I have to confess I find stereotyping annoying, and in almost all cases, it’s a poor substitute for more careful analysis and characterization. Yet it is marvelously effective in politics, as Karl Rove proved. Stereotyping, which is often not all that different from bigotry, goes hand in hand with what Lambert calls “strategic hate management,” For instance: “People who get welfare and social services are leeches;” “If you lost your home, you were a deadbeat and deserved it;” Women who were raped don’t get pregnant so there’s no reason to let them have abortions.” Manipulating voters with hot-button issues has the convenient side effect of diverting their attention from how major corporate and other big monied interests extract cash and other prizes from the government.
I’m turning to the topic of identity politics now because I’m seeing a noticeable increase on multiple fronts. It looks as if election preparation is starting even earlier than usual. Perhaps three or four months back, I noticed a marked uptick in women-themed articles in the business and political pages, as in a much greater frequency of articles on topics like women as leaders and flattering profiles of prominent women (I found the rah rah about Janet Yellen being the first woman Fed chair to be particularly off-putting). It has a real non-organic feel, the same way the deadbeat borrower meme did when it emerged after the robosigining/chain of title scandal broke.
Even though stereotyping about women is a constant in the media, I’ve refrained from doing much more than occasionally grumble in Links and comments about it, since it reflects deep-seated cultural views and those change very slowly. And it does not have much bearing on the major topics of this blog.
By contrast, we’ve had a tremendous amount of economic mismanagement in this country, not only in the policies that gave us the global financial crisis, but the approach to the aftermath, which has pretty much been, “save the banks and the hell with everyone else.” Now it turned out that the asset-price-goosing measured that salvaged the big financial firms also did wonders for the moderately and super wealthy, so they have every reason to try to hang on to and extend the monetary and political advantages they’ve gained.
By contrast, working people have suffered greatly. Average real wages fell from 2010 to 2012, during a so-called recovery, and are 14% below their peak, achieved in 1972. But the real tragedy is in sustained un and underemployment. NC commentor Hugh calculates real “disemployment” as nearly 18%. The weak job market hitting all age groups, but it is a particularly hard blow to new and recent graduates, who invested in (often costly to them) educations to give them a leg up in the job market. Many have found it didn’t do much good.
A particularly potent political grouping would be for older people, particularly retirees, to team up with young people on economic issues. So it’s not surprising that some political mavens are trying to make sure that doesn’t happen. One of the strategies of the plutocrats comes from financier Jay Gould : “I can hire one half of the working class to kill the other half,” except this time, they aren’t even having to hire one half to turn it against the other.
Just as I’ve noticed an sharp uptick in women’s identity articles, I’ve also seen a ramping up of generational warfare and anti-baby-boomer messaging (I have as much antipathy towards broad comments about baby boomers as I do women). This phenomenon admittedly has deeper roots, since billionaire Pete Peterson has been campaigning against Social Security and Medicare since the mid 1980s, and presenting old people as something society can’t afford is part of his strategy. But he’s been joined by fresh troops, such as Fix the Debt and billionaire Stan Druckenmiller’s overt campaign to turn young people against older ones, The Can Kicks Back.
Yet how does indicting a large group of people who are extremely diverse in terms of income, occupation, religion, family status, and ethnicity make any sense? It’s tantamount to prosecuting everyone at JP Morgan for fraud and predatory practices, rather than Jamie Dimon and other responsible individuals.
I’ve run into some distressing examples of confirmation bias among people who are usually rigorous. For instance, one young colleague buys the generational warfare meme and argues that the current poor prospects for his cohort is the boomers’ fault because they supported Reagan, and Reagan was the architect of many of the policies that held down wages and used higher levels of consumer borrowing and asset bubbles to mask that capital was getting the lion’s share of the gains from productivity growth. But if you look at the results of the 1984 presidential election, you’ll see that support for Reagan didn’t vary much by age group, but it was lowest among 25 to 29 year olds and next lowest among 30 to 49 year olds. And voting for Reagan correlated vastly better with income. As for why Reagan did so well generally? To quote Clinton, it was the economy, stupid. Reagan got benefitted enormously from Volcker breaking inflation and then lowering interest rates, which led to a strong recovery from a steep, nasty recession. And Mondale was about as inspiring a candidate as Bob Dole.
Similarly, my young colleague blames suburbanization, and thus the US dependence on the car, on boomers. Yet American, unlike Europe, has had comparatively little in the way of dense cities; once the War of Independence was won and various Native American tribes were defeated, there was no safety reason to cluster housing tightly. In general, suburbanization is seen as taking off right after World War II, but it was well established even then.
One serious-sounding argument leveled against older people is that the young workers will be burdened by supporting an aged cohort that is large relative to their numbers. There’s a related variant of how older people are leaving younger people with a huge pile of debt to pay off.
Randy Wray debunked the first notion in a 2006 Levy Institute paper. The relevant sections:
The data are in: we are aging. Individually and collectively; nationally and globally. If you think that is a problem, consider the alternative. Aging results from the twin demographic forces of declining birth rates and rising longevity. The first is a welcome development that negated the dire “population bomb” predictions made by Club of Rome Malthusians three or four decades ago. Many developed nations are already worried about declining populations; even most emerging nations can look forward to stabilizing populations in the relatively near future. Obviously, lower fertility rates are desirable, and necessary, for achieving environmental sustainability. Rising longevity is desirable from the perspective of individuals, and also from society’s vantage point. The social investment in each human is huge, and longer average life spans help society to recoup its investment…
Of course, aging is considered a problem because of the burden placed on workers of supporting those aged who do not work. The most common measure of that burden is the aged-dependency ratio, which is formed by taking the number of those beyond normal working age—for example, aged 65 and above—relative to the number of normal working age—say, age 18 to 64. At best, this is a very rough measure of the burden put on workers. There are a large number of factors that affect the true, real burden. First, many people continue to work past age 65, both in formal labor markets and in informal (paid and unpaid) work. Women have traditionally provided much of the elder care, and as longevity rises, more and more women above age 65 continue to provide care for their aging relatives and others (again, in paid and unpaid work). By the same token, young people under age 18 work within and outside the home. Further, as we will see, it is important to note that even as the aged dependency ratio rises, the youth dependency ratio tends to fall. Thus, the total dependency burden on workers may not be rising, even if the share of elderly in the population is rising.
Additionally, the labor force participation rate and employment rate of people aged 18 to 64 can make a huge difference for the true burden on workers. A rising aged dependency ratio can be associated with a constant or falling burden on workers if the employment-population ratio is rising. The three most important factors that have led to changes of the employment rate across OECD nations in recent years have been the dramatic increase of female labor force participation rates in some western countries (the United States and Canada stand out), medium-term trends in unemployment rates (rising on trend in many European Union nations, falling on trend in the United States), and the trend to earlier age at retirement in many developed nations (although the United States has experienced rising labor force participation of elderly men—see below). These factors, in turn, depend on numerous variables including social norms, family structure, labor laws, economic necessity, and health. For example, falling fertility rates, as well as changing views of the role of women, have allowed higher female participation rates. Generous childcare systems in some nations permit even mothers with young children to work in formal labor markets. Laws protecting rights of persons with disabilities, as well as changing attitudes toward them, can increase participation rates of those formerly excluded. Improved health, perhaps due to better health care, can extend the working period for elderly persons, as well as for persons with chronic and formerly debilitating health problems. Especially in Europe, very early retirement ages have been encouraged through policy, in part as a reaction to high unemployment rates. In the future, this policy could be reversed, especially if employment rates of younger adults could be increased. Higher growth of aggregate demand—as in the United States during the Clinton years— can dramatically raise employment rates, sharing the burden of supporting the aged among a larger pool of workers. By contrast, sluggish economic performance, as in many Euro nations since monetary union, raises unemployment and lowers employment rates, increasing the burden on those with jobs—a problem that should be resolved, even if the Euro nations were not aging.
So the big takeaway from Wray’s discussion is that the supposed problem of an aging population is a non-problem if there are enough jobs. So rather than fighting over an artificially small economic pie, the result of the lack of political will to make a sustained commitment to job creation, young people and middle aged people should be creating more pressure to combat the political complacency about high unemployment.
And there’s been another odd meme about the job market: that young people aren’t getting jobs because older people are “hanging on” to them. Ahem, let me tell you, even among my relatively well-heeled ex-McKinsey confreres, many of the people who “retired” did so a lot earlier than they wanted to for a whole host of complicated reasons. It used to be that companies would prefer to push out more costly, older workers and replace them with new graduates.
That pattern has changed enough to impact overall employment figures. Trust me, this is not the result of a miraculous economy-wide improvement in negotiation and suck-up skills among middle aged workers. I’d hazard two things are conspiring together. One is that many of the remaining older workers aren’t at that high a pay premium relative to new hires. Two is that companies are less and less willing to pay for training. In IT, if you read sites like Slashdot, there’s been ongoing discussion of the lack of entry level jobs for at least a decade. Low level yeoman work, which was traditionally how people learned their profession, is also being sent more and more overseas by law firms. That sort of scut work was often the productive part of a new employee’s job while he was also learning his way around so he could do more useful things.
Short job tenures are also making companies less willing to invest in training. While the average across all US workers is around four and a half years, it’s lower among young workers. Tthe lower average job length among the young is at least in part due to job hopping. While that is narrowly rational (why shouldn’t you take a better job if one opens up? It’s not as if employers are loyal), employers will be even more leery of training workers if they think they’ll bolt at the first opportunity.
The “borrowing from the future” canard is dispatched with admirable vigor by Rumplestatskin of MacroBusiness:
“We are borrowing from the future” is a common phrase you might hear from economists musing about the state of the economy; about the behaviour of individuals, businesses and especially of government.
These statements arise in discussions about ageing, stimulus, social security, public investment, public debts, health, education and almost every other public policy topics in which economists self-declare some degree of expertise. To really drive home the entrenched nature of such thinking in economics, here’s Satyajit Das saying “Debt allows society to borrow from the future” and here’s something purporting to be an economics text saying the same thing.
Oh, and it’s a favourite line the double-speak repertoire of Tony Abbott and Joe Hockey.
All of this is truly odd. It’s nonsense really. Perhaps expected from politicians, but not from a profession that usually ‘looks through’ the veil of money to the utilisation of real resources in the economy.
The confusion rests on a conflation of money with resources; if money equals a claim on resources then borrowed money, or debts in general, therefore equates to resources borrowed from the future. Will Ricardian Equivalence never die?
All debts are transfers of purchasing power for current resources, despite new bank-issued debts not requiring current funding from a third party (as in the loanable funds model). In a direct credit transaction (peer to peer lending or credit channels including loanable funds) one party gives up their current purchasing power to another, with repayments and interest being a reversing of the transaction over time. No borrowing from the future there.
When new money is created through lending from the banking system, the same thing occurs, except that the society as a whole transfers resources to the entity spending the new money through inflation via their newly available purchasing power. This is usually known as by the concept of seniorage, though rarely is new lending discussed in these terms.
The whole point is that future resources don’t exist yet, so they can’t be consumed in the present! There is no transfer of resources – no hover boards are removed from the future and brought into the present via lending.
Which brings us back to often hotly debated idea of counter-cyclical fiscal policy, which is fundamentally used to increase demand for current production outputs, increase labour demand and employment and inflation, and invest in capital goods to be used in future period to produce those as yet uncertain future products.
Luckily there are some common sense economists out there. At least there was back in 1961 when Abba Lerner wrote this note about the impossibility of shifting burdens onto the future for society as a whole in response to a rather confusing article attempting to say the opposite in the American Economics Association’s most prestigious journal in 1960. Some of the ‘new generation’ are feeling the need to repeat this mantra in blog form.
If all of this isn’t enough, here’s the clincher – if today’s debt is borrowing from future generations, can’t we simply use tomorrow’s debt to borrow from later future generations indefinitely for the infinite future? Yes, yes we can.
Money and debt are mere tools of social goals. They are not the real resources of the economy but records of transaction and ownership claims. We can change the rules at any point to suit our social desires – debts can be forgiven, defaulted on, inflated away, or they can be used to justify war.
Yves here. Unfortunately, just as demonization of the poor hews to popular prejudice, so to does youth resenting the entrenched position of the old. After all. Greek mythology has Cronos castrating and deposing his father Uranus. Cronos was unsuccessful in trying to escape his destiny of being overthrown by his own children, led by his son Zeus. But the passing of the torch does not have to take such a contested form, particularly if we understand who our real enemies are.