Intergenerational Equity?

I’ve been discussing intergenerational equity  in my classes for some years. Recently a column caught my eye–the October 15, 2013 op-ed by Thomas L Friedman from the New York Times, Sorry, Kids. We Ate It All. In discussing the budget issues, and whether there will be “meaningful change”, he notes that

“young people …[w]hether 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 — if current taxes and entitlement promises are not reformed, the cupboard will be largely bare for today’s Facebook generation.”

Friedman then goes on to discuss the activities of Stan Druckenmiller and Geoffrey Canada on college campuses where they educate students about their perspective on the economic realities and future prospects without any reform to items such as taxes, entitlements and defense spending. Mr. Druckenmiller has been interviewed a number of times about what he refers to as “generational theft.” The Wall Street Journal online ran a story on October 21st, 2013 in which Mr. Druckenmiller offers some  interesting statements.  For example, when referencing the impact of the baby boomers on entitlement programs:

[h]e … rejects the “rat through the python theory,” which holds that the fiscal disaster will only be temporary while the baby-boom generation moves through the benefit pipeline and then entitlement costs will become bearable. By then, he says, “you have so much debt on the books that it’s too late.”

 Unfortunately for taxpayers, “the debt accumulates while the rat’s going through the python,” so by the 2040s the debt itself and its gargantuan interest payments become bigger problems than entitlements.

This is one perspective on a complex issue.  As my friend and elder law professor rock star Dick Kaplan commented to me:

younger generations benefit from Social Security and Medicare both directly (children’s benefits when the parent has died or is disabled; health care for disabled persons under age 65) and indirectly (older relatives’ financial independence relieves younger generations from supporting them).   As to means-testing, that concept is counter to the notion of social insurance, that we are one community. Nevertheless, the reality is that we already means-test Social Security through taxation of benefits via a steeply progressive and non-indexed mechanism [see: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2240494, pp.332-36], and we already means-test Medicare as well [see: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2111535, pp. 25-28].

 I have my students discuss what one generation “owes” the prior generation for contributions to them (things that are tangible as well as intangible) and the policy reasons behind the programs. We also use this as an opportunity to discuss policy vs. budget decisions and how sometimes budget drives the decision-train for Congress. Although this issue is not new, the series of articles about the Druckenmiller-Canada presentations gives us some new material that we can use in our classes.