Even some conservatives admit that inequality is a problem. The rich are sucking up an ever-greater percentage of the wealth and the bottom 50 percent of Americans are struggling. Manufacturing jobs are not increasing significantly and artificial intelligence and automation will surely convert more of the workforce during the coming decades from flesh to metal and microchips. Robots don’t earn a salary, drive a vehicle, shop for clothing or need a house.
But wait! Consumer spending is around 70 percent of the U.S. economy and that’s not likely to change. Corporations make profits by selling goods and services. And government pays its bills with taxes it collects. What happens to the economy when more and more Americans have less money to spend and the lion’s share of the wealth is concentrated in a small percent of consumers at the top? How many people can be employed constructing huge mansions, mega yachts and private jets?
The last of the baby boomers are now retiring, saddling the Social Security and Medicare trust funds with a heavy burden. Due to the $1.5+ trillion 2017 GOP tax cut and two large spending bills that funded fiscal years 2018 through 2021, yearly federal budget deficits will exceed $1 trillion for years to come. President Trump’s $1 trillion infrastructure program is floating around in an alternative reality. Climate change, or whatever you want to call disastrous weather patterns, is creating increasing demands on federal relief coffers.
These facts beg the question: Will coming generations be able to pay down the massive federal debt and still have the buying power of today’s consumers?
Millennials comprise the largest demographic cohort that is moving up to replace the 75+ million elderly baby boomers. A 2015 Census Bureau estimate identified this group as the over 83 million born between 1981 and 2000, a massive one quarter of the nation’s population. Hopefully they will have great paying jobs that will generate huge tax revenue. Sadly, however, that doesn’t seem to be the case.
According to a New York Times article by David Leonhardt in January – based on Census Bureau and Federal Reserve data – “the 21st Century has resembled one long recession” for those under 40. They are earning somewhat less than the same age group was in 2000 and their median net worth has nosedived over the past two decades. In fact, according to accounting and professional services firm Deloitte, student loans, rising rents and higher health care costs have depressed millennials’ average net worth to below $8,000, considerably lower than generations that preceded them.
Leonhardt claims that “a lack of economic dynamism” since 2000 has impeded the formation of new companies and the expansion of existing ones. Thus, there are fewer good jobs for the younger generations, who struggle to buy a first home or invest in the stock market. Articles about these young adults still living at home and not getting married until years later than their parents, along with the gig economy, are harbingers of future economic decline.
And government isn’t helping. Social services like Medicare for older citizens haven’t been cut while programs like education for our youth have gone under the knife. States – that must balance budgets – cut education funding deeply after the recession hit in 2008. According to the Center on Budget and Policy Priorities, the average state spent 16 percent less per student in 2018 compared to 2008, after adjusting for inflation. This reduced funding has caused public colleges and universities to cut services, eliminate course offerings, close campuses – and raise tuition.
In an age when higher education has become a requirement for breaking into the middleclass and above, students have been pressured to borrow whatever amount was necessary to get a degree. As a result, many of the millennials are shackled by part of the $1.6 trillion total student loan debt. And those who dropout, for whatever reason, can end up with burdensome debt and nothing to frame. The shocking truth is, the future engines of the U.S. economy are running low on gas.
So, what must be done to change this scenario? Republicans would apply their same old perennial policies, lower taxes, less regulation and cuts to federal health care spending. In an effort to corral deficits they would cut education funding and slash the social safety net for those who can least afford it. Clearly, these policies would take dollars from those consumers who are most likely to spend them and siphon off more of the fuel that powers the economy.
Democratic candidates for president are making bold proposals to tax the ultra-rich to fund preschool for children, eliminate student loan debt and make college more affordable. Some would increase Social Security payments by as much as $200 per month. There is a method to this madness. These policies would put more dollars into the pockets of the consumers who are the economy’s foundation. And Democrats support reasonable immigration reform, which would supply the younger working tax payers that are needed to shore up the Social Security trust fund.
Some baby boomers may revel in their tax cuts and other benefits that are depleting the federal treasury and preventing needed infrastructure investments and climate change initiatives. But the bill for this will come due to younger generations and the enormous cost will be a huge drag on the economy.