Friday, December 21, 2012

The Friday Front

  An item this week that caught my attention, and might catch yours . . . 

     I saw two articles this week that seem to offer dueling views on the economy, and what it means for Baby Boomers and our children.

     In "The Baby Bump" from the New York Times, two former members of the Obama administration, Kenneth S. Baer and Jeffrey B. Liebman, argue that there's really no good reason to worry about the federal budget deficit and the nation's high unemployment rate.

     The reason the government is spending so much money, they point out, is not because Congress has gone on an out-of-control spending spree, as some have charged. It's because of a demographic shift.

The unemployment rate has started to go back down
     We're spending more on Social Security, Medicare and Medicaid, because Baby Boomers are getting older, so there are a lot more retired people with a lot more medical problems. But aside from this demographic shift, the government has actually been fiscally responsible in recent years. Spending on discretionary items, such as defense, agriculture and education, has gone down, at least as a percentage of our gross domestic product (GDP).

     The authors also say the high unemployment rate is a temporary problem that will correct itself over time. The economy is currently generating about 150,000 jobs a month. According to critics that's not enough to employ all the new high school and college graduates entering the workforce. The critics point to the falling labor participation rate, and say the only reason the unemployment rate is going down is because so many people are discouraged and have given up looking for work.

     But the authors claim that 200,000 Baby Boomers are retiring every month -- and it's all those retirees, not discouraged workers, who account for the falling labor participation rate. They figure that 200,000 replacement jobs, plus 150,000 new jobs, offer plenty of opportunities for newcomers to the employment rolls.

But the labor participation rate has not improved
     The authors don't say where they get a figure of 200,000 Baby Boomers retiring every month. Honestly, I don't believe it. Maybe it's possible that 200,000 Baby Boomers are leaving the workforce (although that figure still seems inflated), but no doubt a lot of them are getting laid off or packaged out.

     Regardless, just try to tell any of this to young people, says Robert Samuelson in his Washington Post article "Is the Economy Creating a Lost Generation?" His analysis shows that for young people jobs are scarce, and those that are available pay low wages with few benefits. The result is some 20% of young workers are underemployed -- either officially unemployed, working part time, or so discouraged they've stopped looking for a job.

     Furthermore, the stagnant job market blocks the traditional path to better jobs and higher pay. Historically, young people moved up the economic ladder by changing jobs, learning new skills, developing their business network. But today, with  jobs so scarce, those who are employed are clinging to their old jobs. They're too scared to jump at new opportunities, the time-honored way to increase pay and responsibility.

     As a result, fewer young people are getting married, buying houses and starting families. In 2011, the birth rate dropped to its lowest level since numbers started being reliably recorded in 1920. The expected fertility rate (the number of children born to a woman in her lifetime) has now fallen for four years in a row, down to 1.9 (the replacement rate is 2.1).

And young people are left behind
     Samuelson does not hold out a lot of economic hope for our children, at least for the immediate future. He points out in another article, "Job Creation's Glum Arithmetic," that even if you take the official unemployment rate at face value (ignoring all the underemployed), given current job-creation rates, it will take until  2018 to get the unemployment rate back down to a barely acceptable 6.5%. Even if we start generating 250,000 jobs a month, it will be the end of 2014 before we reach that rather modest goal.

     And that's assuming we fix the fiscal cliff, reform the tax code, avoid future energy shocks, and do not suffer another recession.

     I don't know whether to believe Baer and Liebman from the Times, or Samuelson from the Post. But all this is somewhat disconcerting to me. I'm no longer looking for a job myself. But as someone who was forced out of the labor pool prematurely, as someone who is officially counted as retired but is really just underemployed, what I really wonder is:  If those young people don't start making more money, who's going to pay my Medicare and Social Security?


5 comments:

Dick Klade said...

One of the commentators included a low birth rate as a concern, but that's one we needn't worry about. If the present (record low) birth rate and legal immigration rate prevail, the U.S. population will double within the next 70 to 80 years.

That is scary, and we ought to be making more efforts to control our population growth in the interest of prosperity for future generations.

MerCyn said...

The past decade leaves an entire group of young people fighting for a few good jobs. Optimistically another new booming industry, like the past tech boom, will provide young people with good-paying jobs, the government with flush coffers, and baby boomers with continued Social Security and Medicare.
Too many people have low-paying jobs with no benefits, especially health care. When/if health care is not tied to employment there will be more movement in the job market and more people can retire earlier (opening up more jobs!).

Stephen Hayes said...

I keep asking myself that very question. No answer appears to be forthcoming.

Douglas said...

I was surprised, in a sense, to see Social Security still functional when I reached 62. It is true, we are seeing the results of the effects of the Baby Boom entering retirement. And it's a long haul we are in for. Belts should have been tightened in the 50's and early 60's but, instead of doing that, we expanded the social programs. Shortsidedness and politics...sigh.

schmidleysscribblins,wordpress.com said...

As a demographer working on the staff of the US House of Representatives Select Committee on Population (1977-1979) back in the days of Tip O'Neal, I can tell you that the government was warned long ago about the Baby Boom aging.

Unfortunately, although a deal was finally worked out during the Reagan administration to put aside funds for the eventual strain on the nation's budget, guess what... the additional Social Security funds were used to offset all the spending of the past two decades. Also, NO provisions were made for Medicare.

I don't know what these so-called demograpers you have quoted above are drinking, but you and I will be long dead after this pig passes through the python. (BTW one of my professors at Georgetown, later my boss coined the phrase "pig in a python" to describe the baby boom.)

Meanwhile, everything will be strained to cover the costs of this mess. So say goodbye to any funds you thought might be used for things like roads, bridges and additional stimulus packages.

Also, you ain't seen nothing yet. The youngest cohort of the baby boom won't reach ages 65+ for about 20 years, and the largest cohorts ever were born between the years 1957 to 1963. 1961 was the largest ever in terms of sheer numbers. As my daughter is a 61 baby, I know they are only 51.

Meanwhile the birth rates in the US have been dropping like crazy, so smaller and smaller cohorts of "earners" making much less money than their forebears, will be trying to support these Baby Boom kids in retirement.

Social Security worked fine as long as the number of producers ages 15-64 was greater than the number of folks on various forms of support such as Medicare funding and Medicaid (call it what you like, but its welfare).

I could go on but you get the idea.

If only liberal Democrats could count....but they can't.

Dianne