Dear Mom and Dad, I love you, but thanks for leaving us with a financial mess.

Posted: May 22, 2012 in Social Security/Medicare/Medicaid
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There is an interesting new book out by economist Larry Kotlikoff called The Clash of Generations. I read several excerpts from it. It seems to be definitely worth your time. The general point is the biggest problem America is facing is the mess the Baby Boomer generation is going to leave us with. Mom and dad, I love you, but this is your mess, and you are leaving me, my wife, and my son with an insane financial mess to clean up. I hope you enjoyed your prime years. At this rate, my generation is going to be saddled with the ball and chains you left us with because you let politicians run amok promising you everything under the sun in the years when your sun is setting.

“The $30,000 combined Social Security, Medicare, and Medicaid payment that is being handed, on average, to each of today’s elderly equals almost two-thirds of per capita GDP. By the time the boomers are fully retired, the figure could exceed 100 percent of per capita GDP. Whoever said America isn’t a welfare state? It is a welfare state, but the welfare is for the elderly, not the poor. While our two parties argue over the haves and have-nots, we are blind to what the nows are doing to the laters.”

“In the dream world of our political parties, their favorite action always “pays for itself.” Republicans buy votes by reducing taxes and claiming they pay for themselves. Democrats buy votes by spending money and calling it an “investment.” Setting just one set of these loonies loose on the economy would be damaging enough, but in recent years we’ve opened the asylum. We’ve watched them combine forces to both raise spending and cut tax rates. The bill goes to the kids who, conveniently, are never in the room.”

“But our main point here is that most of the massive postwar redistribution from the young to the old has not been from rich young people to poor old people. It has mostly been from middle-class young people, who pay high employment taxes, to middle-class old people who receive them. And that redistribution has left the young with a fiscal sword of Damocles suspended over their heads. Furthermore, that redistribution has cut our national saving rate from 15 percent to 0 percent. It has cut our domestic investment rate from 15 percent to 4 percent, and it has contributed to the lack of real wage growth, which marks the death knell of the American dream. Reducing poverty among the elderly (or any other group) is a wonderful goal, one that we should pursue. But we seriously doubt that anyone, of any political or chronological persuasion, would want to do it at the cost of literally wrecking the country.”

“The financial meltdown that’s surely coming and will do more lasting damage to our kids won’t be triggered, like the last one was, by the production and sale of trillions of dollars in fraudulent securities. It will be a run on the Treasury and the Fed triggered by the global realization that Uncle Sam is in far worse fiscal shape than ever imagined.

The moment of reckoning can come at any time, and when the markets finally realize that our fiscal problem is enormous and cannot indefinitely be papered over by the Fed’s money creation, things will change abruptly. We’ll have a tremendous financial collapse that hits the bond and the stock markets, and not on a short-term basis. That will accelerate the fiscal collapse, which will reinforce the financial collapse—in short, a vicious cycle. By design, our financial institutions have built no firewalls separating themselves from one another. Instead, there are only fire paths, waiting to ignite.

The hour is extremely late. We can no longer afford doing too little too late, putting off tough decisions for tomorrow, and enduring political gridlock. To fix America, we need to start from the ground up. Only radical, fundamental reforms of the financial system, the tax system, the health care system, and Social Security will solve our problems and get our country turned around. But it can be turned around.”

“There are about 70 million Americans between eighteen and thirty-five years old. Imagine they all march on Washington. Imagine they let their elders know they aren’t happy with their treatment. Imagine they join together in a party—the Generational Equity Party—and start voting for candidates who represent the interest of today’s and tomorrow’s young generations. Imagine how that would change the conversation.

And imagine those older than sixty seeing their faces and hearing their voices and saying Yes, they’re right. These are our children and grandchildren. We need to protect them. They are on earth, if not in heaven, our only true future.”

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