The Baby Boom Generation — Five Time Losers?
Privileged though they may appear, were the boomers disadvantaged economically?
January 1, 2003
The boomers' parents, now in comfortable retirement, have always been ready to criticize their children for their materially wasteful — and supposedly selfish — ways. Boomers, it is said, want the easy life without having to save or work.
And the younger siblings and cousins of the boomers — the famous "Generation X" — view the boomers as a huge mass of people standing in the way of their own advancement.
But a dispassionate economic analysis shows that it is the boomers who are the real losers — often to the benefit of their own parents.
Demographers have long referred to the baby boom as the "pig-in-the-python" phenomenon.
Population charts by age show an extraordinary lump at the ages of the boomers, bracketed by the smaller cohorts before and after them.
That lump has always had a big economic impact, from booming toy sales in the 1950s to the huge expansion of higher education in the 1980s. It will likely have a similar effect in coming decades.
The markets' response to the size of the cohort makes it appear as though the boomers always get what they want. But as the "pig" now moves toward the older end of the population chart, it is possible to demonstrate that the baby boomers are really disadvantaged in five ways.
Not only are the boomers not responsible for many of the problems that have been pinned on them, but also that economic circumstances have conspired to hand them a pretty raw deal.
Consider the five economic areas in which it was better to be a parent of a boomer than to be born between 1945 and 1964. These include the labor market, housing prices, inflation, social security — and the stock market.
In all of these areas, boomers have discovered that demography equals destiny. And in the case of the baby boomers, it is not a comforting destiny.
Let's first consider the job market. For most of their careers, boomers have known the feeling of being told that they are one of 600 applicants for a job. What happens, after all, when everybody at the "pig" stage of the "pig-in-the-python" looks for entry-level jobs at once?
Their parents and grandparents may remember the problems of getting a job during the Great Depression. But the baby boomers faced the prospect of keen competition for jobs even when the economy was going strong.
There were simply huge numbers of labor market entrants. And too many of them had to settle for less than what their parents got.
American boomers, it is true, at least got jobs — unlike their counterparts in Europe. But they knew that they had to struggle to keep them, so the number of hours worked for the most desirable jobs skyrocketed.
Anybody who still believes that the baby boomers lack a work ethic should study how once cozy or low-key professions — such as college professor, lawyer and physician — became high-pressured commitments, rife with 60-80 hour work weeks.
Much of this ratcheting up was driven by boomers, simply because long hours were one way to distinguish oneself in the large crowd of young workers. And, of course, the huge number of young workers helped to keep hourly wages down.
During the 1960s, before the boomers really entered the workforce, real hourly compensation rose 2.8% per year. But in the 1980s, when large numbers of boomers had just started working, real hourly compensation rose only 0.7% per year.
For the second way that boomers became losers, consider what happened when they all found themselves ready to start families and buy houses at about the same time. No GI loans or cheap suburban housing boom awaited them.
Instead, decades of mistaken urban policy — combined with the disastrous state of public schools — removed a substantial portion of the older housing stock from consideration, just as record numbers of young couples needed new housing.
The result: Baby boomers paid extraordinarily high prices for their suburban "starter" houses as housing prices zoomed skyward during their prime buying years, the 1980s. And who did they pay those exorbitant prices to? The generation of their own parents and grandparents.
Moreover, for a third blow, the high inflation of their young adult years also left the baby boomers high and dry.
Unlike their parents, they never had the opportunity to buy a house with a 6% mortgage, then sit back and watch as inflation steadily — and substantially — reduced the real cost of house payments.
Instead, many boomers have had to cope with high and fluctuating interest rates exactly when they were most intent on borrowing to finance their house purchases — or, if younger, to finance their education.
And who was responsible for the record interest rates of the 1970s and 1980s? Not the boomers, who were just getting started professionally.
In those days, the overall management of the economy was the responsibility of the boomers' parents.
The fourth way the boomers may end not doing quite as well as their parents is Social Security. The 1983 Social Security Commission recommended a big payroll tax increase — just as the boomers were becoming productive members of the labor force.
The Commission recommended the tax increase to fund Social Security, but not really for the benefit of the boomers, whose retirement was still far off at the time. Who was it for, then? Once again, the primary beneficiaries were the boomers' own parents.
These soon-to-be retirees had paid much lower taxes when they worked, and then generously allowed inflation (and Congress) to crank up the benefit levels. The solution to the resulting funding problem was simple — let the boomers pay.
And so those born in the 1920s and 1930s are getting a great deal out of their rather minimal investment in Social Security. But the baby boomers will have to accept that they will never get back anything like the taxes they contributed to Social Security — since the money has already been paid to older retirees.
On top of everything, the boomers must potentially expect to work longer or get lower benefits themselves — even though current plans for Social Security reform will likely not affect those close to retirement. The danger of a backlash at the ballot box is simply too great.
And now, for the grand finale of their high-flying hopes, here is the fifth way the baby boomers lose: They have set their hopes for retirement on the stock market. After all, given the relatively meager payback from Social Security, they hardly had another choice.
The market gave them a good deal in the 1990s, rising 17% per year. But the past several years have been much more of a roller coaster — fraying the nerves of those who have their hopes set on consistent stock market gains.
It is certainly possible that the high stock prices are simply a result of the large collection of boomer-savers once again chasing the same assets. Sure enough, today's sellers, at hefty gains, are once again their own parents, now retired (or their parents' pension funds).
But they may pay high prices for stocks, then find that nobody is around to buy when they are ready to retire themselves, and so want to sell their stocks. And if nobody will want to buy at that critical time, maybe those stocks weren't such a good investment after all.
So it turns out that the U.S. baby boomer generation is not quite as well off as some younger or older Americans might believe.
But that may not be a great consolation to the generations following the baby boomers. Americans who are in their early 40s or younger will likely have to pay for the boomers’ relatively secure retirement — all the while having to take care of their own retirement on a parallel track.