By Brandon Greife, Thomas Jefferson Street blog
“Bailout” has become the new “flip-flop.” Every article that even tangentially relates to politics these days seems to have something to say about bailouts. First you had TARP, also known as the bank bailout. Then came the auto bailout. Now we’re arguing whether the financial reform bill is really a Wall Street bailout while simultaneously discussing our role in the bailout of Greece. It’s enough to make me wonder whether Millennials should apply for a bailout.
With all the obligations the federal government is racking up it certainly appears as if we’re going to need one. The problem is that the priorities of young adults are long term while the priorities of government are short term. Young adults must worry about the financial impact that legislation will have in 30 years. Politicians are worried about the ten-year budget window that is scored by the CBO. Young adults get a bad rap for not being reliable voters. Politicians are worried about getting reelected.
The results of this short-sighted approach are beginning to play out across Europe. We better set aside our pride lest we share the same fate. After all, the parallels between ourselves and Greece are startling.
Greece has been running unsustainable deficits–as high as 13.6 percent of GDP. According to the CBO, by 2040 the United States budget deficit will exceed 17 percent of GDP. Greece’s enormous welfare state led to a government debt that was 113 percent of GDP. President Obama’s budget, released earlier this year, shows that the United States’ debt will jump from 53 percent to 90 percent of GDP in just the next decade. Greece suffered from a bloated public sector whose early retirement age and high pension levels precipitated their default. According to some estimates, the United States’ public pension plans are underfunded to the tune of $3 trillion. For instance, in California where the pension problem is at its worst, the cost to taxpayer for public employee retirements has gone from $150 million per year to $3 billion per year in the last decade–a 2,000 percent increase.
Despite the similarities in the two nations’ finances, we, as one of the largest funders of the International Monetary Fund, may be sending billions in aid to Greece. So the question is, who is going to bail out our generation?
We’ve already been labeled “the dead end kids.” Sadly, it may be an applicable title. Not only have young adults been hit hardest by the recession, with a 18.5 percent jobless rate, but our future prospects are looking dim. As Time recently reported:
Yale economist Lisa Kahn completed a study that found that even 15 years after they entered the workforce, college graduates who first went to work in a weak economy (in her study, the early 1980s) tended to have lower incomes than those who entered the workforce when the economy was expanding.
Kahn actually presents the bright side. In this recession many young adults do not even have the opportunity to enter the workforce. A year-long gap in a resume in and of itself is enough to deter employers and further depress wages.
Far from giving Millennials a bailout the federal government continues to spend our fiscal future down the drain. Even if we refuse to lay blame on the government for the recent rash of spending, i.e. the stimulus, TARP, and healthcare reform, Washington continues to put off the difficult choices needed to solve our long-term problem. Eventually the problem will come to a head. The Government Accountability Office recently reported that the federal government faces a “fiscal gap” of $76 trillion over the next 75 years.
Most of this debt lies in Medicare, Medicaid, and Social Security. The problem in getting something done is two-fold. First, the underfunding of these programs is a (relatively) distant problem. Older Americans have an incentive to fight against any changes to the current system because they do not face the threat of reduced benefits. Second, Washington has little incentive to address the problem because older generations vote in greater numbers.
No one, whether it be citizen or politician, wants to admit that we could be the next Greece. But like all heroes in ancient Greek dramas we have our tragic flaw: hubris. Politicians must look beyond the next election to balance the short and long term needs of the population. Young adults must learn to speak the language of Washington–votes. If either party fails, Millennials might just need a bailout. But who is gonna pay it?