OK Boomer
I see the New York Times has just declared “OK Boomer” to be the war cry of Generation Z as it battles against the generational opportunity injustices foisted upon it by the Baby Boom Generation. I wrote of this in my Global Pension Crisis book in 2013, so I will except that here.
We are living in what Esquire magazine recently called The Worst Generation:
“The Baby Boomers are the most self‐centered, self‐seeking, self‐interested, self‐absorbed, self‐indulgent, self‐aggrandizing generation in American history.”
This is the preamble to a very scathing explanation about why generational warfare is both in full swing, but also very global. I believe it tends to overstate the current tension, but may well do a very accurate job of describing what we have to look forward to in the near future (and it probably starts with name-calling, OK Boomer?).
This is what I have called “The Privilege Gap” because it goes to the heart of perception by the beleaguered youth generations that the Baby Boomers have squandered the earth’s and their nation’s resources and taken this sense of entitlement to the extreme of leaving nothing for the younger generations to live on and build on:
“Since the beginning of the Industrial Revolution, human potential has been consistently growing, generating greater material wealth, more education, wider opportunities — a vast and glorious liberation of human potential. In all that time, everyone, even followers of the most corrupt or most evil of ideologies, believed they were working for a better tomorrow. Not now. The angel of progress has suddenly vanished from the scene.”
This “Boomerang Generation,” as it is being coined, is increasingly living at home and forced into under-employment situations (if they are lucky) and stalled in creating their own independent lifestyle. This is both ironic and potentially devastating to the developed nations who face the compounding problems of an aging population and naturally slowing growth:
“At the exact moment when the United States and all other Western countries are trying to deal with aging populations, they are failing to capture the energy and potential of the people who will have to work to support those aging populations.”
And one of the more compounding aspects of the generational difference is that while Baby Boomers enjoyed the wealth‐creating power of ever appreciating assets—mostly in real estate, but also in equities—that trend had come to an abrupt end. Most of us are acutely aware of the bursting of the housing bubble and the revised sense that “safe as houses” is an expression of a bygone era. We are very rapidly moving from an economy predicated on home ownership to a “rentership society” driven by a combination of reduced personal capital and creditworthiness combined with a reduced desire to be homeowners.
I spent much of 2011 and 2012 working hard with the Federal Housing Administration (FHA), a part of the branch of the government called HUD (Housing and Urban Development). “HUD’s mission is to create strong, sustainable, inclusive communities and quality affordable homes for all.” As for FHA, it is HUD’s vehicle for providing mortgage insurance on homes so that a broader cross‐section of American’s can afford to buy homes. What is the result? Simply stated, FHA, which bears the full faith and credit of the United States on its MMI insurance fund (the only insurance fund of the U.S. government, I might add), is creating a self‐perpetuating problem where the less prosperous communities are incurring a disproportionately greater default and foreclosure rate and suffering far greater loss in value. This is a perverse outcome for a policy striving to create greater economic equality. The housing crisis that you have successfully avoided by living in a good neighborhood and paying off your mortgage will not leave you unscathed as taxes rise to fix the FHA/MMI problem.
You can’t build your walls high enough. The younger generations are wise to be careful about home ownership in this environment. We used to ride inflation to boost housing values and minimize mortgage burden, but that simply doesn’t happen in a deflationary world. There goes what has been a good family wealth accumulator. What is less obvious than the housing crisis, but equally harmful to the younger generations is the effect all of this has had on the equity markets. I am not talking about a cyclical dip, but rather a secular compression. As The Economist recently noted, “Zheng Liu and Mark Spiegel, economists at the Federal Reserve Bank of San Francisco, found in 2011 that movements in the price‐earnings ratio of equities closely track changes in the ratio of middle‐aged to old workers, meaning that the p/e ratio is likely to fall.”
So there you have it, the ever famous “multiple bump” available in the public equity market is being impacted by the Old Age Dependency ratio. This effectively means that for the next 40 years or so the younger generations may not have the magic IPO markets and will almost certainly not have the advantage of ever rising asset prices (the ubiquitous “carry trade”) on which to leverage great wealth accumulation. In fact, it is possible that the leverage that has been our financially tax‐advantaged friend for so long may now turn into our enemy, not just on occasion, but perhaps as a matter of course.
The basic arguments against the Baby Boomers in this generational conflict are that they had one of the best economic scenarios in which to prosper and proceeded to squander it and burden the next generations unduly in the process as well. The arguments for the environment focus on the notion that the post‐WWII world was rife with opportunity. Education was plentiful and relatively cheap and very financeable. The Federal Debt level in the United States was at 38% of GDP, so while we all worried about Social Security, it was paying for the Greatest Generation before us so at least they were not a real burden on Baby Boomers as they began their accumulating lifestyles and wealth‐gathering ways.
The “Privilege Gap” may be far greater today than we are aware. According to the New York Times the gap is at an unprecedented width: “The wealth gap between households headed by someone over 65 and those headed by someone under 35 is wider than at any point since the Federal Reserve Board began keeping consistent data in 1989.”
This is the setup for the anti‐Boomer arguments, which are well argued by Jim Tankersley in his piece “Generational Warfare: The Case Against Parasitic Baby Boomers” appearing in the National Journal. In that Tankersley says:
“Richard Evans, Kerk Phillips and Laurence Kotlikoff published a paper in January that projected a 1‐in‐3 chance that the U.S. economy will reach ‘game over’ within 30 years. In their definition, ‘game over’ means that the government’s obligations to seniors (thanks again, boomers) will exceed 100 percent of everyone else’s earnings. In other words, all the young workers in America together won’t earn enough to pay down the government’s obligations to their parents.”
OK Boomer ….. time to leave the stage.