by Gary Griffin
The baby boom generation will have a drastic influence on the future generations. This generation could devastate our economy to such a degree that it never recovers. This is not an indictment against baby boomers. This is an explanation of the effects of the demographics of this generation on the standard of living in the United States over the next decade if our leaders continue down the same roads on the same course. At first glance, the explanation may not be obvious to the untrained eye, but the implications are clear.
The end of World War II brought a baby boom to many countries, most notably, the United States of America. There is some disagreement as to the precise beginning and ending dates of the postwar baby boom, but it is most often agreed to begin in the years immediately after the war, ending more than a decade later; birth rates in the United States started to decline in 1957. There are an estimated 77.3 million Americans who were born during this demographic boom in births. Baby boomers are now middle age and entering senior years. In the economy, many are now retiring and leaving the labor force. It is important to distinguish between the demographic boom in births, and the actual generations born during that period. Here, we are focused on demographic boom in births, not generations. The United States Census Bureau defines the demographic birth boom as between 1946 and 1964—almost twenty years or an entire generation.
This cohort shares characteristic like higher rates of participation in higher education than previous generations and an assumption of lifelong prosperity and entitlement developed during their childhood in the 1950s. Boomers grew up at a time of dramatic social change. In the United States, that social change marked the generation with a strong cultural cleavage, between the proponents of social change and the more conservative. Some analysts believe this cleavage has played out politically since the time of the Vietnam War, defining, to some extent, the political landscape and division in the country. Although boomers across the world are said to have come of age at about the same time, the people in the United States were driving over to Woodstock, organizing against the Vietnam War or fighting and dying in the same war. It was a time of discontent and disagreement for many, as American boomers found a new home in Canada and escaped the draft and the Vietnam War.
The baby boomers are at a different place now in 2010. With the year 2012 rapidly approaching, many will start into retirement. As with all human beings, baby boomers must now face their own mortality and the same end of life issues that everyone else must face. As of 1997, it was reported that, as a generation, boomers had tended to avoid discussions and planning for their demise, and avoided much long-term planning. However, beginning at least as early as that year, there has been a growing dialogue on how to manage aging and end-of-life issues as the generation ages. In particular, a number of commentators have argued that baby boomers are in a state of denial regarding their own aging and death, and are leaving an undue economic burden on their children for their retirement and care. Research on memory loss has indicated that the baby boomer generation has been confronted with increasing loss of memory due to the agitated life they lead that requires attention on many different things at a time. Since older generations were not faced with this rapid lifestyle, and younger generations have lived with this society all their lives, it is said that the baby boomer generation was the most damaged one in terms of memory loss due to age.
Most importantly, baby boomers who are ready to retire have a significant need based on their end-of-life issues. These will come in two forms. 1.) Money to support them in their retirement. 2.) Soaring medical costs to cover medical needs that happen to occur most often at the end of a person’s life. In 2009, the American Heritage Foundation conducted a study to look at these financial impacts on America in comparison to the bailouts in 2008. In this study, they report that “At nearly a trillion dollars, taxpayer-funded bailouts of failing financial institutions loom as a staggering threat to the free-market system. Even as Congress must protect taxpayers from this risk, it “pales” as to how much Americans would have to hand over to cover retirement promises in Medicare and Social Security.” In this study, they report unfunded benefits due to baby boomers of somewhere around 40 trillion dollars. This debt is in addition to the 12 trillion we already owe. 143 We are deep in debt, and the debt keeps climbing. Whatever other assessment may be made, we can be sure that to be debt poor is not a road to prosperity for future generations. The risks to America and future generations are real.
MIDDLE-CLASS AMERICA AND DEBT POOR
If you take the middle class out of America, then you take the backbone out of America. It is the middle class that does all the work in this country. Don’t think so? Let all middle class Americans stop working for one day, and this country will come to a grinding halt. Let all middle-class Americans stop working for one month, and then the whole world will stop. It is true.
There is a strange inconsistency in America. The middle class performs all the work, produces the goods and services, drives the economy, pays all the taxes, and yet they control only about 10 percent of the nation’s wealth in terms of money. Money, after all, is how we pay for those resources that are necessary for survival—food, shelter, and clothing. How can this be so? Let’s examine this strange phenomenon in more detail.
As shown in figure 5, the distribution of the population in the United States largely falls within the middle class income distribution. Although demographers may disagree somewhat on the exact numbers, it is clear that this group makes up the largest proportion of the U.S. population. As show here, about 80 percent of this population falls within this category.
Figure 5: U.S. Population Distribution by Class
As shown in figure 6, the wealth distribution in this country is somewhat different. Here we can see that while only about 5 percent of the population makeup what would be called an upper class, they control about 84 percent of the wealth. This is a strange inconsistency, as it shows that the wealth of the nation resides primarily in the hands of a few.
Figure 6: U.S. Wealth Distribution by Class
If we apply these same numbers to the baby boom population, this means that most are members of the middle class. A few have accumulated significant amounts of wealth over their lifetimes that will support them in old age. A larger, but still small, number would be classified as lower class. This group of baby boomers has been dependent on government assistance in one form or another most of their lives. Their retirement age will register little significance in terms of overall government entitlement. However, for the vast majority of baby boomers, who fall within the middle class, their retirements will drastically affect the economy in the United States. As pointed out in the previous section, they will expect the social security and Medicare benefits guaranteed to them as part of the social contractual arrangement whereby the government told them that if they paid into the system during their adult working lives, they would be covered in their old age. Their old age is now. Their retirement is now, but the problem is that our government has taken the nation deep into debt. Moreover, the average middle-class American carries significant personal debt. As a baby boomer, this debt load makes early retirement impossible, and therefore, their time in the workforce is likely to be extended. As reported by the Federal Reserve Board in 2004, the average debt of American families is $79,083. With such debt loads, who can think about retirement?
With the downturn in the economy of 2008 and 2009, the impending retirement of baby boomers starting in 2012 and their associated entitlements in social security and Medicare, the reduction of the workforce, high school dropout rates, and finally the mismatch of skills taught in an outdated education system to the needs of an information society and knowledge-based economy, we have the makings of a perfect storm. We could continue down the current road, but the likely outcome would be an even larger welfare state in the United States.
THE EVOLUTION OF THE WELFARE STATE
Until the Great Depression, government interference in the daily lives of the
citizens of this country was not tolerated. With economic depression and the conditions that resulted from the depression, it created an environment ripe for changes. Generally, these changes and the government’s involvement through social policies and social programs began what today is commonly referred to as the welfare state. Although a certain amount of welfare existed before that time period, it was generally left to individuals and communities to provide for those less fortunate in times of need. Self-sufficiency and independence were the watchwords for most citizens, and the idea of taking a handout from anyone, especially the government, wasn’t acceptable to good, decent, hard-working folks. The Great Depression changed all of that.
Changed attitudes in reaction to the Great Depression were instrumental in the move to the welfare state in many countries, a harbinger of new times where cradle-to-grave services became a reality after the poverty of the depression. During the Great Depression, it was seen as an alternative middle way between communism and capitalism. In the period following the Second World War, many countries in Europe moved from partial or selective provision of social services to relatively comprehensive coverage of the population.
There are two main interpretations of the idea of a welfare state. In the first model the state assumes primary responsibility for the welfare of its citizens. This responsibility in theory ought to be comprehensive because all aspects of welfare are considered and universally applied to citizens as a right. Welfare state can also mean the creation of a social safety net of minimum standards of varying forms of welfare. The welfare state involves a direct transfer of funds from the public sector to welfare recipients, but indirectly, the private sector is often contributing those funds by redistributionist taxation; the welfare state has been referred to as a type of mixed economy. There are two ways of organizing a welfare state. According to the first model the state is primarily concerned with directing the resources to the people most in need. This requires a tight bureaucratic control over the people concerned, with a maximum of interference in their lives to establish who are in need and minimize cheating. The unintended result is that there is a sharp divide between the receivers and the producers of social welfare, and the producers tend to dismiss the whole idea of social welfare because they will not receive anything from it. This model is dominant in the United States. According to the second model, the state distributes welfare with as little bureaucratic interference as possible, to all people who fulfill easily established criteria (e.g., having children, receiving medical treatment, etc). This requires high taxing, of which almost everything is channeled back to the taxpayers with minimum expenses for bureaucratic personnel. The intended—and also largely achieved—result is that there will be a broad support for the system since most people will receive at least something.
Empirical evidence suggests that taxes and transfers considerably reduce poverty in most countries, whose welfare states commonly constitute at least a fifth of GDP. Unsurprisingly, the information shows that welfare states would have higher poverty rates than a nonwelfare state such as the United States before the transfer of wealth; an example would be Sweden that has a 23 percent poverty rate pretransfer while the U.S. has a 21 percent poverty rate pretrans-fer. Some criticism of welfare states concern the idea that a welfare state makes citizens dependent and less inclined to work. Certain studies indicate there is no association between economic performance and welfare expenditure in developed countries and that there is no evidence for the contention that welfare states impede progressive social development.
Socialists and Marxists criticize welfare state programs as concessions made by the capitalist class in order to divert the working class and middle class away from wanting to pursue a completely new socialist organization of the economy and society. Furthermore, socialists believe it is an attempt to patch up the ineffective capitalist market economy and proves that capitalism does not work effectively. By implementing state or public ownership of the means of production, socialists believe there will be no need for a welfare state.
Another criticism characterizes welfare as theft of property or forced labor (i.e., slavery). This criticism is based on the classical liberal human right to obtain and own property, wherein every human being owns his body and owns the product of his body’s labor (i.e., goods, services, land, or money). It follows that the removal of money by any state or government mechanism from one person to another is argued to be theft of the former person’s property or a requirement to perform forced labor for the benefit of others, and thus is a violation of his property rights or his liberty, even if the mechanism was legally established by a democratically elected assembly.
A third criticism is that the welfare state allegedly provides its dependents with a similar level of income to the minimum wage. Critics argue that fraud and economic inactivity are apparently quite common now in the United Kingdom and France. Some conservatives in the United Kingdom claim that the welfare state has produced a generation of dependents who, instead of working, rely solely on the state for income and support; even though assistance is only legally available to those unable to work. The welfare state in the United Kingdom was created to provide certain people with a basic level of benefits in order to alleviate poverty, but that as a matter of opinion has been expanded to provide a larger number of people with more money than the country can ideally afford. Some feel that this argument is demonstrably false: the benefits system in the United Kingdom provides individuals with considerably less money than the national minimum wage, although people on welfare often find that they qualify for a variety of benefits, including benefits in-kind, such as accommodation costs that usually make the overall benefits much higher than basic figures show.
Fourth, another criticism of the welfare state is that it results in high taxes. This is usually true, as evidenced by places like Denmark (tax level at 48.9 percent of GDP in 2007) and Sweden (tax level at 48.2 percent of GDP in 2007). Such high taxes do not necessarily mean less income for the nation overall, since the state taxes ideally go directly to the people it is taxed from. These high taxes are argued to result in a major redistribution of that income from the citizens who do not accept welfare to the citizens who do accept welfare.
A fifth criticism of the welfare state is the belief that welfare services provided by the state are more expensive and less efficient than the same services would be if provided by private businesses. In 2000, Professors Louis Kaplow and Steven Shafell published two papers, arguing that any social policy based on such concepts as justice or fairness would result in an economy that is Pareto, a term used to describe efficient situations in which it is impossible to make one person better off without necessarily making someone else worse off, inefficient. Anything that is supplied free at the point of consumption would be subject to artificially high demand, whereas resources would be more properly allocated if provision reflected the cost.
The most extreme criticisms of states and governments are made by anarchists and Libertarian Socialists, who believe that all states and governments are undesirable and/or unnecessary. Most anarchists believe that while social welfare gives a certain level of independency from the market and individual capitalists, it creates dependence to the state, which is the institution that, according to this view, supports and protects capitalism in the first place. Nonetheless, according to Noam Chomsky, “social democrats and anarchists always agreed, fairly generally, on so-called ‘welfare state measures’” and “Anarchists propose other measures to deal with these problems, without recourse to state authority.” Anarchists believe in stopping welfare programs only if it means abolishing government and capitalism as well.
Welfare provision in the contemporary world tends to be more advanced in countries with stronger, developed economies. Poor countries tend to have limited resources for social services. There is very little correlation between economic performance and welfare expenditure. There are individual exceptions on both sides, but the higher levels of social
expenditure in the European Union are not associated with lower growth, lower productivity, or higher unemployment, or with higher growth, higher productivity, or lower unemployment. Likewise, the pursuit of free market policies leads neither to guaranteed prosperity or social collapse.
From this perspective then, it’s not social welfare we need to focus on to address the social problems in America. We should focus on the social changes that we are experiencing in America as a result of shifting from one system of production (the industrial society model) to another system of production (the information society model). As I described in chapter 1 and in chapter 2, the macro-level trends and the accompanying social structure changes are where we need to focus our efforts and our social policies. We need to direct attention through new and better social policies that facilitate this time of transition in America. This recognition seems totally lacking by Washington and Wall Street. The political economy in America is formidable. In the remaining chapters, I describe how we need to address this transition, and the changes we need to make as a nation. I am sure that social programs that promote dependence on government do not put America on the path to prosperity in the twenty-first century.
If we apply the power of ten to the population based on the current path of our country, the demographics are likely to include four people who don’t have the right skills and knowledge to compete and work in a twenty-first century world, and need public assistance just to meet basic needs for survival; three people who are retired and are dependent on social security and Medicare; one person who is a child and dependent on a public education system that doesn’t deliver what it needs to in order to prepare them for the future of the twenty-first century, and two people who are likely government employees who will be responsible for processing the government entitlements of the other eight. This must not be the future welfare state of America.