Saturday, September 4, 2010

Will the Boomers Sacrifice?

In August the U.S. Department of Labor reported that our economy lost 54K jobs overall, mainly because Census workers were let go, but gained 67K jobs in the private sector. This was touted by President Obama as progress. Compared with the economic performance of the last 2 years it can be called progress.

This is little comfort to the almost 15 million people who are still counted as unemployed and the many million more who are no longer counted as unemployed because they have given up looking for a job. This discouragement has broad and deep effects on our nation overall.

On the one hand, I can’t help but notice in my travels that many restaurants are still crowded, airports seem busy, and my local grocery store appears to be doing as it has been. You would think these places would be more vacant than they are on a Tuesday night. But the people still shop. Why?

The effects of the recession are not evenly distributed. For the vast majority of people, the 90% who are still employed, there has not been a major disruption to their lifestyle other than being more aware of debt and being more careful in some of the things they buy. We certainly don’t appear to be in the midst of a depression.

This brings up the idea that we may be in a new normal in terms of the economic structure of our economy. Europe has been known for its high unemployment rates and slow growth for several decades since an extravagant social welfare state took hold after World War II. If you are unemployed in Europe and content with a job, a paycheck, and a lot of vacation time, a social welfare state is not all that bad.

For those of us who are entrepreneurs, a social welfare state is stifling. The higher taxes are discouraging and the risk you may fail may not be worth starting a new venture or expanding a current business may not be worth it.

At this time America has to think through what country it wants to be. We are an aging population because the baby boomer generation is getting older and will require more healthcare and is likely to demand their social security checks keep coming. But who pays for their right to retire comfortably?

That’s the big question of the next 25 years in America. America needs economic growth to fund a social welfare state. Yet, the current policies of the Obama administration do not encourage risky entrepreneurial activities needed to foster growth. In certain respects it is less of a headache to simply make a decent, steady living than to start a new or grow an existing business.

The older generation will have to ask itself how much debt it is comfortable passing on to their children to pay for their benefits? Because of the trillions in dollars a year our nation is adding to its debt already, it is clear that the arrangement of having younger people pay to subsidize older people is not sustainable. With older people increasingly making up the biggest voting demographic, the prospect of them voting to cut their own benefits is unlikely. The situation is not hopeful.

Moving towards a sustainable path is the task of the current generation and policymakers. The level of debt is unsustainable. Everyone knows this. So now is the time to phase-in reduced benefits. This is a moral issue that will be left to the older, baby boom generation. Let’s hope they care enough about their children’s and their nation’s future to have a mature dialogue and separate their wants from their needs. America has been a great nation because of its sacrifice. Let’s hope that notion is not a thing of the past.

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