Economics for the 99%: The Burden of the Old on the Young (or is it the other way around?)
Thursday, 14 February 2013 09:59
By John Weeks.
Oldsters out on having fun and burdening hard working young people. (UK warning sign commonly found on roads).
For family reasons I visit my native state of Texas regularly. When last there I was quite disappointed by the sheer normality of the life and people in the suburbs of Houston -- sweltering heat (enhanced with tornados), completely void of sidewalks and no raving rightwing nuts roaming the streets. This tranquility was completely out of character for the state of reactionary extremists which is my native land.
Therefore, I was encouraged to read in a column by Paul Krugman that Texas Republicans have come out against "critical thinking". Needless to say, I eagerly went to the source of this rumor, which is a blog article by Valerie Strauss.* The article provided verbatim the Texas Republican platform, which does indeed oppose most forms of knowledge, living up to a long state tradition. I recommend all to read the clear demonstration that my homeland has even more Rightwing nuts now than when I was nurtured and reared there so long ago.
Especially encouraging for the continuity of collective state nuttiness is the platform commitment that "students should pledge allegiance to the American and Texas flags daily to instill patriotism" (Saturdays and Sundays?). Were the current petition to the White House for Texas secession realized, this dual pledging could create some mixed loyalties.
Among the less nutty, but still seriously off-the-wall views held by many if not most in my old stomping grounds is the belief that the US public debt represents a "burden" on future generations. To be fair, more than a few non-Texans hold tight to this peculiar bit of nonsense.**
It is not difficult to demonstrate the nonsensical nature of this "burden". First, consider the "future generations must pay it back" argument. We can start the explanation by attempting to apply this principle to the private sector. Private sector mortgage debt equaled about thirteen trillion dollars at the end of 2011 (latest number I could find), of which about ten trillion represented household debt on homes. By coincidence, the amount of US federal debt not held by the federal government itself (owed to others) was close to the same figure, ten trillion (Economic Report of the President 2012, Tables 75 and 78).
No company would think it necessary to pay off its debt. Quite the contrary, debt provides the finance for companies to expand their capacity. What about households? Households hold most of their debt as mortgages on their homes. Many people, not just in Texas, believe that unlike the US government, households pay off their mortgage debt.
Not true. While individual households pay off mortgages, the debt of household sector as a whole never goes away, and today is ten times its value in 1980 (not inflation-adjusted). Every year some households pay off mortgages and others contract new mortgages. As long as the US population reproduces itself, as occurs with great regularity, mortgage debt will be with us. For the most part adults in households service this mortgage debt, not children (at least, that was my experience).
Therefore, if we were so inclined, we could characterize mortgage debt as a "burden on the old(er) generation" and a subsidy of the young. This characterization becomes all the more appropriate when the old die, because their children inherit the equity in their parents' property. Take subsidies and get the goods, not a bad deal.
To my knowledge no one, not even a Texas Tea party member, suggests that children should reimburse their parents for the "burden" they placed on them (though many parents may feel that at moments). Most people recognize that each generation is born, grows old, then dies, and this is a continuous, overlapping pattern of generations.
Going deeper into debt:
Federal public debt is the portion of federal debt not held by the federal government itself. The source is the Economic Report of the President 2012, Tables 75 & 78.
It should be obvious that the same general idea applies to the federal government. Each administration pays back debt and contracts new debt, just as some households are paying off mortgages and others contracting them. The problem is not that "we have to pay off the debt sometime", because in practice we do so every year. Problems would arise if at some moment a specific federal administration could not buy back the debt maturing each year, or could not pay the interest on its outstanding debt.
The first, inability to make a buy-back, is technically impossible, because the US federal government has the sovereign power to create credit ("money") for itself. In my last 99%'er I explained why the second problem, inability to pay the interest on the debt, is so remote that in practice it is non-existent. The technical impossibility and improbability of these "problems" explains why the hard Right in Congress must resort to fighting over debt ceilings. In the absence of a real reason to force budget cuts, create one.
However, as I pointed out myself, the social security fund holds a solid quarter of the federal debt. The interest on this quarter of the debt goes to retired people (like me, I confess), and the non-retired poney-up payroll tax to fund the feckless oldsters. If this is not a case of the old freeloading on the young, what is?
Let's think about mortgages again and apply that the mortgage process to social security. People are born, grow up, find jobs and work, then retire and (I regret to concede) die. While growing up, society supports the non-working young through the family (even in Texas few people advocate a return to child labor, at least not publicly).
When they work, people pay the social security contributions that will fund their retirement. When they retire they collect the payments that the tax earmarked for social security helped create (employers contribute an equal amount). At any moment, some of us are children, some working adults and some in retirement. Everyone goes through this cycle. If these is an intergenerational burden here, I cannot find it. Because this 99%'er is already a bit long, I shall not here refute the faux argument that a rising average age of the population makes social security (and Medicare) cuts necessary.
We will face a politically created intergenerational burden if Congress and the President continue down the path of raising the retirement age and reducing benefits through changes such as altering the measurement of the cost of living (the bias for annual changes in benefits). This is the strategy of the Right, to cut future benefits so that those currently working will think that they will suffer a raw deal compared to the currently retired or those on the verge. We have the means to prevent this politically created problem -- defeat at the polls any charlatan that tries it.
**For example, (for example, http://www.onlineopinion.com.au/view.asp?article=14553.