Generational Theft

On Thursday October 17, just hours before the government’s borrowing authority was set to expire, President Obama signed a bill to reopen the federal government. The debt limit was lifted and the government gleefully returned to its spending spree as government debt topped $17 trillion for the first time in history. The American people heaved a collective sigh of relief that our government was no longer in “shutdown.” However, we shouldn’t feel relieved because the real crisis is unresolved: the ticking time bomb of out-of-control government debt.

College students of today, my generation, and our younger siblings are certain to suffer harm from our nation’s addiction to debt unless something is done soon.

Thomas Friedman, New York Times editorial writer, says of our generation: “Whether they realize it or not, they’re the ones who will really get hit by all the cans we’re kicking down the road. After we baby boomers get done retiring- at a rate of 7,000 to 11,000 a day- with current taxes and entitlements promises, the cupboard will be largely bare for today’s Facebook generation” (New York Times). Self-made billionaire Stan Druckenmiller is touring colleges trying to impress upon students the true amplitude of the problem of the rising costs of Social Security and Medicare, which he claims is the biggest generational theft in history. “I’m not against seniors” he likes to remind people, “In fact I am going to be one in a couple of years. What I am against is present seniors stealing from future seniors.”

Druckenmiller made his fortune running a successful hedge fund, and he asserts that the current deficit problem is one that is in many ways analogous to mistakes he has seen people make in investing. People are looking at the present and not the future, he explains, “When you analyze the debt at present it looks fixable. However, this is because the expectations of government don’t factor in demographics.” For the next twenty years, we are going to have 11,000 seniors retiring each day and the proportion of seniors relative to working population is going to explode. Instead of having five workers supporting each senior we will have two. ”If you actually took what we promised to seniors and future taxes and present value both of them, that number is 200 Trillion dollars. That is the problem when you take debt of future payment to seniors and put it on the balance sheet.”

While entitlement spending on senior citizens accounted for about 30% of the government budget in 1970 it has now reached a staggering 67% of government outlays, leaving less and less for any other type of discretionary spending. While many seniors believe that they are simply drawing out the savings they were forced to deposit into Social Security and Medicare, they are actually drawing out much more, especially relative to later generations. In fact, while today’s 65 year olds will on average draw $327,400 more than they put in in net lifetime benefits, children born now will suffer net lifetime losses of $420,600 as they struggle to pay the bills of aging Americans (Wall Street Journal). To Stanley Druckenmiller, this is an affront to the basic principle of equity, “How in the world does anyone in Washington think that a current senior should get $700,000 more net, than a future senior? You are taking out $350,000 more than you put in and leaving $400,000 in debt to your unborn grandchild” (Bowdoin Daily Sun).

Although the details of the federal budget are complicated, the big picture is very simple. Debt means that we spend money now that we have to pay back later. Common sense tells us that taking on debt to invest in something productive can be a good idea if the investment allows us to increase our income enough to comfortably pay off the debt we have incurred. But this is not what the government is doing. The United States is borrowing money to pay for consumption. The government is in effect writing checks to senior citizens to pay for retirement and expensive medical care. My generation will have to pay back the money that is currently being spent on today’s overindulged seniors. When we reach retirement age, there is no way that we will have benefits at the same level they do. Furthermore, the period of deleveraging will be a drag on tomorrow’s economy.

Politicians have systematically ignored the true drivers of the budget deficit, Social Security and Medicare. Instead, budget reforms have focused more on tampering with crucial investments in education and other discretionary spending, efforts that fall vastly short of the measures required to significantly reduce the federal debt. College students, who tend to vote for Democrats, are often against spending cuts that reduce aid to the poor, research , education and environmental regulation. The reality is that even if all of these programs were eliminated, the deficit would hardly budge. Meanwhile, as debt ceilings keep getting lifted and true spending reforms that would hit entitlements keep getting postponed. The problem just gets compounded and the ultimate cost keeps getting higher.

Our generation doesn’t seem to realize that we will ultimately bear the cost of the government’s current fiscal irresponsibility. Both cuts in entitlements and spending as well as rises in taxes, or at least eliminating loopholes, will be necessary. The debt has reached a level where even with robust economic growth, we can’t grow our way out of this mess. It’s time that politicians start taking necessary actions. As articulated by an activist youth group, The Can Kicks Back, “Our country needs a grand generational bargain.” This is not a partisan issue. The current path of the United States government spending is simply unsustainable and it is today’s younger generation that will be left struggling to pay off the debt of an America that spent beyond its means.