Tuesday, May 29, 2007

Losing the dream

I am convinced that Medicare and other old-age programs will be solved so that they are in place for my parents' generation. I have a hard time imaging a large union set of twenty and thirty-somethings who want their parents to move in with them at the same time that they are trying to first pay off college and then raise their own kids AND the parents who have finally gotten their kids out of the house giving up that independence. It is this union set that will not mobilize politically to support old-age programs:

The Baby Boomer voters will make sure that they elect people who make sure they can go to the doctor and hospital and pharmacy and nursing home easily and seemingly cheaply. This is why I worry about pretty much everything else.

The obligations that the current system has incurred are immense. USA Today has gone through the federal government books and sees an accrual accounting deficit of roughly 40% of total spending instead of roughly the 8% cash accounting deficit for this fiscal year. The overwhelming majority of these future debts are medical expenses that my generation will be paying into an inefficient and ineffective system full of perverse incentives.

Political Animal
is pointing to an interesting study that looks at income mobility and the prospect of intergenerational advancement within American society put together by a fairly interesting coalition of Washington think tanks. The short answer is that the American Dream of being able to do better than your parents and get ahead by dint of hard work, innovative ideas, and a little bit of luck are at best rare events instead of the standard morality tale of traditional American mythology.

My generation's men, myself included, are behind where our fathers were thirty years ago despite being deeper in debt to fund more and more education. We are being priced out of asset accumulation and the ability to save for the future as the social expectation of being a 'respectable' and thus a hire-able member of society has become more expensive. Adam Smith noted this tendency of escalating relative competition two hundred years ago:

By necessaries I understand not only the commodities which are indispensably necessary for the support of life, but what ever the customs of the country renders it indecent for creditable people, even the lowest order, to be without. A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably, though they had no linen. But in the present times, through the greater part of Europe, a creditable day-laborer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into, without extreme bad conduct. Custom, in the same manner, has rendered leather shoes a necessary of life in England. (h/t Economist View)

The under-45s are politically less viable as a quasi-unified voting block and also significantly under more stress and economic variability. The expenses of daily life have increased significantly faster than the official inflation ex-inflation CPI numbers as education has increased, housing prices have increased, health-care has increased at rates double, triple and quadruple the rates of general inflation and current debt levels, both private and public have dramatically increased. Choices will have to be made eventually to pay off the debts that we as a society and as individuals have incurred, and those choices will be nasty.

The dominant political bloc in American life will seek to protect their interests. And those interests are to likely to be sure that more of the same continues for as long as they can continue to get a good piece of the pie no matter what the costs are to the rest of the population. I fear this outcome as that would dictate a politics that makes Karl Rove look like a piker at divide and conquer. I also fear the economic consequences as it would necessitate a sell-off of my future option space to pay for mistakes made when I was eating paste.

I am also worried about the increasing dissonance between reality and the greater American narrative. My generation has been told that the future is ours to create, but the debts of the past shackle our ability to experiment and achieve. More of our current and future income will be needed to pay off the past's tequila fueled binges furthing the chronic underinvestment for the future as the future can not vote and the stakeholders of the future, my generation, does not vote consistently enough.

The gulf between internalized expectations and realized outcomes increases on both an individual and generational levels, the conflicts will intensify as the American political game shifts from a non-zero sum, increasing pie problem to a far nastier zero-sum game as every one has much stronger incentives to bugger their neighbors to hold onto their relative and hopefully absolute positions.

No comments: