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Home Publications Blogs Beat the Press Esquire Magazine: Writer wanted to help convert class war into generational war. No skills required; pays top dollar.

Esquire Magazine: Writer wanted to help convert class war into generational war. No skills required; pays top dollar.

Friday, 30 March 2012 22:06

This could well have been the want ad Esquire used to attract a writer for its story titled, “War Against Youth.” This lengthy piece is the best compendium of warped logic and misplaced facts on this topic since the Peter Peterson financed film, IOUSA.

The whole story is given away in the first paragraph:

“In 1984, American breadwinners who were sixty-five and over made ten times as much as those under thirty-five. The year Obama took office, older Americans made almost forty-seven times as much as the younger generation.”

That sounds really awful. Thankfully it is not true, as readers could find by looking at the chart that accompanies the article. This is a ratio of wealth, not income.

This is a huge difference. Wealth adds up a household’s total assets. This means the value of their home, their 401(k) and other savings, their checking account and car. The calculation then subtracts liabilities: mortgage debt, car loans, credit card debt, and student loans. This is very different from income, which for most people means their wages and for older people their Social Security.

If the writer, the editor, the fact checker or anyone at Esquire had a clue, they would have caught this mistaken first paragraph and killed the piece. As their chart shows, the median net worth for households over age 65 was $170,494. That merits repeating a couple more times. The median net worth for households over age 65 was $170,494. The median net worth for households over age 65 was $170,494.

Again, net worth refers to total assets minus liabilities. This means that if we add up the home equity of the typical household over age 65, their 401(k) and all other savings, the value of their car and any other possessions they might have, it comes to just over $170,000. This is a bit more than the price of the median home.

In other words, if the typical household over age 65 took all of their wealth, they would have enough money to pay off their mortgage. After that they would be entirely dependent for their living expenses on their Social Security benefit, which averages a bit more than $1,200 a month.

To take another comparison, the lifetime accumulation of wealth of the typical household over age 65 would be approximately equal to what the CEO of Goldman Sachs earns in two days. A top hedge fund manager, who makes $3-4 billion a year, can pocket this much money in ten minutes. Yet, Esquire tells us that it is the high living retirees getting by on their $1,200 a month Social Security checks who are responsible for the questionable future facing the young.

Even this comparison of net worth is misleading. It shows that the net worth of households over age 65 increased from $120,000 in 1983 to $170,000 in 2009. However these numbers do not include pension wealth. A household over age 65 in 1983 was far more likely to be receiving money from a defined benefit pension than a household today. The loss of pension wealth would offset much of this modest gain in wealth over the last quarter century.

Also, using the ratio of the wealth of households over age 65 to the wealth of households under age 35 is just a foolish exercise. Households under age 35 never had much wealth. Their 1983 median wealth of $11,500 was not going to carry them far in life. The fact that it fell to $3,660 is not of great consequence compared to their career opportunities.

This would be like saying that homeless people are in trouble because the median amount of money they had in their pockets fell from $1.20 to 60 cents. Just as the main factor that will determine the well-being of homeless people is not the amount of change in their pocket, the main factor that will determine the well-being of the young is not their wealth.

A 25-year-old Harvard MBA with $150,000 in student loan debt will do just fine. The relevant issue for young people is their career prospects. These will not be very good if the 1 percent continue to get most of the gains from economic growth.

But the first paragraph is just the beginning. This piece is a true cornucopia of bad logic and misinformation. It tells readers that:

“The biggest boondoggle of all is Social Security. The management of entitlement programs, already weighted heavily in favor of the older population, has a very specific terminal point that coincides neatly with the Boomers' deaths. The 2011 report by the Social Security trustees estimates that, under its current administration, the fund will run out in 2036, so there's just enough to get the oldest Boomers to age ninety.”

Social Security is projected to first face a shortfall in 2036, according to the Trustees projections (2038 according to the Congressional Budget Office), but it does not “run out in 2036,” even in the absurdly unlikely event that Congress never does anything to address the shortfall. (The share of beneficiaries in the voting population will be about 50 percent larger in 2036 than it is today. Any bets that Congress won’t pay full scheduled benefits?)

There will still be plenty of tax revenue being paid in 2037. This will be sufficient to pay about 80 percent of scheduled benefits. With benefits projected to be close to 40 percent higher (after adjusting for increases in the cost of living) in 2037, the payable benefit in 2037 would still be higher than what the typical retiree gets today.

Perhaps even more importantly, today’s beneficiaries paid for their benefits. The return on their payroll taxes is reasonable (@1-3 percent, after adjusting for inflation), but hardly excessive. This is why it is absurd that Esquire tells us that:

“According to a 2009 Brookings Institution study, ‘The United States spends 2.4 times as much on the elderly as on children, measured on a per capita basis, with the ratio rising to 7 to 1 if looking just at the federal budget.’”

Yes, using the Brookings Institution methodology the United States spends about 1000 times as much on billionaires as on children, measured on a per capita basis.

Figure it out yet? Billionaires own government bonds. The government pays them interest on these bonds. A billionaire like investment banker Peter Peterson might well get tens of millions of dollars a year in interest on these bonds. It’s true that Peter Peterson paid for these bonds, but the Brookings Institution and Esquire says this does not matter.

The next golden nugget of ignorance comes in the very next paragraph:

“But the government's future ability to pay is decreasing rapidly precisely because the Boomers splurged so heavily during the Bush and Clinton years. Public debt per person in the United States currently stands at $33,777. George W. Bush inherited a public-debt-to-GDP ratio of 32.5 percent and brought it up to 54.1 percent during a period of economic growth.”

If the measure of splurging is the public debt, then Esquire is on the wrong planet here. The gross debt of the federal government was equal to 64.1 percent of GDP at the end of 1992. It had fallen to 57.3 percent of GDP by the end of 2000. How could they get something so simple so wrong?

Of course the debt is not a measure of intergenerational equity. At some point everyone alive today will be dead. The bonds that they hold will end up in the hands of the next generation. This means that the debt will be paid from some members of younger generations to other members of younger generations. There can be an issue of intra-generational equity, for example if Bill Gates’ children and grandchildren own all the debt, but there is no issue of inter-generational equity here.

What matters for inter-generational equity is the overall state of the economy and the physical and natural infrastructure that we hand down to future generations. By the first measure, we are doing quite well. Productivity is increasing at the rate of close to 2.5 percent annually. This means that after 30 years, the average worker will be producing more than twice as much in an hour of work as they do today. If this gain is relatively evenly shared (i.e. the distribution of income gets no worse), then the typical worker in 2041 will enjoy a standard of living that is close to twice as high as what workers today enjoy.

It's true that if we ignore global warming then this may not be the case. Similarly, if the U.S. manages to antagonize the rest of the world with its foreign policy, people here may not be able to enjoy the fruits of productivity growth. But this will have nothing to do with the Social Security and Medicare benefits received by baby boomers.

There is way too much other nonsense to address in this post, but one item is too delicious to pass up. There is a box with the heading:

“How to disenfranchise a generation.”

The box then discusses the measures proposed by Republicans in many states to impose more restrictions on voting, most importantly requiring a government issued photo ID card to vote. Incredibly, Esquire tells readers that this rule is aimed at young people, as though they expect these measures to keep the children of Wall Street traders and Fortune 500 CEOs from having a vote.

In fact, these laws are quite obviously targeted at minorities of any age. The Republicans are not trying to keep their kids from voting. There are trying to keep the kids of African Americans and Hispanics from voting, as well as parents and grandparents. Does Esquire really not know this?

This article is a shameful effort to transform the realities of class war, where the wealthy have been rigging the rules to secure themselves most of the gains from economic growth, into a generational issue. The combination of ignorance and dishonesty in this piece is truly extraordinary.
Comments (33)Add Comment
..., Low-rated comment [Show]
Now that's clever
written by Robert, March 31, 2012 6:06
Insert something that Dean didn't say and then contradict it. It is bad enough that anon doesn't understand the point of the article but at that point silence is the expected result instead, this commentor committed to revealing ignorance in public. This used to be a cause for shame. No more. Just another instance of "the is not intended to be a factual statement" (Kyle R-Ariz) or Tucker Carlson, I misremembered my own positions. If you have to be stupid, please keep it to yourself. The rest of us are embarassed. Thanks Dean, to keep up your efforts in the face of the ignorant intolerance of the intellectually limited is a great favor to the rest of us.
written by Paul, March 31, 2012 6:46
Bravo Dean, Bravo

You have done tremendous work today. Congratulations and keep it up!
written by Derek, March 31, 2012 7:05
Can you explain the mortgage line? I won't accuse Dean of error like anon but I don't get how that adds up. If they have 170K net worth, their mortgage is already paid with that amount left over ?
This was a bad article.
written by LSTB, March 31, 2012 7:56
The problem isn't Boomers trying to rob the young. More like, a minority of Boomers robbing other Boomers of their tech stock wealth and housing equity, so now they're robbing the young. They'll pass their assets off to their kids who'll try to continue the process.

That said, if the
written by LSTB, March 31, 2012 8:11
That said, if the under-35 crowd has on average $3k in assets, with a lot of that probably tied up in student debt, and lower income then in the mid 80s, then they're not going to be buying up suburban houses or urban condos any time soon.

(Sorry, used a less-than sign.)
Mortgage line
written by Mike B., March 31, 2012 8:31
If you have a net worth of $170,000, then that is equivalent to owning outright a home worth $170,000 and otherwise having a net worth of 0. Or you could have $100,000 in equity in your home and $70,000 (net) in other assets, in which case you would owe $70,000 on your home (assuming again that it's worth $170,000) - which you could pay off with all your other assets. So I think Dean is exactly right.
Way to go, Dean.
written by diesel, March 31, 2012 9:28
Most Americans don't understand the distinction between income and wealth. Nor do they realize that income derived from wealth is taxed preferentially and that the power of exponential growth favors wealth versus income. Their first clue that something is not right occurs when they are forced to default on their (non-subprime) mortgage due to health care costs for some staggeringly expensive life threatening illness.
written by skeptonomist, March 31, 2012 9:56
Here is an interesting way to look at it. A net worth of $170k could be either an average house with no mortgage and zero savings; or an average house with a $170k mortgage and $170k of savings; or various combinations. Very roughly, in the first case you have no income from savings, so you must live on SS and/or some kind of defined-benefit retirement plan. In the second case, you are probably living in an apartment and the interest from your savings is roughly the amount of rent. In other words, the median net worth at age 65 is about enough to pay for housing and nothing else. Food and other living expenses have to come from SS or other defined-benefit retirement.
written by skeptonomist, March 31, 2012 10:13
Sorry, I should have discussed three possibilities; 1)average house with no mortgage and zero savings; 2) house with $170k mortgage and $170k savings; 3) no house with $170k savings. In the second case the income from savings goes to mortgage payments and in the third case it goes to apartment rent. The conclusion is the same: median wealth is about enough to pay for housing and little else.
Esquire should go back to showing skimply clad women
written by jumpinjezebel, March 31, 2012 10:15
At least their clothes don't attempt to cover up their brains.
written by Stuart Levine, March 31, 2012 10:35
This may have been the best single blog posting you've ever written.
written by bmz, March 31, 2012 10:48
Apparently, Esquire and the Washington Post share some their editorial boards.
still unclear on the mortgage calculation
written by puzzled, March 31, 2012 11:25
Good piece, and terrible nonsense from Esquire, but ...

I'm still thrown by the idea that having $170K in net worth allows them to 'pay off their mortgage' b/c that debt is already subtracted from wealth. Doesn't having $170K in savings and $170K debt mean zero net worth?
to Derek re "mortgage?"
written by coberly, March 31, 2012 11:37

the difference is that when you are 60 you hopefully have paid off the mortgage and have a 170 k house as part of your "wealth."

When you are 25, say, you OWE that 170 k... that's the mortgage... therefore it is not part of your net wealth.

This is the lie that Esquire is telling: see, young people would have to be born already owning the house in order for their net wealth to equal that of, say, their parents. The world does not work this way. And most sane people understand that is fine. But Esquire, and the Big LIars who work for Peterson, know that if they talk fast you won't catch the lie.
Let's be honest about the debt issue
written by Andrew Clearfield, March 31, 2012 1:01
You write: "Of course the debt is not a measure of intergenerational equity. At some point everyone alive today will be dead. The bonds that they hold will end up in the hands of the next generation. This means that the debt will be paid from some members of younger generations to other members of younger generations."

I think it's important to be honest about the debt issue. A large percentage of it is owned by foreigners not by other Americans, which means that in fact this debt is promoting intergenerational inequality (to the extent that it is not being used to finance education and infrastructure etc.).
written by JSeydl, March 31, 2012 2:47
Andrew Clearfield, if you're going to consider debt owned by foreigners, then you need to also consider the debt we own that belongs to foreigners. Krugman has already addressed this issue: http://krugman.blogs.nytimes.c...in-again/. Our net international investment position -- when you consider both the foreign holdings of our debt and our holdings of foreign debt -- hasn't changed much at all in recent years and is not alarming.
To "Still unclear ..." re: "I'm thrown..."
written by jm, March 31, 2012 3:12
"I'm still thrown ... Doesn't having $170K in savings and $170K debt mean zero net worth?"

Not if the debt has been used to buy a durable asset (e.g, a home). In that case if you use cash savings to pay off the debt you own the asset free and clear, and its value becomes part (perhaps all) of your net worth, offsetting the reduction in the cash.

If the debt was used to buy non-durables or services, then despite having $170k in "savings", net worth was zero to begin with, so again, paying off the debt would not change it.
In General The Author Was Right
written by Lawrence Littlefield, March 31, 2012 3:17
There was plenty of hyperbole and very few facts, but that's what sells in the MSM. For a boring essay with lots of facts, linked to more boring essays with spreadsheets, try this out. It is a little harder to refute.

http://www.r8ny.com/blog/larry_littlefield/ generational_equity_and_the_legacy_of_today_s_politicia

There is nothing wrong with public policies that favor the old at the expense of the young, who have other advantages, as long as these are sustainable. As long as the old had been willing to pay as much when they were young, and the young can reasonably expect to benefit as much when they are old, but that isn't so.

There are two almost reasonable arguments against the fact that Generation Greed has screwed those coming after. The liberal one, implied by this post, is that the problem is the income distribution. Every generation is as well off as the last collectively, but younger generations have more of that income concentrated in fewer people.

What I see is a diminishment of the standard of living, at each point in a lifecycle, rising up the education and income ladder, starting with the high school drop outs and now reaching college graduates. I expect that among younger generations the one percent will be less well off than the one percent of older generations, simply because there is less left to steal.

The almost reasonable "conservative" criticism is that despite years (in some cases decades) of falling median wages, Americans are living better. The falling compensation was first covered up by two income households, then by cuts in future income (employer-provided retirement benefits) which did not affect current cash spending. Then when just about everybody's cash income started to fall, it was covered up by debt.
Social Security
written by Lawrence Littlefield, March 31, 2012 3:38
"Social Security is projected to first face a shortfall in 2036."

Social Security is facing a shortfall right now. To get beyond the BS, I use this analogy.

You are allowed to borrow money from your 401K, right? So knowing retirement of a large generation was coming, those now 55 and over put a lot of extra money into Social Security from 1983 to 2008 or so. Think of it as a collective 401K.

Then they borrowed all of the money out of that 401K, and spent it, leaving behind IOMEs. And borrowed more on top of it. Now they expect someone else to pay back that 401K loan. And the other debts.

Where did the money go? If you look at changes in federal revenues and expenditures since President Carter, but big changes -- for comparable years to adjust for the business cycle -- were a but cut in progressive income tax and a big increase in health care spending, most of which goes to seniors.

But federal policy is just one aspect of the generational inequities. You seem them in every institution.
Don't forget the 2.5% gain in productivity...
written by diesel, March 31, 2012 3:42
that will burden all of us with twice the present amount of stuff in thirty years (assuming equal distribution of course).

Life is all about affording bigger and bigger boxes to hold all your stuff: shoe box, dresser drawer, dresser, closet, room, house and finally, the rented storage space.
written by Andrew Clearfield, March 31, 2012 4:36

I disagree. Only rich Americans own foreign debt. This means that rather than subtract from our projected intergenerational inequality, private American ownership of foreign debt will exacerbate it.
written by Andrew Clearfield, March 31, 2012 4:48
oh, sorry, my point was very unclear (and partially wrong). Let me try again: 1) Foreign ownership of American debt makes future American generations poorer relative to the present American generation. (We both agree on this.) 2) US ownership of foreign debt does not reverse this trend because this money gets concentrated in the hands of the very rich (rather than spread out among society) and so doesn't significantly raise the median future American's wealth. (And even if you speak in the aggregate rather than median, the same holds true, since uncontroversially handing money to the very rich does less to increase GDP than giving it to anyone else.)

(My error was that I said "exacerbate." US ownership of foreign debt very surely and very obviously does not exacerbate the problem, it simply doesn't do much to reverse it.)

Revising down
written by Anonooo, April 01, 2012 1:23

Years ago, someone left a comment on your blog about how YOU had missed the housing bubble when you made your claims that there was no need to worry like the WAPO was worrying about social security in the future because the country will be richer then. The reason they gave was that you had ignored that the housing bubble had killed US GDP, meaning the country would not be as rich in future had the bust not happened. My recollection is that you replied that no one had revised down their long-term projections of US growth, so the objection did not stand.

I just read this by Brad DeLong, and it reminded me of your the blog post all that time ago:

"Reputable forecasters – both private and public – have been revising down their estimates of America’s potential long-run GDP."

Will the revisions downward made so far have enough of an impact that social security, decades in the future, will be at risk?

Hope that makes some sort of sense...
written by JSeydl, April 01, 2012 10:15
Andrew Clearfield, you make a good point, and I'd actually love to hear Dean's thoughts on this, if he's reading. If we look at the most recent U.S. Holdings of Foreign Securities Annual Report, which is for 2010, we can find out which sectors in the U.S. hold foreign debt: http://www.treasury.gov/resour...2010r.pdf. Table A15 is what we're concerned with. What that table shows is that firms and institutions from almost all sectors in the U.S. economy own foreign debt. Our government holds a big portion of that debt, but the largest holdings of foreign debt are concentrated in the financial services industry, which is not surprising. So it sounds to me that your argument would then be, "See, it's the rich bankers who own the foreign debt! This means that our debt burden must promote intergenerational inequality for the middle class!"

I get that argument, but, in theory, it shouldn't be a problem that companies, such as banks, hold the foreign debt and not average workers. Why? Because companies are a part of our market system. They pay taxes, from which money can be redistributed to the middle class. With competence in Washington, we should be able to offset the intergenerational burden from the distribution of foreign debt holdings in the U.S. Now, you could argue that our political system doesn't allow enough taxation to offset the intergenerational inequality promoted by the distribution of foreign debt holdings, but that's a separate argument. In principle, it shouldn't matter where the debt is held, so long as it's held by American institutions (e.g., banks, government, the middle class, etc...).
written by JSeydl, April 01, 2012 10:19
Sry, here's another version of the link that should work: http://www.treasury.gov/resour...c2010r.pdf
Generational struggle not false in itself
written by Tom, April 01, 2012 10:26
Prof. Baker,
This is a great critique of this particular Esquire article, with its pernicious agenda and its simple confusions. But we should be careful not to imply that any argument along generational lines is simply an attempt to displace class-war arguments. There are solid and very progressive cases for the recent emergence of a cruel generational war going on in the US, in which organized and engaged constituencies of older Americans are intensely fixated on some perceived loss of "their America" and their desire to limit opportunities for and delegitimate the identities of younger Americans. Plus the climate change point isn't a small one: older Americans are disproportionately shortsighted about this huge threat. Here's a progressive version of the generational argument:
Commenting on the Esquire article ...
written by Benedict@Large, April 01, 2012 6:12
While you cannot comment directly at Esquire, YOU CAN COMMENT on the article at the author's website:
written by Stephen, April 02, 2012 7:58
Yes! Thank you for this. I realize Esquire shouldn't be counted on as a legitimate news source, but considering how many young people read it it's a shame how they aggressively obfuscate the real issues. Pandering at it's finest.
A couple of quick points
written by Dean, April 02, 2012 10:23
On one issue here, the U.S. as a whole is of course better off without owing foreign debt than with it, but there are two points to keep in mind.

First, the foreign debt is a story of a trade deficit, not a budget deficit. Second, the remedy is to get the over-valued dollar down. This both gets rid of the long-term debt problem and also creates more jobs for young people in the short-run. It would have been great if this Esquire piece had talked about the over-valued dollar and bad implications it has for our kids.

The second point has to do with the DeLong-Summers projection that we are looking at lower long-term growth because of the downturn. This is a plausible story -- if we don't take steps to boost the economy, which we probably won't soon.

This is certainly bad news, but it will not matter much for SS. The reason for their projected slowdown is primarily people dropping out of the labor force, not slower productivity growth. This will mean that these people will collect smaller benefits when they reach retirement age in 10-15 years. That may not be exactly offsetting the lost tax revenue, but it will go much of the way there. So, it is unlikely to affect SS solvency much, even if it is really bad news.

written by x, April 02, 2012 11:09
The editor in chief of Esquire did not agree with the article. You have to read his opening in the actual magazine. Although, he did feel there was a lack of opportunity for the younger generation and felt this article captured the angst of the difficulty of getting ahead today as a young person.
written by Namazu, April 03, 2012 9:05
"Of course the debt is not a measure of intergenerational equity. At some point everyone alive today will be dead. The bonds that they hold will end up in the hands of the next generation."
Tendentious nonsense: negative real interest rates result in inter-generational theft. A more redistributionist future will not change the diminished purchasing power of bond coupons and principal. Debased money can only pay for cheaper social services.
Another red herring by the 1%
written by good2go, April 03, 2012 12:12
This "inter-generational" stuff has been brewing for a while, essentially from about the time the Kochetypes started putting together ad agencies labeled as "think tanks." As such it's abundantly clear that this is another attempt by the 1% to distract attention from their ongoing thievery. So now we blame the "Baby Boomers"--the most productive generation in history, which has funded their parents' lives, their children's lives, and the bank accounts of a few billionaires--and gotten screwed for their efforts. Their pensions? GONE! Their savings? GONE! Their property values? GONE! The Social Security they've been paying for? GONE! Medicare they've been paying for? GONE! Taxes they've paid? SQUANDERED on wars and military contractors. All you Boomer Blamers: who you gonna hate after the Boomers are gone and you have no one but yourselves around?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.