I can not help but wonder if Friedman takes delight in the predicament of the Young and Baby Boomers as he writes about Druckenmiller excursions on to college campuses . I envision a bit of Schadenfreude as evidenced by his choice of titles for his latest column. October 15, 2013, Tom Friedman writes in the NYT about the young being screwed by the baby boomer generation and trumpets for rebellion against the kicking of the can down the road of higher costs and taxes due to Social Security, Medicare, Medicaid, and entitlements. Tom Friedman’s NYT article “Sorry Kids, We Ate It All” masks the real threat to student and their productivity going into the future.
“as our politicians run for the hills the minute someone accuses them of ‘fixing the deficit on the backs of the elderly’ or creating ‘death panels’ to sensibly allocate end-of-life health care. Could this time be different? Short of an economic meltdown, there is only one thing that might produce meaningful change: a mass movement for tax, spending and entitlement reform led by the cohort that is the least organized but will be the most affected if we don’t think long term — today’s young people.” “Sorry Kids, We Ate It All”<
The young face greater issues and problems with the limitations placed upon them by student loans and the lack of jobs than a fully funded Social Security and partially funded Medicare. 66% of the $1.3 Trillion and growing student loan deficit is owned by those 39 years and younger with little recourse other than to pay it off, die, become disabled, or go with little or no income for the next 20-25 years. Fix this deficit which blocks their ability to invest in the future and increase economic growth in a demand-led economy and the younger generations will thrive. There is far more danger in this student deficit than small tweaks of payroll wage tax increases over a 10-20 year year period. Fully funded entitlements and healthcare are not the danger this cohort of 39 and under faces when compared to the increased risk assigned to domestic programs such as Student Loans through the usage of Fair Market Valuation as advocated by Elmendorf of the CBO, Delisle of the New America Foundation, and Richwine of Heritage as well as many well heeled taxpayers. FMV will only serve to assign higher risk to programs increase the interest rates paid. Historically, Student Loans are not the risk they are made out to be through FMV, cost less per dollar loaned and recoup greater than the dollar loaned in default as pointed out by Alan Collinge of the Student Loan Justice Org.
Increasing student loans today coupled with higher interest rates on student loans to meet the rising costs of a college education have a greater impact on the future wealth and income of students as shown by a recent Demos study “At What Cost? How Student Debt Reduces Lifetime Wealth”
“predicting that its impact on the lifetime assets of indebted households will be nearly four times the amount borrowed. Student debt’s financial impact won’t just be felt by the nearly 39 million Americans who currently have student loans, however; the drag of student loans on indebted households’ purchasing power and ability to save will slow already-sluggish growth for the entire U.S. economy.”
<
Tom points to the investor Stan Druckenmiller, who made his money during the subprime collapse. Stan tours college campus to talk to students on how “we” as baby boomers brought down a president by protesting the Vietnam War. Using charts Stan encourages student activism and their rebelling against spending, domestic entitlement programs, and taxes which will potentially badly hammer them going into the future. Entitlement programs which benefit the elderly, those same entitlements which are fully funded, and which will benefit students when they become of age are included as targets along with Defense spending, farm subsidies, capital gains, etc. It seems that Stan hopes to raise a similar Days of Rage protest that occurred during Vietnam and with Democrats to kill entitlement programs and associated taxes today. Protesting may have been a thought for Stan in the sixties and early seventies; but, there were many of us who actually did protest or did serve, fulfilling our commitment, and later worked to bring our friends home. Druckenmiller was hardly of age to be protesting much at 18 (1971) other than getting up early to get to high school when I left the USMC in the same year at 22 as a Sergeant. Vietnam was winding down in 71 and we pulled out two years later. President Johnson announced he would not run for the presidency in 1968 when Druckenmiller was 14-15. Nixon was elected in 1968 when Druckenmiller was 15(?) and I was 19 going into the Marines. Who knows, maybe he was a militant 14-15 year old? There were few people and families who went untouched by the tragedy of the sixties and early seventies. If Stan’s message as stated by Tom Friedman is more innocent, it is not coming across in the statements being made by Friedman and also in an WSJ article
Over at the Wall Street Journal James Freeman displays a similar degree of Schadenfreude with his selection of titles, “Stanley Druckenmiller: How Washington Really Distributes Income, The renown money manager goes back to school to explain how entitlements are helping baby boomers rip off future generations.” Baby-boomers never faced such animosity and neither article touches upon the the real threat to students, student debt resulting from student loans and the drag on their productivity and the economy in the future.
Much of the supposed damage to the economy of debt and deficit spending has occurred by the skewing of 31% of 2001 and 2003 tax decreases to a 1% minority of household taxpayers making > $500,000 annually. 90+% of those tax cuts still exist in this decade due to the obstinacy of the Republicans, Tea-baggers, special interests such as Norquist, ALEC, etc., and well heeled individuals funding the efforts to maintain tax cut status quo for a few and starve the government. Over the last decade or so tax revenue has never been as low due mostly due to these cuts and a crashed economy. The preferential treatment given to Capital Gains has helped many to avoid the 35-39% income tax on payroll wages and the payroll wage tax used to fund Social Security and Medicare. No Tom does not talk about this and Stan weakly mentions that taxes on capital gains and interest should go up on the elderly and wealthy as if being one begets the other. Many of the elderly are not wealthy and many will not be wealthy as they retire.
While Friedman warns of the danger of baby-boomer entitlement programs destroying the future and promotes Druckenmiller’s tours, Aljazeera “The Shutdown is Over; but, the Austerity Fight Continues” discusses the austerity which continues after the shutdown ended. No one called off the Sequester and the Republicans are just as unrelenting with it by promoting entitlement cuts over tax increases and Defense cuts. In “the Rise and the Fall of the Great Powers,” Paul Kennedy warned about the continuous spending on Defense in excess of economic growth in contrast to domestic spending and the eventual relegation of those nations to tier two and three status. Yet we still go down that very same path with Defense spending. The Government Shutdown battle is over in 2013, not won decisively, and postponed to 2014 when similar efforts will reemerge after a lengthy battle over entitlement reform which will include Social Security, Medicare, Medicaid, PPACA, and other domestic programs. There was an agreement last Fall when a budget was not finalized to go into Sequestration with defined spending limits. It was only when the minority in Congress insisted upon cuts to the PPACA was a line drawn in the sand by this administration. The minority as led by John Boehner, Ted Cruz, Mitch McConnell and Tea-baggers relented and the Administration has agreed to discuss entitlement reform which will probably leave tax increases and Defense spending on the sidelines. Austerity still continues in the US and now programs are on the table for discussion.
“Should any political party attempt to abolish social security, unemployment insurance and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things . . . Their number is negligible, and they are stupid. President Dwight Eisenhower”
Fifty plus years ago and one president sizes it up for the present, “Their number is negligible, and they are stupid.” “Eisenhower was not only making a sound political assessment; he was also correctly pointing out the economic foolhardiness of cutting spending, particularly on programs that bolster middle- and lower-income citizens. Contemporary policymakers should acknowledge the clear evidence that the budget-trimming exercise will be counterproductive — assuming the objective is to reduce the level of government debt rather than make the rich even richer.” “The Shutdown is Over; but, the Austerity Fight Continues”
After pushing austerity on numerous nations before granting loans to assist them, the International Monetary Fund finally came to the conclusion, austerity does not work. Mostly austerity programs impact the poor and the middle class as it becomes difficult to continue working or find work after losing jobs after austerity is implemented. In the end, their assets in the form of homes and savings are sacrificed. The same supposed non-partisan CBO which has switched to FMV in determining the return on Student Loans has embraced austerity measures over the years even when the IMF has dropped it and Carmen Reinhart and Kenneth Rogoff were proved debt to GDP ratio assumptions wrong. A CBO report on healthcare costs was debunked by Glen Lafollette and Louise Sheiner and reported at Naked Capitalism “Fed Budget Experts Demolish CBO Healthcare Cost Model, the Lynchpin of Budget Hysteria” which was later contacted by Elemendorf’s staff. In 2010, the CBO forecasted the coming of America’s dire financial status in 2020 as debt reached 90% of GDP. Again two senior fellows this time from the Roosevelt Institute revealed the CBO omitted governmental financial assets as reported by “Naked Capitalism; The Latest CBO Con-Job”. If the CBO can exhibit such clumsiness in reporting on healthcare and debt to GDP ratio, there is a need to go back and again look at how student loans are rated for risk. An educated population is the lynchpin to future economic growth and should not be subject to austerity measures of higher interest rates as determined by risk.
Yes, the Government Shutdown and Debt Ceiling crisis ended last week this year only to be picked up again in 2014 with little change in my opinion. The President needs to hold his ground on cuts to domestic programs benefiting the poor and the middle class of all ages.
References
“Sorry Kids, We Ate It All,” New York Times, October 15, 2013, “Sorry Kids, We Ate It All”
“At What Cost? How Student Debt Reduces Lifetime Wealth,” Demos, An Equal Say and An Equal Chance for All, August 1, 2013, “At What Cost? How Student Debt Reduces Lifetime Wealth”
Student Loan Justice Org http://studentloanjustice.org/; Allan Collinge
Stanley Druckenmiller: How Washington Really Distributes Income, The renown money manager goes back to school to explain how entitlements are helping baby boomers rip off future generations, Wall Street Journal, October 18, 2013, “Stanley Druckenmiller: How Washington Really Distributes Income, The renown money manager goes back to school to explain how entitlements are helping baby boomers rip off future generations.”
“The Shutdown is Over; but, the Austerity Fight Continues” Aljazeera, October 18, 2013 http://online.wsj.com/news/articles/SB10001424052702303680404579141790296396688
“Fed Budget Experts Demolish CBO Healthcare Cost Models,” Naked Capitalism, “Fed Budget Experts Demolish CBO Healthcare Cost Model, the Lynchpin of Budget Hysteria”
“The Latest CBO Con Job,” Naked Capitalism, Naked Capitalism; The Latest CBO Con-Job”