed. Average life expectancy is at a historic high and continues to go up. Older Americans increase in number, acquiring greater and greater influence in our electoral system, which gives one vote to every adult citizen and none to the children. The demographic imbalance was adjusted in 1971, when the 26th Amendment lowered the voting age to 18 from 21, but the process has continued over the past 40 years.

The imbalance is exacerbated by the life stage of the huge baby boom generation. Retiring boomers will swell the number of retirees over the next decade and a half. Nearly 80 million Americans born in the 1946-64 period will retire by 2030. If recent trends in life expectancy continue, two decades from now there may be well over 100 million retirees, more than a quarter of the projected population and close to half of eligible voters.

This huge group will have a strong incentive to use its voting muscle to influence government policy. The average boomer, a study by Well Fargo found, has about $29,000 in retirement savings. This translates into a $190 per month, assuming a 5% rate of return and life expectancy of 84 years. Both assumptions are unrealistic, since interest rates are at zero and the actuaries are already projecting that boomers in their mid-fifties will live until the age of 94. Most boomers, even the ones with substantial savings, will likely outlast their money.

In my article, I suggested giving parents or guardians one extra vote for every one of their children. Perhaps while casting a ballot on behalf of the new generation, they would give a bit more thought to the kind of world those children would inherit.

Backward Focus

A decade and a half later, we have a country that seems to run largely for the benefit of its senior citizens—and at the expense of today’s children, younger adults and future generations. True, we hear a lot about a relentless assault on Social Security, but those purported assailants have nothing to show for their efforts. Social Security—known as the “third rail of American politics” because politicians who dare touch it risk incinerating their political careers—is one of the very few social programs to avoid the knife in recent decades. Medicare, for its part, expanded massively with the Bush administration’s introduction of the prescription drug benefit, which is estimated to cost the taxpayer $727.3 billion through 2018.

Meanwhile, our younger citizens have not been so lucky. Poverty rates for children are currently nearing modern-age records. While some 15% of Americans lived in poverty last year, almost 22% of children were poor, or 16 million. Poor kids now make up 5% of America’s population. Meanwhile, fewer than 4 million of retired Americans are poor, or 9%. Since the early 1960s, the elderly have seen their poverty rate decline steadily from almost 30% to record lows today.

While about 15 million retirees are saved from poverty by their Social Security incomes, programs that benefit children have been slashed, some substantially. For example, when in 1996 federal Aid to Families with Dependent Children was replaced by Temporary Assistance to Needy Families, it provided $20.6 billion in benefits. By 2011, this figure had been cut by more than half—even though there are now many more needy families—and only about a third of the money is distributed as cash.

Budget cuts that kicked in earlier this year sequestered 5% of the $8 billion budget for Head Start, dropping 57,000 kids from this educational program. As budgetary battles are waged in Washington, further cuts loom. They seem to fall disproportionately on the shoulders of our youngest citizens.

Opposition to the Affordable Care Act is Exhibit One of our backward-looking society. Some 7 million children currently have no health insurance, but that is only a small aspect of the generational confrontation. Of the 47 million uninsured Americans there are no citizens over 65, since they are covered by Medicare, regardless of their income levels.

Bankrupting the State

Consider runaway inflation in the cost of health care and education, which far outstrips the pace of price increases in the economy. Retirees are major consumers of health care, while young people under 30 are the most likely to be enrolled in schools. However, while the retirees are largely shielded from cost increases in health care—it is the government that bears their brunt—the more than tenfold increase in tuition costs over the past 30 years is saddling generation after generation of young people with massive debt at the start of their productive lives.

Some analysts fear that the student debt crisis will be the next debacle on the scale of the subprime mortgage crisis of 2008. Two-thirds of graduates of U.S. universities leave school with debts averaging some $26,000 per head. Total student loans measure $1.2 trillion.

The need to pay back debt shapes professional, personal and economic choices of recent graduates. Few of the best and brightest can afford to go into lower-paying public service. Crucial decisions such as getting married and starting a family may have to be delayed, with profound implications for the economy. Economists have suggested that student loans will affect the lives of the millennials (born early 1980s to 2000s) even into their own retirement.

While today’s kids and young people are already at a disadvantage, shouldering a disproportionate burden of budget cuts, high cost of education, underemployment, poor quality jobs, no medical coverage, etc., they are also being saddled with government debt, all $17 trillion of which they will be responsible for.

We have managed to create a remarkably wasteful system that looks into the past, putting an excessive emphasis on making the retirement of its older citizens comfortable. It is no doubt a good and highly moral thing to do, but if done at the expense of future generations of productive citizens and to the detriment of future economic growth, it becomes suicidal. Giving parents the right to vote on behalf of their kids may not be a panacea, but it would certainly be a major step to remedy the imbalance of generational power in the political arena.

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