Divide and Conquer

Dr. James Burnham of Duquesne's Business School published a mean-spirited article in the Pittsburgh Post-Gazette in which he points out that the income of Americans over 65 has increased slightly over the past 30 years, while the income of younger Americans has declined. This is illustrated in the chart below. He refers to these trends as “generational theft,” and attributes it largely to the political influence of the American Association of Retired Persons (AARP). The article may make you angry, but if you are going to read this post, you should read Burnham's article first.

The article reminded me of the story of the king who demanded 20 pieces of gold from every member of Group A and 10 pieces of gold from every member of Group B. His spokesman then turned to Group A, pointed at Group B, and asked, “You're not going to let those greedy bastards get away with that, are you?”

Let's be clear about the sources of the “deep-seated fiscal problems” that Dr. Burnham says we must all share the pain of dealing with. The deficit is largely the result of (1) two ill-advised (as well as illegal) foreign wars that were funded with credit cards; (2) a tax cut from which most of us benefitted slightly, but the bulk of which went to the wealthy; and (3) the largest recession since the Great Depression, which was brought on by reckless speculation and some outright fraud committed by our largest banks and investment firms. And how goes the recovery? According to economist Emmanuel Saez, between 2009 and 2011, the incomes of the wealthiest 1% of Americans increased by 11.2%, while the incomes of the remaining 99% of us declined by .4%.

Rather than asking where the money went and how to get it back, Dr. Burnham adopts the mantle of the king's spokesman and applies the divide-and-conquer strategy. The old, he says, are robbing the young. His argument is unpersuasive. While the incomes of older Americans have increased slightly, the recession has had a devastating impact on Americans' retirement savings, causing some of them to delay retirement (which ironically shows up in Burnham's chart as increased income for people over 65).

Burnham's supports his claim that young people's incomes are declining by citing the wages of 15- to 24-year-olds. That decline is in part a result of our failure to raise the minimum wage to keep pace with inflation. Even if it could be shown that the wages of people under 40 are declining, I doubt that the AARP had anything to do with it. Our young people have had the misfortune of entering the labor market after the 1% had consolidated their hold on all branches of government. Through their campaign contributions and lobbying activities, they were able to implement policies that shipped good jobs overseas, severely damaged unions, and, in general, benefitted themselves at the expense of everyone else. As a result, while worker productivity has increased, wages have stagnated.

Burnham is correct in pointing out that younger Americans have been saddled with an increasingly large burden of college loan debt. This has resulted from a massive shift in the cost of higher education from the government to the student. This shift includes reductions in government support for higher education (especially at the state level) and fewer grants and interest subsidies for college students. Meanwhile the federal government allows banks to charge highly profitable rates for student loans, while guaranteeing them against the risk of default. It is the banks that have benefitted most from this policy shift, not retired people.

Suppose retired Americans took Dr. Burnham's advice and voluntarily accepted major cuts to Social Security and Medicare. Where would that money go? Would it be redistributed to young people in the form of higher wages or college grants-in-aid? Don't hold your breath. If it were used to pay down the deficit, it would be redistributed largely to the 1%.

Since I wrote most of this post (three days ago), my former IUP colleague Charles McCollester has written a reply to Burnham that is much more persuasive than what you just read. I highly recommend it.