USAGE

Future of Entitlements: Toward A Positive Perspective

 

Seedtime for the Aging of a Generation

One hot, humid evening in the college town of Lawrence, Kansas, I threw on some cut-off blue jeans, an old t-shirt covered with tear holes and some beat-up track shoes from my high school days. I charged out of my house with nary a care in the world and fell into a graceful jogging pace through the Victorian neighborhoods near the university. As the sun crept below the western horizon, thus darkening the tree-lined streets, reflected red lights blinked off the walls of the houses ahead of me.

Peering over my shoulder I saw a police car, and the officer gestured for me to stop running. A rotund middle-aged man exited the squad car and approached me with a disapproving glare. “What are you doing out here?” he demanded.

“Jogging.”

He furrowed his eyebrows. “Jogging? What are you running from?”

This was a time of extraordinary student disobedience on campus, and I’m sure part of this officer’s motivations to challenge me included my youthfulness, longer hair and swagger.

Scanning his massive girth, I thought for a moment and finally said, “Heart disease.”

This police officer could not have fathomed that someday soon he would drive through that same quaint neighborhood and see dozens of runners, men and women alike. He clearly did not believe in the longevity advantages of an aerobic fitness regimen, and he couldn’t have imagined the investment potential swirling around a little Seattle company known as Nike. He was mentally light years away from an intuitive insight that Baby Boomers were about to turn running into a faddish recreational pursuit. Fortunes were about to be made; jogging would soon become part of mainstream value consensus.

He didn’t understand my generation. The forces colliding 40+ years ago that I describe above are taking on a new form: a generation confronting the marginalizing forces committed to diminishing a generation in its aging while overlooking its constructive potential to transform society and commerce.

Elder Doom and Gloom

Some experts feel they have clear vision about what’s going to happen when Baby Boomers accept Social Security and Medicare en masse. Pundits predict a horrific fiscal meltdown and assume the future will bring declining economic viability, productivity and international standing. They hold to their views based on something new from "the dismal science" called generational accounting and imbue this mystical process with justifications that are inaccessible to all but a few.

I am not an economist, but I have been in the business world for over thirty years. My daily focus has been the competitive marketplace where companies vie for market share and profitable margins, where the forces of free-enterprise govern, where adversity begets new industries, and where competition creates innovation.

I have faith in the transformative powers of business and technology, adapted for and adopted by a generation. I have seen industries rise up against formidable obstacles, transform those obstacles into opportunities, and create entirely new paradigms. (Thus my film camera became digital without losing any of the visual information in film.) I have seen small companies disrupt the complacency of industry giants; many times I have watched David slay Goliath. (Thus, hippie-haven Microsoft trounced the straight blue suits at IBM.)

Further, I have seen Baby Boomers challenge business norms and contemporary thinking at each life stage. They have fueled company and product creation with their fads, fashions, foibles and refusals to accept the past as prologue.

Their numbers and collective mentalities around consumer choices have grown multinational firms such as Microsoft, Apple, McDonald’s, Honda, Harley-Davidson, Starbuck's and REI. They’ve transformed outlying bohemian villages into tony places such as Aspen and Santa Fe. They’ve ignited investment markets with their mutual funds, 401(k)’s and online portfolios. They've created wealth, driving the American economy with greater economic resources than any prior generation.

When innovation collides with this generation, always ready for reinvention and redefinition, fortunes are made, markets are redefined and once-intractable social problems become mitigated.

The same forces that have virtually ruled the consumer marketplace for five decades will dramatically change our understanding of retirement, entitlements and the future of aging.

I believe that the promises and securities embedded in social insurance will foster these forces, rather than inhibit them.

Foundation of the Future

Entitlements are the foundation of a hopeful old age. This is patently obvious for those generations currently benefiting most from payroll deductions: the GI Generation and the Silent Generation.

Social insurance programs release millions from jobless poverty or the burdens of low-paying subsistence jobs that rob time, pay little and add almost nothing to societal progress.

Entitlement programs are not just “social insurance,” they provide the gift of security in a free society undergoing a longevity revolution. Even though the average monthly Social Security benefit of $1,045.00 is nominal, the program is nevertheless responsible for providing 40% of post-retirement income, a meaningful and significant shelter against poverty — and national disgrace. For about 66% of retirees over 65, Social Security represents more than half their income.

These programs free up society’s wisest, giving them greater opportunities to contemplate and then act on solutions to this nation’s myriad problems. Social insurance can give aging adults more of a chance to actualize, to give back, and to create. And like other forms of insurance, these programs exist to fill a need in a time of personal crisis, such as chronic unemployment or illnesses. If life does not become difficult with aging, the insurance can be forestalled or not even fully utilized. A healthy body does not need much healthcare, other than preventative care, and a productive worker with a paycheck does not need Social Security, or not as much.

One in five American adults will be over 65 in a little over twenty years. These bonus years are also a bonus for a nation confronting problems demanding greater maturation, accumulated life experiences and a longer view. Wise elders can help lead humanity to a state of greater self-awareness, peaceful coexistence and economic progress for all nations.

Where some vocal academicians and politicians predict catastrophe, I see unparalleled opportunity with the bonus years being granted to the Baby Boomer generation. I believe miracles can happen in the marketplace. Unexpected innovations could even substantially reduce debts that generational accountants believe inevitable.

Boomers have built new industries; they’ve reinvented old industries; they’ve fueled decades of economic vitality, in spite of short-term recessions and economic slowdowns that crop up periodically. Most are not ready to rest or retire; they want to leave behind a legacy not a liability.

To fulfill the potential of a generation, its members need the same insurance in old age that leaders three generations earlier foresaw as fundamental to social progress in an aging, socially progressive, modern nation.

Making of a Boomer Culture in Aging

Expecting Boomers in their aging to do what they’ve always done — transform the fundamentals of American society and commerce — is only half the equation. We must adapt the American experience to a rapidly aging population — a society where the old outnumber the young.

Laura L. Carstensen, Ph.D., Director of the Stanford Center on Longevity, has recognized what will be needed and issued a challenge. “Myths and gaps in our culture’s understanding of older people, as well as widespread misconceptions about old age, further hinder the flowering of a culture in which people age well.” To this I add: myths and gaps in our cultural understanding and comprehensive appreciation of the potential of the soon-to-be-dominant aging generation, the Baby Boomers, further inhibit our society’s capacity to transform the aging problem into one of this nation's greatest opportunities for psychological, cultural, technological and scientific advancement.

“What we have to do today,” adds Carstensen, “is re-engineer society so that it supports satisfying, independent and healthy lives for older people.” Fundamental to re-engineering society is firing retirement, which Carstensen views as a 20th century invention. Critical to changing our conceptions about work after 65 is the extent to which we can modify social attitudes about the value of older workers, while changing regressive taxes and retirement laws, and changing how professions address participation by older workers.

Yes, changes may be needed to the entitlement programs conceived in another era. But along with changes to the basic conceptions of social insurance must also come fundamental changes to the nation’s overall health-care system; new social norms for healthy and productive aging; appreciation of the contributions possible from an empowered and motivated population of wise elders; and an economic system that values aging workers, making meaningful jobs available throughout the lifespan — for so long as Boomers can and want to keep working.

If we can (and we must) achieve a redefinition of aging in society, we can dramatically reduce the potential fiscal impact of aging. Social insurance programs can persist as envisioned, updated to meet the needs of a new generation intent on reframing aging.

Many experts agree that when Boomers work just a few more years beyond 62, they can substantially improve their own retirement prospects while improving the fiscal soundness of Social Security.

But we cannot lose sight of the care and compassion compelled by these programs, nor can we forget that those who ultimately qualify to receive social insurance have paid their dues over many decades, committed to these promises with every paycheck.

With foundational social insurance granted by Social Security and Medicare — the assurance that poverty and chronic illness in old age is not inevitable — Boomers can be inspired to transform their lives from success to significance. This generation has the will, the means, and ultimately the technologies available to empower rather than imprison a nation.

This is already happening if you look for the signposts.

The Entitlement Problem

Media Co-optation

Next time you fill up your car with gasoline, ask the young attendant if he or she expects to receive Social Security benefits in the distant future, perhaps 30 or 40 years from now. Typically the answer will be no. Anti-entitlement critics have already done their job. They’ve co-opted media reporting so successfully for the last two decades that most young people today believe critics' prognostications of imminent entitlement funding collapse.

News media have joined the entitlement critics’ propaganda machine, sometimes forsaking journalistic balance while printing shocking, unsubstantiated and misleading articles designed to provoke fear and anger among readers.

So the critics warn us: in 2007 Medicare began paying more in benefits than the program receives in income through payroll deductions. Social Security will take in less than it pays in 2017.

The nation’s “unfunded liabilities” — the money needed by the federal government to pay for all its promises to retirees, federal employees, military families and disadvantaged groups — will reach a mind-boggling $52 trillion by mid-century. Keep in mind that the nation’s gross domestic product (GDP) in 2007 was $13.8 trillion. Thus, assuming no growth or contraction in the GDP a few decades from now, it would take 3.8 years of income derived from all the goods and services produced and sold by all the companies and individuals in this country simply to pay for the promises made to retirees and other dependents over the course of the next 40 years.

Those who are preaching economic hell and damnation are perhaps at heart well-meaning citizens, committed to their beliefs. But their beliefs are just that: improvable predictions about the future. The depth of their commitment and all the implied values that swirl around their numbers — the zealotry embedded in their messages — makes their anti-entitlement crusade an ideology – an ism. Call it anti-entitlementism.

They are asking Americans to suspend disbelief that any mortals can truly predict the future with accuracy, especially 40 years into the future... and especially predictions made by economists with an agenda.

Steven Mihm, an assistant professor of economic history at the University of Georgia, proposes an interesting observation about predictions made by economists:

“Recessions are signal events in any modern economy. And yet remarkably, the profession of economics is quite bad at predicting them. A recent study looked at 'consensus forecasts' (the predictions of large groups of economists) that were made in advance of 60 different national recessions that hit around the world in the '90s: in 97 percent of the cases, the study found, the economists failed to predict the coming contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated the severity of the downturns. Worse, many of the economists failed to anticipate recessions that occurred as soon as two months later.”

If economists have been woefully inadequate at predicting recessions just a few months before they strike, how much credence should the American public place in their predictions for 30, 40 or 50 years from now?

Yet, those who feel they have the clearest view of an economically disastrous future have been gaining traction in recent years. The list of entitlement doomsayers is growing as the Baby Boomer Generation teeters perilously into the years when their leading members are becoming eligible for these benefits. The short list includes the Cato Institute, the Concord Coalition, the Peter G. Peterson Foundation, and Americans for Generational Equity.

Media Goals of Entitlement Critics

   

Propaganda in Action

Entitlement critics have been disseminating their propaganda forewarning catastrophe since the 1980’s.

Peter G. Peterson, former chairman of the Blackstone Group and founder of a foundation under his own name, wrote a provocative book entitled Gray Dawn. Even the title reveals his sentiments. An aging population is, indeed, a gray prospect, literally and metaphorically. He writes, “If we do not reform tax and spending policies, the benefit outlays for just five programs — Social Security, Medicare, Medicaid and federal civilian and military pensions — will exceed total federal revenues by the year 2030. This would leave zero tax revenue for any other purpose — not even for interest payments, nor for national defense, nor for education, nor for child health, nor for the federal payroll.”

One way Peterson and his allies have been successful in shaping pubic opinion over two decades is to amalgamate Social Security and Medicare into one unified concept.

Although these two programs are very different and have different financial models, unifying them under the banner word of “entitlements” makes both programs equally objectionable. And, of course, to be entitled to anything challenges cherished American values such as meritocracy, individualism and restrained governmental power. Entitlements are anathema to truly free markets and harbor hints of socialism.

With the force and reach of substantial marketing resources, as well as media too easily lured by gloom and doom stories about “greedy geezers,” the critics continue their agenda of co-opting media attention and reporting. They spin horrific tales of future crises; media lap it up, relishing these headline-winning ominous tones of future calamity and intergenerational inequity.

Charles Schwab, the securities brokerage and financial services company, recently conducted a nationwide survey of all major generations: Generation Y (ages 13 to 31), Generation X (ages 32 to 43), Baby Boomers (ages 44 to 62), and the Silent Generation (ages 63 to 83). The most disconcerting finding in this survey of 3,866 Americans is that only 15% of Americans are optimistic about the future of Social Security; 60% are fearful of the program's long-term viability. More than 2/3 of the survey group believes that the Social Security program needs a “significant overhaul.” Only about 1/3 of the survey group believes the program can be “fixed with some relatively minor changes.”

Now a reality check: Few, if any, of those surveyed have hands-on experience with the nuances and machinations of the Social Security program. The program is too complex and inaccessible for scrutiny. Perceptions about the inevitable insolvency of this program have been shaped by media reports; often these news articles reflect manipulation of public perceptions by foundations, think tanks, associations and private companies interested in overhauling Social Security, with privatization being the nearly universal goal.

As I have written, Social Security critics have done their job, and the onslaught is moving into Round Two with the release of I.O.U.S.A.

Recent Developments Among Those Denouncing Entitlement Spending

Public Policy War Unfolding

Peter G. Peterson, former Commerce Secretary under Richard Nixon and co-founder of the Blackstone Group, has been a substantial beneficiary of the free-enterprise system. In June 2007, Blackstone became a pubic company while attracting over $4.13 billion in its initial stock sale and ballooning the company market value to $33 billion. The company also enjoyed a lucrative tax break, being taxed at 15% (the partnership rate) rather than at 35% (the corporate rate). Peterson allocated $1 billion of his wealth to form the Peter G. Peterson Foundation, with Peterson, his wife and his son as sole directors.

The foundation’s agenda covers many issues confronting contemporary America, including nuclear arms proliferation, but the issue of greatest emphasis is the nation’s impending entitlement funding crisis.

To fight this public policy battle, Peterson hired David Walker, the then-acting Comptroller General of the United States, to become the new CEO. Walker has a history of speaking out against federal deficits. As the nation’s chief accountant, Walker has earned a respected reputation with some bipartisan, both-sides-of-the- aisle overtones. Appointed by President Bill Clinton, Walker began the 15-year job after successful ratification by both houses of Congress, and continued through most of George W. Bush’s terms of office until February 2008.

The first priority of the new foundation is to release an independent film and publish a book entitled I.O.U.S.A. Inspired by the enormous success of former Vice President Al Gore’s environmental movie, An Inconvenient Truth, Peterson and Walker hope to stir the public debate about entitlements in the same manner that Gore successfully positioned environmental degradation and irreparable climate change as one of today’s most discussed public policy issues.

In 2006, another pubic policy group formed. Americans for Generational Equity advances “public understanding of the stakes of younger and future generations in pending changes to the social contract, which will occur as America accommodates the baby boom generation’s retirement.” Its board president is Richard Lamm, former three-time Governor of Colorado and a vocal critic of entitlement programs as “fiscal child abuse.” In mid-June 2008, AGE held a forum in Washington D.C, entitled YES — Youth Entitlement Summit. The Summit created a context to develop youth leadership around entitlement issues, driven by the underlying ideological framework that entitlements represent enormous fiscal threats to future generations.

The Concord Coalition is another public policy institution sharing goals similar to AGE: a nationwide, grass roots organization advocating generationally responsible fiscal policy. The Coalition has been sponsoring the Fiscal Wake-Up Tour, “a series of public forums around the country designed to focus attention on our nation's daunting long-term fiscal challenges.” These allegedly bipartisan forums, starring David Walker and Bill Bixby, Coalition executive director, have provided rich visual fodder for I.O.U.S.A. camera crews to capture raw video for their movie. Pete Peterson helped start the organization in 1992, along with the late former senator Paul Tsongas and Senator Warren Rudman.

Another major contributor in the anti-entitlement fraternity is Laurence Kotlikoff, Boston University economics professor and author of The Coming Generational Storm — What You Need to Know about America’s Economic Future. Kotlikoff provides the intellectual underpinning and academically grounded theories upon which acolytes often draw their proof of fiscal disasters besetting the nation.

In this book, Kotlikoff offers a number of recommendations for addressing his perceptions of the fiscal challenges of Social Security. His most dramatic proposal is to eliminate the Old Age Insurance component of Social Security and replace it with equivalent compulsory contributions to PSS (Personal Security System) accounts. How would these accounts be managed? By investing them “in a single market-weighted global index fund of stocks, bonds, and real estate.” In other words, everyone gets to play in the financial markets.

Do you want to be wealthy? Make sure Kotlikoff's proposals become law, and then be sure you're leading for one of the private-sector investment companies who will service and oversee these investments, handing taxpayers their transaction costs.

Arguments of Entitlement Critics

Entitlements are fiscally untenable.

In four words, this is the essential argument of anti-entitlementism. The nation is currently experiencing unprecedented deficits, contributing to an existing U.S. public debt of nearly $9 trillion. Looking ahead about 40 years, anti-entitlement critics predict that the unfunded entitlement promises, plus the nation’s other debts through annual deficit spending, could place this nation over $52 trillion in the red. Some of their predictions reach the stratosphere with $75 trillion unfunded liabilities.

Social Security surpluses end in 2017 when the cost of the program exceeds payroll deductions for FICA. Medicare is already costing more than payroll deductions can counterbalance. Pete Peterson and Dave Walker estimate that your share of the federal debt burden is $175,000, the same as for every other U.S. citizen.

Generational Inequity

Further, critics see the larger issue to be one of intergenerational inequity. In other words, when today’s entitlement qualifying generations, particularly Baby Boomers, create so much future debt with their entitlement spending, this is simply unconscionable. This generation of spenders will leave the nation’s youth with unmanageable and unprecedented debts, in effect requiring our children and grandchildren to pay for our fiscal abuses. Ultimately, this will lead to a much diminished standard of living for today’s youth later in their adult lives with lesser chances to enjoy rich and rewarding American dreams. They’ll be spending their earnings to pay our bills.

One message not being directly communicated through anti-entitlementism is their perceptions of aging and the elderly. To them, old age appears to mean dependency, taking rather than producing.

Their targeted messages to the nation’s youth can have the effect of fomenting generational divisiveness and antipathy. Critics are hardly subtle about communicating this as part of their overt agenda, believing that children and grandchildren, duly informed and inspired, can strike with psychic vengeance and lay upon their elders the mother of all guilt trips.

Arguments Against Entitlement Critics - Part 1

Economic Crisis Revisited

One key argument presented by entitlement critics is the unprecedented nature of the funding crisis. An economic crisis of this magnitude has never happened before. No generation has handed younger generations such a financial disaster.

Richard Lamm, former three-time Governor of Colorado, president of Americans for Generational Equity, and author of The Brave New World of Health Care, frames his moral argument this way:

“I inherited from my parents’ generation a small federal debt and the world’s largest creditor nation. I am leaving our children a staggering federal debt and the world’s largest debtor nation. I inherited a nation that produced more than it consumed, and I’m leaving my kids a nation that consumes more than it produces.”

While it is true that each new chapter in history is different from any that came before, this is not the first time that an elder generation has presented younger generations with enormous economic challenges.

The Lost Generation (b. 1882 – 1900) put the roar in the Roaring Twenties and included iconoclastic notables such as Ernest Hemingway, D. H. Lawrence, Georgia O’Keeffe, T. S. Elliot, Louis Armstrong, Mae West, F. Scott Fitzgerald and William Faulkner.

This generation also handed their children, the GI Generation (b. 1900 – 1925), an economic disaster called The Great Depression. Although the severe economic depression was a loadstone on all citizens, the young men and women of that time (including my parents) suffered the most with rampant unemployment and daily struggles to make ends meet. Then they fought a war and after winning against Axis Powers, they inculcated the most successful economic expansion in the 20th century.

Boomer Generation Penalties

Entitlement critics also fail to look at the impact their proposals may have on today’s Baby Boomers as this generation begins to qualify for these income and healthcare benefits. Due to a history of generational overcrowding, plus two decades of corporate downsizing and corporations exporting well-paying jobs overseas, somewhere between one-third and one-half of this generation is inadequately prepared for retirement. According to articles in TIME magazine and elsewhere, around 25 million Boomers have net assets of $10,000 or less. Yet, many in this economically disadvantaged group have been paying Social Security and Medicare taxes with every paycheck for somewhere between 25 and 40 years.

So, what is the equity in this: the possibility of benefits being severely curtailed just as those who are still working begin to consider retirement, and many of whom will desperately need financial assistance to survive retirement?

Entitlement critics often suggest that those in retirement and near retirement will not experience any penalties upon restructuring of the entitlement programs. So, what is near retirement? One person might have been born in 1949 and his full entitlement benefits grandfather into a new program. Another might have been born in 1954, and she would lose benefits due to elimination of future accruals.

Risks of One-Dimensional Thinking

Generational accounting tends to be one-dimensional: it’s about the numbers. Accountants look at past taxation, productivity, and consumption patterns, coupled with demographics, to develop their scenarios. It’s by no means an exact science, but entitlement critics present their foreboding numbers as if “the gospel.”

For example, on page 97 of his book, The Coming Generational Storm, author Laurence Kotlikoff explains how uncertainty interacts with their economic scenarios:

“So current decisions depend on future outcomes, but future outcomes depend on current decisions. The only way to solve this problem is to solve for both current decisions and future outcomes simultaneously — hence the term simultaneity problem. In practice, the solution begins by simple guessing future outcomes. These guesses are then used to determine current decisions.

“Next, the current decisions are used to update the guesses of future outcomes, which are then used to generate a new set of current decisions, new updates of future outcomes, and on and on until the model has converged. Convergence here means that the procedure has found a set of current decisions that generate the same future outcomes as had been guessed on the previous round and that were used to determine the current decisions.”

In other language, the dire prognostications being proposed in the movie I.O.U.S.A are based, just as Kotlikoff suggests, on guesses. They might be intelligent guesses, they might be guesses based on sophisticated computer modeling, with convergence of current public policy decisions and future anticipated outcomes, but they are nevertheless, guesses.

Period.

Whether they like the connotation or not, generational accountants are soothsayers. Predictions are based on their perceptions of a future that may or may not happen as many as 40 years from now. How much reliance should we place on their assumptions?

Look at this way: Show me a generational accountant that, in writing, successfully predicted two of the most significant business and technological changes in the 20th century just ten years before these transformations. Show me someone predicting economic disaster in the mid-21^st century who in 1975 predicted the way microcomputers would transform everything in business by 1985. Show me a generational accounting expert who in 1985 predicted the advent and adoption of the internet in 1995.

Looking over our shoulders today, we can see many historical precursors harkening forthcoming societal transformations around desktop computers and distributed digital networks, including their concomitant economic transformations. If the entitlement soothsayers could not predict these major changes ten years before they happened, how reliable can they be at predicting our future 30 or 40 years from now? (For example, what possible future transformations in genetics, robotics, information technologies and nanotechnologies have they not considered? (How do you predict the changes introduced by a generation committed to staying engaged in economic activities across the lifespan?)

Soothsayers read crystal balls. They want you to believe they see clearly into a future that nobody can truly see. They substantiate their predictions by analyzing the past and projecting today’s demographics into the future. As Marc Freedman, author of Encore: Finding Work That Matters in the Last Half of Life observes, “This is scenario planning in the rearview mirror.”

Frankly, actuarial predictions do not show much imagination about how Boomers can transform the future.

Arguments Against Entitlement Critics - Part 2

Working Longer vs. Job Descrimination

Several national studies by AARP, MetLife and other organizations corroborate that over 70% of the Boomer generation intends to keep being productive after the traditional time of retirement. Even if half of this percentage actually continues working into their late sixties and early seventies, this will go a long way in addressing deficits.

Another economic and demographic force is the nation’s need for career extension because of an under-trained younger workforce. According to John McMennamin, a former Fortune 500 corporate senior manager and expert on workforce aging, twenty percent of the current workforce is trained for sixty percent of the jobs now demanding highly trained knowledge workers. Yet McMennamin observes that only fifteen percent of corporations are currently taking steps to address an aging workforce. According to Marc Freedman, the nation will soon need about 630,000 senior executives to run the nation’s non-profit organizations. Where is the experience to fill these gaping needs?

Clearly there is a mismatch between a generation’s willingness to continue working and a business community not entirely set on welcoming “wisdom workers” into the human resources fold. Ageist attitudes sometimes run deep in corporations and organizations. Yet, if more citizens work beyond the traditional age of retirement, they continue contributing to entitlement programs longer, thereby reducing future claims.

A recent study by the Urban Institute supports these views.

“If boomers work longer, the economy could produce more goods and services, boosting living standards for workers and generating additional tax revenue to fund promised benefits for retirees and other government programs. Many surveys find that boomers plan to work longer than recent retirees, but their opportunities will be limited if employers are unwilling to hire or retain them.”

Boomers' fairly widespread desire to remain engaged in the workforce do face obstacles:

“Older workers who do lose their jobs, however, experience longer unemployment spells than their younger counterparts. In 2006, 28 percent of unemployed adults ages 55 to 64 were unemployed for at least 27 weeks, compared with just 26 percent of those ages 25 to 34 and 20 percent of those ages 35 to 44 (Bureau of Labor Statistics 2007c).

“They argue that an increase in global labor supply, which U.S. firms can tap through outsourcing or immigration, will more than make up for any slowdown in the domestic labor force (Cappeli 2005; Freeman 2007). The emergence of China, India, and nations from the former Soviet Union in the world economy may have doubled the supply of workers worldwide. If the expected shortage in prime-age workers does not materialize, employers may face fewer incentives to turn to older workers.

“The substantial increase in the share of the workforce over age 55 in the coming years could lead to a glut of older workers despite the overall labor force slowdown (Sapozhnikov and Triest 2007). Too many older workers could result in lower wages and employment rates at older ages.”

Millennials Rising

Although generational accountants hammer home the unprecedented size of the Boomer Generation, at 76 million, they may not be fully factoring the true size and dimensions of the Echo Boom, Boomers’ children. According to various sources, the Millennial Generation has about 80 million members and growing due to immigration. Conversely, the Boomer Generation is shrinking and today consists of less than 70 million, with another Boomer dying about every 48 seconds. It’s entirely possible that those projecting gloomy future scenarios have not fully considered the true weight of these demographic realities.

Sociological Imagination

The Boomer generation has what Bill Thomas, M.D., a geriatrician, author and founder of the Eden Alternative, calls a unique sociological imagination, with engagement, reinvention, charity and self-empowerment as keystone values.

For example, one presage of the future on a more granular level may be today’s growing enthusiasm for “slow medicine,” wherein patients deliberately eschew elaborate medical technologies with high risks and marginal benefits. This generation may more typically choose less evasive care at the end of life, quality over quantity.

A Healthcare Economy?

So what if the primary economic engine of America becomes healthcare focused? The 20th century can be thought of as an automobile economy that created a national highway system, parking garages, suburbs, shopping malls, gasoline companies, car companies, and drive-through Starbuck’s. This economy created millions of jobs in highway construction, real estate development, retailing, oil and gas exploration, and franchising. A healthcare economy can also stimulate millions of jobs for physicians, nurses, biotech engineers, genetic researchers, and home healthcare aides.

Technologies developed to prolong productive life and engineer negligible senescence have extraordinary market value and could be sold as exports to other countries, such as rapidly aging Europe, Japan and China. In other words, the money always comes from somewhere and goes somewhere.

Arguments Against Entitlement Critics - Part 3

Promise to a Generation

In 1983, Alan Greenspan led a commission to address potential trust fund shortfall, leading to a significant increases in entitlement program taxes, assessments that Boomers have been paying. The Commission’s goal was to create surpluses so that when Boomers retired there would be enough money. This was an intergenerational promise: if Boomers pay more throughout the most productive parts of their careers, these programs will be solid and stable when Boomers retire. Three older generations made these promises to better protect and expand their own entitlement benefits, and Boomers responded by accepting without protest the higher taxation levels.

As we analyze the social and economic benefits of Social Security and Medicare, it’s also noteworthy to mention that 4 million U.S. citizens under the age of 18 receive Social Security benefits. These are survivors of parents who died prematurely due to diseases and accidents. So the program also provides a safety net for the youngest of society.

Social Security is the one social program in the United States that is the closest thing possible to a guarantee. It serves a role similar to defined benefits retirement programs; yet participation in these programs by employers has been shrinking since the 1980s, from over 70% of all employers to less than 35% today.

A guarantee eliminates one of the greatest fears of aging: impoverishment in old age. And although Social Security is not a program offering sufficient individual benefits to support a middle-class lifestyle in retirement, around 40% of all beneficiaries rely entirely on Social Security for their post-retirement income. Even though social insurance cannot make up for inadequate savings or resources, it can and does serve as the foundation of a balanced retirement plan for many Americans. They can sleep better at night knowing that if all else fails Social Security checks will arrive on time; Medicare will pay medical bills.

Market Risks

One consistent solution offered by most critics of governmental entitlement programs is the recommendation to privatize retirement accounts, “to give individuals more control of their retirement savings.” Personal empowerment over personal income rings sweetly to most Americans, but history has demonstrated that, given a choice, many workers choose to cash out retirement savings upon exiting a job rather than roll them over. Self-empowered citizens often don’t save but squander savings on things they need now, or they pay down current debts.

Right now the typical recommendation is for an allocation to private savings accounts in the neighborhood of 2% of income. These accounts will be invested in stocks and bonds, and while certainly they may be well-managed funds, the risk falls on the individual. If the market plunges when an individual would normally retire and his or her personal savings account becomes decimated by a collapse in the equity and/or bond markets, the individual will suffer the consequences.

Even though purveyors of entitlement privatization myths offer assurance with the illusion of potential government backing (wherein shortfalls below investments trigger bailouts by the government), these assurances depend on government promises, and taxpayers ultimately holds the bag to make up deficiencies. Investment managers over private accounts will get their fees and commissions nevertheless.

Entitlement Issues from Boomer Perspective

Contributing Since the 1960s

The oldest Baby Boomers have been working for companies and organizations since the mid-1960s (or over 60% of the Social Security program's existence!), thus they’ve been contributing to Social Security for over 40 years. They’ve been contributing to Medicare since program inception. The youngest Boomers have been contributing to both programs for around 25 years.

Payroll deductions for both these programs increased dramatically following the 1983 Greenspan Commission, ostensibly with the promise that these accelerated payroll deductions would offset the demographic impact of retiring Boomers early in the 21^st century.

Promises have been made; and promises have also been broken. Many Boomers started their careers when most companies provided retirement plans with a guaranteed annuity upon retirement. Many worked for years under the umbrella of these promised benefits, and then in the late 1980s, the manufacturing sector of the U.S headed overseas. Offshoring of U.S. jobs led to domestic downsizing.

The generation of greatest vulnerability to the downsizing of America was the dominant workforce segment at that time: Boomers, of course. White collar jobs have followed blue collar jobs overseas, and this has cut a swathe through the burgeoning tech economy of the mid-1990s through the present. Loss of retirement benefits has followed job loss.

Too many people look at the large size of the Baby Boomer Generation as indicative of unfair advantages, from economic leadership to cultural dominance. They resent Boomers’ sense of entitlement and the halcyon days of their youth when all seemed well with America’s post World War II economic expansion.

What critics miss is the realities of being part of a large generation preceded and followed by smaller generations. Advantages accrue for the large generation, in the aggregate, but individuals within the generation face severe liabilities of intergenerational competition for college admission, career opportunities, affordable housing, and access to leadership positions within companies.

Many others criticize Boomers for their spending habits, best elucidated by David Brooks in his book, Bobos in Paradise. Boomers are seen as frivolous spenders, unleashed and rash, unwilling to delay gratification. On the contrary, society has often asked Boomers to spend money. Sometimes patriotism has been connected with consumerism, as was the message foisted by President George W. Bush following the terrorist attacks of September 11, 2001. Thus our nation’s best citizens don’t horde money through savings but rather circulate money in the economy, buying goods and services with every paycheck.

Another argument of the critics is the unfairness of leaving the youngest generations with the debts of retiree entitlement programs. As mentioned, critics' indignation never fully allows a complete discussion about the economic offsets of the Millennial Generation, with 80 million members and growing due to legal and illegal immigration.

However, that argument aside, Millennials have been indulged from birth through childnood in many ways impossible or inconceivable during the Boomers’ youth. The youngest members of society were once celebrated by “Baby on Board” placards hanging in minivans traveling in urgent pursuit of kids’ soccer games.

The infrastructure, or hardware and software known as “America Today,” with all its assets and liabilities, is nevertheless a tremendous gift from older generations to the youngest. The U.S. has unrivaled worldwide leadership in digital technology innovation, in advanced education, in entrepreneurship, in medical technology, in entertainment and in a “can-do” spirit. This composite of economic value is the baseline upon which any agreements or disagreements about generational equity must begin. Millennials are not beginning their adult lives and careers inside an impoverished nation with few freedoms but rather in the most successful and enviable nation on the planet — yes, even in today's recessionary environment. What they do with these resources is largely up to them, and any potential liabilities incurred by society’s aging adults must factor against many assets being given to younger generations.

One liability often overlooked by entitlement critics is the cost to taxpayers of privatization. Once we begin requiring workers to reduce current entitlement payments by 2%, to be reallocated for private retirement accounts, impending insolvency of Social Security comes nearer, faster. The government would still need to keep its entitlement promises to current retirees, thus shortfalls through reduced entitlement payroll reductions will need to be compensated for by increased income or retail taxes. In the short term, the additional costs to taxpayers have been estimated to be in the neighborhood of $1 trillion dollars. In the long term, full execution of privatization could cost taxpayers $8 to $9 trillion.

Sociological Imagination of Boomer Generation

   

The Cultural and Business Focal Point of a Nation

Due to generational size and characteristics, Boomers have had a transformational impact on society and culture as they’ve progressed through each life stage.

When a plethora of Boomer babies overwhelmed mealtime during the fifties, a company called Gerber introduced portioned and prepared foods for babies and toddlers – such memorable delicacies as pulverized spinach in a jar. Home-cooked meals took on an entirely new meaning.

When the nascent medium of television enraptured elementary school children with the Mickey Mouse Club, mass marketers found the perfect medium to propel galactic fads such as Hula Hoops and Silly Putty. Boomer fads became mainstream news.

When Boomer teenagers developed a taste for carryout food and its conveniences, McDonald’s grew from one humble California store to a national French-frying juggernaut, spearheading new companies, from fast-food to fast-casual restaurants.

When GM became a metaphor for Big Brother during the antiauthoritarian sixties, Germany and Japan, America’s World War II archenemies, captured the U.S. automotive market with VW Beetles and Toyotas. Boomers helped the nation decouple residual World War II hostility toward Germany and Japan from post-war consumerism, allowing these foreign automobile manufacturers to gain significant market shares in the U.S.

When Boomers decided to lose extra pounds from consuming so much fast food, jogging became a craze, and Nike became a Fortune 500 company. Fitness became a preoccupation of many in the generation, fostering other industries such as fitness clubs, bestselling health books and nutritional supplements.

Boomers transform life stages, and this will also be true of their lifestyles past 50 and 60. New industries will emerge that can cater most effectively to mature needs and desires. These new industries will change economic models and influence adaptation.

Those horrific outcomes predicted by generational accountants may or may not come true as foreseen, partly because this generation shifts paradigms, creating new industries, abolishing others and ultimately reshaping the social and economic landscape.

Boomers also grew up in a time when cultural messages influenced yearning for self-empowerment. Old West television programs were among the most popular, and these docudramas revered self-styled heroes who challenged the world as iconoclastic thinkers. Boomers were taught to become self-reliant and creative in making career and lifestyle choices, and this remains true today. This generation breaks molds in so many ways, but the driving motivation is a deep desire for originality.

Self-empowerment captures the nuances of how a generation might deal with its own aging. We can fully expect that many will find new paths to independence from traditional societal institutions, including the entitlement programs, when they no longer serve needs for supplemental income and medical care expenses. The current advent of medical tourism points toward a globe-trotting future for many Boomers.

Boomers also grew up in an overcrowded generation. They stood in lines at schools, movie theaters, rock concerts and real estate offices. Along the way they learned to work together communally, turning overcrowding problems into collaborative opportunities.

If the government’s entitlement programs are about to be overcrowded once again, Boomers will find creative ways to share the burdens of aging. This is becoming manifest on one level today with the advent of co-housing communities, where community members live in independent townhomes and condominiums but pool resources together for occasional shared meals and to reduce the costs of fully independent living.

When they were young adults, Boomers popularized volunteerism and community activism. They became engaged in social and political issues such as gender equality, racial equality, environmental activism and governmental accountability. They started thousands of nonprofit organizations serving broad-based community needs. Their volunteers populated soup kitchens, nature trail restoration crews and church-sponsored charitable organizations. A spirit of activism reflects this generation’s collective passions to make a difference.

Community activism will attract new volunteers as this generation ages. The most fortunate will seek ways to help the less fortunate, as exemplified by the philanthropic agenda of the Bill and Melinda Gates Foundation, which is contributing billions of dollars to assist less fortunate groups of people.

Through their voluntary and checkbook philanthropy, this generation will stay engaged to ease the burdens of aging for the less fortunate, perhaps discovering creative ways to support the less fortunate while providing committed workers who offset the costs of entitlement programs with gifts of their time and resourcefulness. A significant number will seek “encore careers,” wherein practical skills can be contributed to non-profit organizations.

Some have also criticized the Baby Boomer Generation for being overly focused on work and career, and it is true that this competitive generation has worked hard to build companies and institutions across the spectrum of industry. Many recent surveys, including those conducted by AARP and MetLife, reveal that more than 70% of this generation do not want to retire in the traditional sense. They want to keep working, earning and contributing. This shared passion will lead many to choose work after 65, 70, 75 and beyond.

Entitlement critic Kotlikoff (Pg. 112, Generational Storm) sees this as “a win-lose proposition for the economy and the tax base.” He continues, “When workers work longer, they actually save less because they have fewer years of retirement to finance.”

Says who? Will Boomers who work longer save less, feeling secure that their date with the grim reaper is that much closer? I think not. Kotlikoff thinks so.

You pick.

If, as anticipated, a large percentage of Boomers continue working into late life, reliance on entitlements will also come much later, with significant cost reductions. Boomers with long careers will keep contributing to entitlement funds through payroll deductions. This sociological characteristic of the generation could substantially alter the scenarios of doom and gloom promulgated by generational accountants.