Truthout, February 16, 2009
Remember all those headlines about how the baby boom cohorts just lost several trillion dollars in home equity due to the collapse of the housing bubble and how they lost trillions more in their retirement accounts as a result of the stock market crash? Most people probably don’t remember these articles, because most of the media have failed to notice the story.
This should have been an easy one for the media to see. The people who take the biggest loss when home prices plummet will be the people who had equity to lose. This will mean mostly older workers or people who are already retired, since these are the people who will most likely have paid off much or all of their mortgage.
Similarly, the loss of stock wealth would have been concentrated among older workers and retirees. Few workers manage to accumulate any substantial stake in the stock market in their 20s or 30s. This means that loss when the stock market collapsed was almost entirely born by older workers and retirees.
Given the massive loss of wealth incurred by the baby boom cohorts that are nearing retirement, it would be reasonable to think that President Obama and Congress are trying to develop plans to ensure that they can still enjoy a secure retirement. In fact, the opposite appears to be the case. There are reports President Obama is considering establishing taskforces to examine Social Security and Medicare with an eye towards making cuts in both programs.
However, there is one step that President Obama can take to boost the economy without going through Congress: he can reaffirm his support for Social Security and assure the baby boomers nearing retirement that he will not allow their benefits to be cut. If this huge cohort in their late 40s, 50s, and early 60s knows that they can count on getting their promised benefits, they will feel more comfortable spending and supporting the economy at a time when it badly needs a boost.
Workers are likely to be especially fearful about the prospects of getting their Social Security benefits now due to an all out assault on the program financed by billionaire banker Peter Peterson. Peterson has spent much of the last two decades trying to cut Social Security, Medicare, and other benefits for the elderly. He recently contributed a billion dollars to a foundation bearing his name that is primarily committed to this goal.
Peterson’s investment has paid off both in exposure from the media and more importantly attention from many members of Congress and their staffers. There are now dozens of senators, congress people, and staffers running all around Capitol Hill crafting creative new ways to cut Social Security. Baby boomers are right to fear that Peterson and his crew will take away their benefits.
The idea of taking away Social Security benefits from baby boomers was always outrageous. After all, this is a generation that has paid into Social Security at the current 12.4 percent tax rate for almost their entire working life and will be forced to wait until age 66 or even 67 to get full benefits. Their average returns are projected to be lower than the generations that follow and far lower than the generations that preceded them.
Even more importantly, because of the incompetence of Mr. Peterson’s friends in the financial industry and the regulators and economists who could not see an $8 trillion housing bubble, the baby boom cohort has just experienced the largest loss of wealth of any age group in the history of the world. Much of the $8 trillion in lost housing bubble wealth belonged to the baby boomers, as did much of the $7 trillion in wealth lost in the stock market crash.
The loss to the baby boomers is a gain to younger generations. They will, on average, be able to buy up the housing stock for prices that are 30-40 percent lower than what they would have faced three years ago. They will be able buy the wealth of corporate America at a discount of more than 40 percent.
If policy were responding to reality, then this massive redistribution from older generations to the young should cause the government to focus more attention on helping the elderly. But the agenda of Peter Peterson and his ilk never had anything to do with generational equity. The point was always to gut Social Security and Medicare. These programs stand out as key targets precisely because they are hugely effective and popular programs.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.