The Greediest Generation: Baby boomers and their public debt

-- (historic), Commentary, Uncategorized

 

In his now-famous book, former NBC anchor Tom Brokaw wrote of the “greatest generation,” that cohort which survived the Great Depression and beat fascism. It was a laudable tribute to their sacrifices.
 
The generations that followed have been less interested in sacrifice, including and perhaps especially the baby boomers. True, they brought some useful social change. The civil rights revolution and increased women’s rights are two examples. But there has been unwelcome baggage. Think polyester, disco and a preference to demand plenty of government services but without an equal willingness to pay.
 
That penchant for deficit spending is the context in which Alberta’s four-year deficit binge should be viewed. As of Tuesday’s budget, the estimated four-year overspending total (from beginning to projected end) will be almost $10.4 billion.  
 
Alberta is lucky. It won’t borrow for such overspending but it will draw down the sustainability fund from $16.8 billion last year to just $2.8 billion by 2013, this for annual deficits and other items. If the province is wrong in its price projections on oil and natural gas, or on its ability to contain spending—and the Ed Stelmach government couldn’t even keep a two-month old promise to take away the spending buffet—then borrowing might well start again a la the 1980s.
 
But spending without paying the bills through current receipts isn’t new. Baby boomers have been up to this for some time.
 
Federally, consider how government debt was built up over the past half-century. Since 1961—a half-century ago— the federal government produced just 13 surplus budgets. It’s why the federal debt hit half-a-trillion dollars (again) last November.
 
It would be nice if that were the only delayed bill for future generations. But glance at the Canada Pension Plan. It is supposedly fully-funded now after tripled CPP increases from the mid-1980s until 2003. But as pension plans go, the needed increase in payments occurred only after decades of charging less than eventual pension promises required. And that at the expense of later contributors.
 
Someone born in 1950 has a real rate of return on CPP contributions of four per cent annually. That’s not great, but it doubles the return someone born in 2000 will receive for their contributions: just two percent. That Ponzi scheme math results entirely from demographics. Governments charged less on CPP premiums for decades and must now overcharge later generations to fund the difference.
 
The oft-heard response to this, “I paid for your education in taxes; you can pay for my retirement,” is irrelevant. Every generation must pay for the education of their young. The difference is the current generation must pay not only for their own pensions but that of previous generations who didn’t pay enough in premiums.
 
In addition, they have to pay for the other baby boomer debts and unfunded liabilities including public sector pensions, healthcare liabilities and the game of cheating on infrastructure upkeep. Those bills have yet to come due.
 
Not all baby boomers are to blame. Plenty opposed such policies, though apparently not enough to convince governments to act more prudently.
 
And true, it could be worse. Canadians could have debt-to-GDP levels that exist in Greece, Portugal, Spain, the United Kingdom, Dubai, Japan, and south of the border. 
 
But we shouldn’t get too cocky. A few over-optimistic projections on revenues and recovery—which both Ottawa and the province may be making—and structural deficits are here to stay absent difficult choices.
 
The remedy to this has never been sky-high taxes. That has its own dampening effect on economic growth and thus eventually on businesses, jobs and eventually tax revenues. The remedy was always to tax modestly and in the least economically damaging way, spend smartly, and live within our means. That way, future generations wouldn’t have to pay for not only their own pensions and health care, but for a cohort dating back to the post-war years.
 
The tack taken by Alberta’s government on Tuesday was to once more put off thorny choices. As per usual for most of the last 50 years, baby boomers (and those who agree with such actions) again kicked at least some bills down the road to future generations. It’s been the baby boomers’ greatest legacy. It’s enough to make one prefer disco.