by Ryan Streeter on June 22, 2012. Follow Ryan on Twitter.
I thought Niall Ferguson made some great points in his BBC lecture last week on the debt crisis in America and Europe, so I used his remarks as a starting point for my Indianapolis Star column this week, which I’ve included below in full.
Owing to space constraints, I wasn’t able to include other thoughtful observations Ferguson made. In particular, he quotes Edmund Burke in reminding us that society “is indeed a contract. The state … is … a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born.”
Those who forget this, Burke says, are basically “hazarding to leave to those who come after them a ruin instead of an habitation — and teaching these successors as little to respect their contrivances as they had themselves respected the institutions of their forefathers.”
A transcript of Ferguson’s lecture can be found here.
And here’s the full text of my column:
Young Voters, Unite for Entitlement Reform
Indianapolis Star, June 22, 2012
If young Americans knew what was good for them, they would join the tea party.
That’s what best-selling author and Harvard economic historian Niall Ferguson said last week. Ferguson, who also holds an appointment at Oxford University, made the comment during a lecture in London — not exactly a seedbed of tea party activism.
So what did he mean? America and Europe, he claims, are hung up in a debate about whether austerity or stimulus is the proper solution to our massive debts, when the real problem “is the way public debt allows the current generation of voters to live at the expense of those as yet too young to vote or as yet unborn.”
“The biggest challenge facing mature democracies,” he continues, “is how to restore the social contract between the generations.”
How do we know the contract has been broken? The numbers speak for themselves.
In 2000, our national debt stood at 55 percent of gross domestic product. Today, it’s 107 percent. In 2017 it will be 113 percent according to the International Monetary Fund. Compare that with Spain, one of Europe’s bailout poster children, whose debt was at 60 percent of GDP in 2000, compared to 79 percent today and 92 percent in 2017. A good bit of Europe enjoys more favorable projections than we do, in fact.
This miserable picture gets even worse when you look at unfunded liabilities not recorded in those official figures. Ferguson reminds us that the “most recent estimate for the difference between the net present value of federal government liabilities and the net present value of future federal revenues is $200 trillion, nearly 13 times the debt as stated by the U.S. Treasury.”
The main culprits are Social Security, Medicaid and Medicare. Two of these programs transfer wealth from young to old, which brings us back to the breakdown of the social contract.
The biggest lie about Social Security and Medicare, which a diffident political class and powerful set of interest groups perpetuate, is that “paying into” these programs justifies what you take out of them. The truth is that if you live a normal life expectancy you will take far more out of those programs than you ever pay in.
The average two-income couple pay $119,000 into Medicare over their working lives but receive $357,000 in benefits. The average single worker receives three times more than he or she pays in.
The $238,000 gap for the working couple has to come from somewhere. If you have a job, it comes from your payroll taxes, and what your taxes don’t cover, debt does — the interest on which you will increasingly pay for with higher taxes in the future.
As politicians bend over backward to reassure seniors that their benefits are safe, the younger generation — poorer and without an AARP to represent it — faces a future of higher taxes and stagnant growth.
Meanwhile, when he’s not on the campaign trail, President Obama runs down rabbit trails leading away from this conundrum. He now is championing amnesty for the children of illegal immigrants when many of their parents have crossed the border in the other direction looking for better jobs in Mexico. He ignored his own commission’s attempt to solve the debt problem and ridiculed Republicans when they tried. When that didn’t kill the issue, he was forced to give a speech on the deficit, which turned out to be embarrassingly devoid of substance.
Obama is not alone in his can-kicking, but he is the worst violator. He ran an inspirational campaign in 2008 with historic support from young voters. He has governed instead as one hell-bent on quashing their aspirations with a cynical avoidance of their greatest need.
Luckily, support is growing for reforms that will heal our fiscal insanity, but the pace is too slow because powerful interests oppose them. We are at a point where young Americans need to organize a movement around a reform agenda that the rest of us should support financially and with our networks. The national movement of college students last year to draft Mitch Daniels for president revealed pent-up demand for such an agenda.
Restoring the social contract ironically depends on those most betrayed by its decimation. But if the rising generation has the courage to do it, a lot of us stand by ready to help.