The Baby Boom Bump

Baby BoomersConventional wisdom calls 2012 presidential race the “demographic election,” attributing President Obama’s victory in large part to his commanding advantage among rapidly growing groups like Latinos and millennials. But if demographics is destiny in politics, it is even more true for policy. Far from the headlines, the debate over budget deficit, taxes and unemployment is being driven by the large-scale changes in the American population, and in this case, it’s not new demographics of the young that are important, but rather the old demographics of the baby boom. (source: NYTimes – 07/12/2012)

For decades we have known that the retirement of the baby boomers would be a monumental event for economy. But now that it’s happening, many fiscal policy makers are acting as if boomers are eternal teenagers and are turning a blind eye to how boomers’ aging changes how we should approach economic policy. And this affects two of the central issues of negotiations: how much the government should spend and how we can cut unemployment. Consider debate over spending. The Congressional Budget Office projects that if current policies continue, total federal spending will rise to 24% of gross domestic product in 2022. Republicans and Washington deficit hawks argue that this means spending is out of control, since over the past 40 years government spending has averaged 21%. Their proposed solution is a cap on government spending as a percentage of the economy. Romney wanted to cap spending at 20% of G.D.P. Senator Bob Corker, Republican of Tennessee, has proposed a cap of 20.6% with Senator Claire McCaskill, a Democrat from Missouri. Just this week, Gov. Bobby Jindal of Louisiana, 2016 Republican presidential aspirant, suggested 18% cap.

These plans ignore the simple fact that you cannot repeal the aging of the boomers. The main reason expenditures are rising this decade is that spending on Social Security, Medicare and Medicaid is increasing by a whopping 3.7% of G.D.P. as the baby boomers age and retire. This demographic fact also has been driving increases in disability insurance payments as more knees give way and backs give out. These inexorable demographic changes mask the fact that over the past four years we have experienced historic levels of fiscal discipline. While there was a temporary and necessary spike in spending from the Recovery Act, annual appropriations actually declined by 1.4% a year between 2008 and 2012 in inflation-adjusted dollars, after growing by 6.1% a year during the George W. Bush administration. Under the caps agreed to last year, discretionary spending is scheduled to reach its lowest level, as a share of the economy, since the Eisenhower administration. This discipline, however, is being overwhelmed by demographic reality. We need to accept fact we simply cannot revert to historical norms in government spending and keep faith with commitments made to millions of aging workers. But that is no excuse for inaction: in addition to the existing caps on discretionary spending, we need higher revenues along with slower spending growth in our social insurance programs. Ignoring economics of boomer retirement also distorts debates about the unemployment rate. Despite the fact that the unemployment rate has dropped faster in the past year than at any time since 1995, Republicans say there has been no recovery in job market, since the 150,000 jobs being added monthly are simply keeping up with population growth. They note that the employment-to-population rate has not recovered significantly and claim that the only reason the unemployment rate is going down is that people are giving up looking for work.

If this were the 1960s, they might have a case. But the children of the 1960s are now in their 60s, and are simply not as likely to want to be in the labor force as younger workers. The employment-to-population ratio is on a steady downward trend, regardless of the economy. The fact that the rate is flat is evidence that the labor market is recovering (though not fast enough). With more than 200.000 boomers exiting the labor force each month through retirement, the rule of thumb that economy needs to add 140.000 jobs per month to keep up with population growth no longer holds. New normal is 100.000, which is why 150,000 new jobs a month has brought the unemployment rate from 9.5% to 7.9% over the last two years. Getting this right matters. If policy makers believe that the labor market has not improved over the past three years, they will reject the stimulus approach the president took in 2009 and oppose further efforts to boost aggregate demand, just as John A. Boehner, the speaker of the House, did last week after the administration called for a $50 billion stimulus package. Over the coming weeks, big fiscal policy choices will be made, many will be looking backward for a guide on how to move forward. But just as the generation that once proclaimed “don’t trust anyone over 30” has had to face the reality of gray hair and grandkids, the new economics of the baby boom dictate that we must deal with the country and economy we have today, not the one in the history books. 

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Consultor Internacional

5 Responses to The Baby Boom Bump

  1. (…..) Meanwhile, there is almost no organized pressure to deal with the terrible thing that is actually happening right now — namely, mass unemployment. Yes, we’ve made progress over the past year. But long-term unemployment remains at levels not seen since the Great Depression: as of October, 4.9 million Americans had been unemployed for more than six months, and 3.6 million had been out of work for more than a year. When you see numbers like those, bear in mind that we’re looking at millions of human tragedies: at individuals and families whose lives are falling apart because they can’t find work, at savings consumed, homes lost and dreams destroyed. And the longer this goes on, the bigger the tragedy. There are also huge dollars-and-cents costs to our unmet jobs crisis. When willing workers endure forced idleness society as a whole suffers from the waste of their efforts and talents.

    The Congressional Budget Office estimates that what we are actually producing falls short of what we could and should be producing by around 6 percent of G.D.P., or $900 billion a year. Worse yet, there are good reasons to believe that high unemployment is undermining our future growth as well, as the long-term unemployed come to be considered unemployable, as investment falters in the face of inadequate sales.

    So what can be done? The panic over the fiscal cliff has been revelatory. It shows that even the deficit scolds are closet Keynesians. That is, they believe that right now spending cuts and tax hikes would destroy jobs; it’s impossible to make that claim while denying that temporary spending increases and tax cuts would create jobs. Yes, our still-depressed economy needs more fiscal stimulus. And, to his credit, President Obama did include a modest amount of stimulus in his initial budget offer; the White House, at least, hasn’t completely forgotten about the unemployed. Unfortunately, almost nobody expects those stimulus plans to be included in whatever deal is eventually reached. So why aren’t we helping the unemployed? It’s not because we can’t afford it. Given those ultralow borrowing costs, plus the damage unemployment is doing to our economy and hence to the tax base, you can make a pretty good case that spending more to create jobs now would actually improve our long-run fiscal position. Nor, I think, is it really ideology. Even Republicans, when opposing cuts in defense spending, immediately start talking about how such cuts would destroy jobs — and I’m sorry, but weaponized Keynesianism, the assertion that government spending creates jobs, but only if it goes to the military, doesn’t make sense.

    No, in the end it’s hard to avoid concluding that it’s about class. Influential people in Washington aren’t worried about losing their jobs; by and large they don’t even know anyone who’s unemployed. The plight of the unemployed simply doesn’t loom large in their minds — and, of course, the unemployed don’t hire lobbyists or make big campaign contributions. So the unemployment crisis goes on and on, even though we have both the knowledge and the means to solve it. It’s a vast tragedy — and it’s also an outrage.

  2. The American economy is still, by most measures, deeply depressed. But corporate profits are at a record high. How is that possible? It’s simple: profits have surged as a share of national income, while wages and other labor compensation are down. The pie isn’t growing the way it should — but capital is doing fine by grabbing an ever-larger slice, at labor’s expense. Wait — are we really back to talking about capital versus labor? Isn’t that an old-fashioned, almost Marxist sort of discussion, out of date in our modern information economy? Well, that’s what many people thought; for the past generation discussions of inequality have focused overwhelmingly not on capital versus labor but on distributional issues between workers, either on the gap between more- and less-educated workers or on the soaring incomes of a handful of superstars in finance and other fields. But that may be yesterday’s story. More specifically, while it’s true that the finance guys are still making out like bandits — in part because, as we now know, some of them actually are bandits — the wage gap between workers with a college education and those without, which grew a lot in the 1980s and early 1990s, hasn’t changed much since then. Indeed, recent college graduates had stagnant incomes even before the financial crisis struck. Increasingly, profits have been rising at the expense of workers in general, including workers with the skills that were supposed to lead to success in today’s economy. Why is this happening? As best as I can tell, there are two plausible explanations, both of which could be true to some extent. One is that technology has taken a turn that places labor at a disadvantage; the other is that we’re looking at the effects of a sharp increase in monopoly power. Think of these two stories as emphasizing robots on one side, robber barons on the other (…..)

  3. This is not a good time to be starting out in life. Jobs are scarce, and those that exist often pay unexpectedly low wages. Beginning a family — always stressful and uncertain — is increasingly a stretch. The weak economy begets weak family formation. We instinctively know this; several new studies now deepen our understanding. When the labor market operates smoothly, it creates an economic escalator. Just out of high school or college, young workers typically switch jobs frequently until they find something that fits their talent and temperament. Job changes often mean higher pay; people move to advance themselves. The more they succeed, the more confident they feel in marrying and having children. The most startling evidence of the broken escalator is the collapse in marriages and births. Marriage has been declining for years. Now, in a new study, the Pew Research Center finds that in 2011 the U.S. birth rate (births per 1,000 women between the ages of 15 and 44) fell to its lowest level since at least 1920, the earliest year of reliable statistics. From 2007 to 2011, the U.S. birth rate dropped almost 9 percent. The total fertility rate — the estimated number of children born to adult women in their lifetime — has fallen four straight years to 1.9 (the replacement rate is 2.1). States with large economic setbacks suffered steeper birth rate drops, Pew says. Interestingly, births to immigrants fell more sharply than for native-born Americans. In 2010 — the latest detailed data — they dropped 13 percent from 2007 compared with a 5 percent decline for native-born women. Hispanics, both foreign and U.S.-born, had big birth-rate declines, reflecting exceptionally high unemployment and wealth losses from the recession, Pew says. The bleak labor market has hurt all age groups, but none more than the young. Consider the 23.4 million Americans who, on average, were considered “underemployed” over the past year. This group consists of 12.7 million officially unemployed; 8.2 million working part time but wanting full-time jobs; and 2.5 million desiring work but so discouraged they’d stopped looking. Of all these workers, 41 percent (9.5 million) were 30 or under, far in excess of their labor force share of 27 percent, reports Heidi Shierholz of the Economic Policy Institute, a liberal think tank that provided these numbers. Fully one-fifth of younger workers belong to the “underemployed.” As Shierholz notes, the young always have higher unemployment rates. It’s just worse now. “Young workers are relatively new to the labor market — often looking for their first or second job — and so may be passed over in hiring due to lack of experience,” she says. “If employed, their lack of seniority makes them candidates for being laid off.” But it’s more than the lack of jobs — or full-time jobs — that hurts the young. Wages have also sagged because too many applicants are chasing too few openings (…..)

  4. (…..) Since the 1970s, the Republican Party has fallen increasingly under the influence of radical ideologues, whose goal is nothing less than the elimination of the welfare state — that is, the whole legacy of the New Deal and the Great Society. From the beginning, however, these ideologues have had a big problem: The programs they want to kill are very popular. Americans may nod their heads when you attack big government in the abstract, but they strongly support Social Security, Medicare, and even Medicaid. So what’s a radical to do? The answer, for a long time, has involved two strategies. One is “starve the beast,” the idea of using tax cuts to reduce government revenue, then using the resulting lack of funds to force cuts in popular social programs. Whenever you see some Republican politician piously denouncing federal red ink, always remember that, for decades, the G.O.P. has seen budget deficits as a feature, not a bug. Arguably more important in conservative thinking, however, was the notion that the G.O.P. could exploit other sources of strength — white resentment, working-class dislike of social change, tough talk on national security — to build overwhelming political dominance, at which point the dismantling of the welfare state could proceed freely. Just eight years ago, Grover Norquist, the antitax activist, looked forward cheerfully to the days when Democrats would be politically neutered: “Any farmer will tell you that certain animals run around and are unpleasant, but when they’ve been fixed, then they are happy and sedate.” O.K., you see the problem: Democrats didn’t go along with the program, and refused to give up. Worse, from the Republican point of view, all of their party’s sources of strength have turned into weaknesses. Democratic dominance among Hispanics has overshadowed Republican dominance among southern whites; women’s rights have trumped the politics of abortion and antigay sentiment; and guess who finally did get Osama bin Laden. And look at where we are now in terms of the welfare state: far from killing it, Republicans now have to watch as Mr. Obama implements the biggest expansion of social insurance since the creation of Medicare.

    So Republicans have suffered more than an election defeat, they’ve seen the collapse of a decades-long project. And with their grandiose goals now out of reach, they literally have no idea what they want — hence their inability to make specific demands.

    It’s a dangerous situation. The G.O.P. is lost and rudderless, bitter and angry, but it still controls the House and, therefore, retains the ability to do a lot of harm, as it lashes out in the death throes of the conservative dream. Our best hope is that business interests will use their influence to limit the damage. But the odds are that the next few years will be very, very ugly.

  5. For all the fury and fistfights outside the Lansing Capitol, what happened in Michigan this week was a simple accommodation to reality. The most famously unionized state, birthplace of the United Auto Workers, royalty of the American working class, became right-to-work. It’s shocking, except that it was inevitable. Indiana went that way earlier this year. The entire Rust Belt will eventually follow because the heyday of the sovereign private-sector union is gone. Globalization has made splendid isolation impossible. The nostalgics look back to the immediate postwar years when the UAW was all-powerful, the auto companies were highly profitable and the world was flooded with American cars. In that Golden Age, the UAW won wages, benefits and protections that were the envy of the world.

    Today’s angry protesters demand a return to that norm. Except that it was not a norm but a historical anomaly. America, alone among the great industrial powers, emerged unscathed from World War II. Japan was a cinder, Germany rubble and the allies — beginning with Britain and France — an exhausted shell of their former imperial selves. For a generation, America had the run of the world. Then the others recovered.

    Soon global competition — from Volkswagen to Samsung — began to overtake American industry that was saddled with protected, inflated, relatively uncompetitive wages, benefits and work rules. There’s a reason Detroit went bankrupt while the southern auto transplants did not. This is not to exonerate incompetent overpaid management that contributed to the fall. But clearly the wage, benefit and work-rule gap between the unionized North and the right-to-work South was a major factor (…..)


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