Should Millennials be outraged at previous generations? Pundit Soren Sudhof thinks so. In an apoplectic piece, he argues that Baby Boomers and Gen X selfishly promised themselves generous benefits based on projections of economic growth that didn't materialize. Pundit Richard Matthews commented that our generation's problems simply don't compare with previous generations.
Both have good points. The future will almost assuredly be better than the past. As we become richer, the blows that come from economic downturns and budget cuts won't hurt as bad as they used to. The sky isn't falling, and Millennials should stop pretending that it is. But we should also recognize that there is a tradeoff: Generous pensions with healthcare benefits for the elderly will crowd out investments that lead to long-run economic growth and benefits for our most needy and disadvantaged citizens.
Consider the experience of state governments, who long ago promised pensions with "defined benefits" to government employees. Because of demographic shifts and less than expected economic growth, these pensions are taking up an increasingly large share of state budgets. As a result, states are cutting discretionary funding, and the largest and easiest item to cut is education.
Cutting education funding is an big problem because the growth of our economy depends on high-skill labor. Economists understand well that a more educated workforce leads to higher economic growth in the long run. Failing to prioritize education now means an increasing skills gap and stagnating wages in the future.
That's because the American economy will depend less on low-skill jobs as they are subjected to the "creative destruction" of technological innovation and outsourced to countries with cheap labor.
Progressives believe in a society that guarantees basic freedoms, while giving special consideration to the poor and disadvantaged. But most of the funds in our government transfer programs go to senior citizens — a relatively affluent group. The wealth gap between young and old is currently the the greatest it has ever been. Households of those 65 and older have a net worth of $170,000, 47 times more than households of workers age 35 and under. This gap has increased nearly five-fold from 25 years ago. Only 39 percent of Medicare beneficiaries qualify as low-income (150 percent of the federal poverty line), and those in the top 5 percent have more than $1 million in savings and over $80,000 in income.
These problems are relatively easy to solve, but require the political will — and Millennials' civic participation — to do so. Seniors won't like this one bit. We can solve the pension budget problem by replacing defined benefit plans with defined contribution plans. (Some states, like Utah and Rhode Island, have already made this switch.)
The choice we have is simple. We can spend generously today on the elderly's consumption and healthcare or we can make investments in today's youth that will create a more productive, innovative workforce tomorrow.
Photo Credit: Fibonacci Blue