Over at National Review Online, Acton Research Director Samuel Gregg looks at a new study which shows a growing wealth gap between the senior set and those under the age of 35. The boomer generation also has the political clout to protect that security:
… another factor that makes older Americans’ economic position even more secure than that of younger generations is the disproportionate sway exerted by older folks on politics, much of which is directed to maintaining the entitlement status quo. From the narrow standpoint of their own economic self-interest, why should older people vote for the type of entitlement reform that is indispensible if America is to get its public-debt problem under control? Many of this quite numerous demographic will ask, why should they have to scrimp after having paid into Social Security all their working lives?
Members of the supercommittee charged with finding $1.2 trillion to cut from the deficit surely know that proposals such as raising the retirement age are bound to encounter enormous opposition from AARP-like groups — especially the ones dominated by those baby boomers who are now retiring and whose entire lives have reflected an après moi, le déluge mentality. Supercommittee members are also no doubt conscious that older people — many of whom are already very unhappy about Obamacare’s forthcoming changes to Medicare — have an alarming habit of turning out to vote in far greater numbers than their children and grandchildren.
I wrote a bit about my short essay describing some of the principles and concepts at play concerning intergenerational ethics and economics. There are also important intergenerational cultural consequences following the Great Recession. A decade ago there was much concern about the rootlessness of current generations and the transience of the workforce. But that ability for workers to move quickly to new jobs in other cities and states has been undermined by the housing crash. Most anyone who bought a home in the last decade will not be moving anywhere anytime soon.
As Robert Bridges contends in a WSJ op-ed, “Coming generations need to realize that while houses are possessions and part of a good life, they are not always good investments on the road to financial independence.” The “ownership society” means something far different today than it did even a decade ago.
In her book How the West was Lost, Dambisa Moyo describes well some of the background leading up to the housing crash. One of the contributing factors was this cultural ideal of a “homeownership” society and resulting government policy to promote homeownership. She contends,
The direct consequence of the subsidized homeownership culture was the emergence of a society of leverage, one where citizen and country were mortgaged up to the hilt; promoting a way of life where people grew comfortable with the idea of living beyond one’s means.
She also judges that there are significant intergenerational implications:
Under the government guarantee system which propels the rapid appreciation of house prices, the only winners are those who can downsize (downgrade) their housing, or move to a different area, and buy a smaller (cheaper) place. Everyone else loses…. This ‘escalator’ effect continues until the time that the kids go to college. It’s a wealth transfer from the younger generation to the older generation as house prices become more expensive.
One of the effects of what Moyo calls “government guarantee system” is that resources (capital) was increasingly invested in homes that might have been invested in other, more productive, sectors.
An incisive piece by Roben Farzad explores why the aftereffects of the housing bubble are not likely to go away anytime soon. He quotes Doug Ramsey of Minneapolis investment firm Leuthold Group, “a student of asset bubbles,” who says, “The housing decline will be a long, multiyear process, and the multiplier effect across the economy will be enormous.”
Jonathan Smoke, head of research for Hanley Wood, a housing data company, argues, “We’ve gone through a period when we should have been tearing down houses. The supply of total housing stock is beyond what is necessary.”
My editorial, “Intergenerational Ethics and Economics,” appears in the latest issue of the Journal of Markets & Morality (more details about that issue here). In this short piece I explore some of the implications and intergenerational consequences of public debt. For this I take my point of departure with the much-discussed “A Call for Intergenerational Justice,” but I also point out the importance of considering opportunity cost and how that concept has been applied in an analogous conversation about climate change. Focusing particularly on the current generations of workers, however, I observe:
Younger workers have not had as much time in the workplace to earn wages, collect benefits, and save, as those who have been working for decades and are nearing or have already entered retirement. As we learn from what has been called the “miracle of compounding interest,” small deductions of available capital at earlier points in time have major consequences for long-term growth.
In a recent piece for City Journal, Nicole Gelinas reflects on the federal government’s move to take on troubled securities from private firms. She writes,
The politicians we elect have three choices—the same choices they had four years ago. They can admit that this debt isn’t worth much and allow the financial sector to bear the consequences. They can hope that the Fed tries to use inflation to raise the price of everything else, making the debt seem a lighter burden in comparison. Or they can maintain their silence, letting the financial sector take another half-decade or more to make enough money on new ventures so that it can finally admit what it should have admitted back in the fall of 2007: bad debt is never good. At least the Fed acknowledges this strategy: it says that it’s using “time” to manage toxic securities and “minimize disruption to the financial markets.” But prolonging government control of financial markets just prolongs investors’ uncertainty.
Her conclusion underscores what I contend in the editorial about the importance of opportunity cost and the intergenerational effects of (in)action: “As the Fed notes, the cost of this policy isn’t measured in dollars but in something more precious: time. Washington’s refusal to confront the debt problem is costing millions the most productive years of their lives.”
Also in the current issue of the journal, James Alvey explores “James M. Buchanan on the Ethics of Public Debt and Default.” Buchanan has a good deal of interest to say on these questions, and Alvey concludes that “Buchanan’s favorite policy agenda, constitutional/legal limitations on public spending, deficits, and debt, needs to be revisited.”
The Roman philosopher Cicero once said to his son, “You are the only man of all men whom I would wish to surpass me in all things.” The form this sentiment takes collectively is a good summation of the universal hope for humankind. We want our children in particular, but also the next generation and the world more generally, to be better off than we are.
We want them to surpass us “in all things,” not simply in terms of material wealth, but also with respect to their development as whole human persons, body and soul.
Earlier this week I had the privilege of participating in a panel discussion hosted by Common Sense Concept at AEI on the current debt crisis facing America, focusing particularly on applying the concept of “intergenerational justice” to the problem. You can view the entire event at the AEI page. A highlight of my comments appears below:
One of the things we talked about during the discussion was the idea of “opportunity” and how it relates to intergenerational justice. Cicero’s sentiment assumes this idea: his son needs to have the opportunity to surpass him, to be better than him “in all things.”
I think of how this applies to the hopes and dreams of so many Americans, not particularly for themselves, but for their children. Consider the people you know or stories you’ve heard about parents who work extra shifts and second, sometimes third, jobs to put away money so that their child can have the opportunity they have never had: to go to college, to get a well-paying, rewarding, and fulfilling job, and to see flourishing on an intergenerational scale.
It reminds me of the film “The Pursuit of Happyness” that came out a few years ago. This is a story based on the real-life experiences of Chris Gardner. One of the takeaways from the film version is that so much of what drives Gardner to work harder, to never give up, to continually seek a better life, is that he is doing all this for his son. Lending the portrayal special poignancy, in the film Gardner and his son are played by Will Smith and his own son, Jaden.
A great deal of what we are talking about in this ongoing conversation about the public debt crisis and intergenerational justice centers on this idea of opportunity. Ryan Streeter mentioned it explicitly in our discussion, and Ron Sider’s explication of what the biblical picture of “economic justice” is like could be summed up as focusing on guaranteeing opportunity across generations. In his essay, “General Biblical Principles and the Relevance of Concrete Mosaic Law for the Social Question Today,” (appearing in the latest issue of the Journal of Markets & Morality) the theologian Herman Bavinck describes the Old Testament polity as one in which “the basic necessities for a life of human dignity were made possible for most Israelites.”
The fiscal reality today, however, is that we are rapidly facing a situation in which the coming generations will be constrained from having the opportunity to surpass us because of the profligacy of federal spending, the deleterious commitments to transfer wealth from younger and poorer workers to older and wealthier Americans, and the simply unsustainable levels of spending pursued for decades by politicians.
This is why in the key economic factor to consider in the debates about the ethics of intergenerational justice is that of opportunity cost. As David Henderson writes, the concept’s “virtue is to remind us that the cost of using a resource arises from the value of what it could be used for instead.”
The Social Security system is perhaps the most obvious example in this regard. It is the single largest piece of the federal budget ($695 billion in FY 2010), taking large sections of income out of the checks of working Americans every pay period, that could otherwise be put to a variety of other uses. Depending on the situation, some of these uses might be more immediate and temporary (like food and rent) and others might have longer-term implications (such as investment and savings).
When we ignore opportunity cost and its intergenerational implications, we are constricting the range of options available to current and future generations. We are, in fact, infringing on their rights to liberty and “the pursuit of happiness.”
I argue in “Christ’s kingdom is bigger than the federal government” that there is a basic confusion from many religious voices in the budget debate about the primary role of the federal government, and make the point that Abraham Kuyper’s “famous quotation attributes the claims of lordship over ‘every square inch’ of the world to Christ, not to the government. To miss this critical distinction is to undermine the very basis of Kuyper’s comprehensive and variegated social thought. For Kuyper, there are important differences among the responsibilities of the government, the church, the family, schools and a host of other social realities.”
I also refer to last month’s conversation with Gideon Strauss of the Center for Public Justice on “A Call for Intergenerational Justice” (audio here). Be sure to check out the event later this month where I’ll be a panelist to discuss these issues along with Strauss, Jennifer Marshall, Ron Sider, Jonathan Merritt, and Ryan Streeter, “I Hope I Die Before I Get Old,” hosted by the American Enterprise Institute (the event will be streamed online for those fortunate enough not to live in or near the Beltway).
It’s been awhile since I’ve done a summary post of this kind, but there’s been a fair number of things of interest over the last week or so that are worthy of a quick highlight. So here’s an edition of the aptly named “Five Things” (HT):
Carl Trueman reflects on his visit to the Acton Institute. Concerned about how his Republocrat credentials might come across, Trueman says, “Despite my fears that I might be heavily outgunned at Acton, the seminar actually turned out to be great fun. I had, after all, never before lectured in the back room of a pub, with a pint of Pale Ale in one hand and a notebook in the other. And I thoroughly enjoyed the opportunity of arguing that Mrs Thatcher, and not the trendy Left, was the real radical of the eighties and had actually done much to shatter the class ossification that had gripped Britain for generations.” You can listen to Trueman’s Acton on Tap visit here.
John H. Armstrong discusses his relationship with the Acton Institute. Fresh off a visit to Rome, where among other things he spoke at an event for Istituto Acton, our Rome office, John Armstrong writes of his first impressions of the institute: “I felt like I had wandered in from the cold. As I listened to Catholic and Protestant scholars explain the freedom of markets and governments, all rooted in virtue, I felt as if I was drinking from a fountain that I had been searching for over the course of my whole life. I was frankly tired of political partisanship as a way to change culture. I wanted to connect with people who saw a better way to make a real difference in society without overtly linking their vision and efforts to raw party politics. I also wanted a different paradigm for understanding principles of economic freedom that was not rooted in the modern ideas of socialism, captialism, etc.”
Napp Nazworth chides me for putting principle above prudence. After starting a blog to stop feeling “the need to be somewhat secretive with what I say about my religious and political views, particularly, in my easily found online writings,” Napp Nazworth opens with a series of posts on “A Call for Intergenerational Justice,” in which he writes, “The time for action on our federal budget crisis is now, and Congress can only accomplish this task by working in a bipartisan manner. Solutions to the crisis will be painful to many voters. Neither political party, therefore, will tackle the problem by itself because to do so would be disastrous for that party at the next election.”
Greg Forster has some questions about “A Call for Intergenerational Justice.” In his inaugural post at the First Things blog “First Thoughts,” Greg Forster wonders about “A Call for Intergenerational Justice,” asking, “Will democratic debate be well served if people who admit that they don’t know the difficult details behind the policymaking get up on a high horse and proclaim what the reform agenda must include – with the (barely) implicit suggestion that anyone who disagrees is an enemy of the public good – or of God?”
David Mills rebukes the “Evangelical Left” for coming late to the debt-denouncement party. Sticking with First Things for a “A Call for Intergenerational Justice” trifecta, in a piece “On the Square” today at First Things, David Mills notes the Acton Institute engagement of the Call, but contends in particular that the signers of the document, the “Evangelical Left” in his view, “are very late to the party, and they ought to apologize for being late before they start talking about it as if they’d helped plan it.”
I’d like to thank Gideon Strauss of the Center for Public Justice and Jordan Ballor of the Acton Institute for their gracious and thoughtful contributions to the discussion of “A Call for Intergenerational Justice” at last night’s Open Mic Night in Grand Rapids. It was an excellent example of the kind of spirited and good natured dialogue we need in confronting the problems of poverty and the national debt.
Earlier this week I pointed out that there was indeed a lot in the “Call” to be recommended. It takes the question of the debt seriously and makes hard recommendations involving both cuts to federal spending and tax increases. Both will be necessary tools for addressing this issue.
My problem with “A Call for Intergenerational Justice” is that I don’t believe these two tools, while both necessary, are sufficient to address the crisis alone. In the short term cuts in federal spending will affect many adversely and tax increases will place an additional burden on an economy still struggling to emerge out of a recession.
The precarious place we now find ourselves in has many causes. Government spending that has grown to unsustainable levels and tax cuts funded by borrowing (Which are, in the long term, not genuine tax cuts at all) have both played a role. But what has fueled the deficit most in recent years is the recession itself and the tragically misguided attempts by the federal government to lift us out of it.
What we desperately need is a third tool, economic liberalization, which would promote economic growth. Here are four broad principals of economic liberalization which, if they had been included, would have made “A Call for Intergenerational Justice” a document not just worth thoughtful consideration and debate but something worth getting behind:
We need to open more markets to American goods and services and open them more widely.
We need to lower barriers (in the form of regulation) and cost (in the form of taxation) to doing business and creating jobs domestically.
We need to lower regulatory barriers for entrepreneurs to enter the marketplace by streamlining or cutting red tape.
We need to look seriously at intellectual property law and strike a better balance between rewarding innovation and promoting competition.