Gen Next May Not Do As Well As Its Parents

By ROBERT J. SAMUELSON Posted 10/18/2011 06:14 PM ET

A specter haunts America: downward mobility.

Every generation, we believe, should live better than its predecessor. By and large, Americans still embrace that promise.

A Pew survey this year found 48% of respondents felt their children’s living standards would exceed their own. Although that’s down from 61% in 2002, it’s on a par with the mid-1990s.

But for young Americans, the future could be dimmer.

Along with jobs, the 2012 presidential election could be fought over this issue. “Can The Middle Class Be Saved?” worried a recent cover story in the Atlantic.

Pessimism rises with schooling. In the Pew poll, 54% of respondents with a high school diploma or less felt their children would do better; only 35% of graduate school alums agreed.

“A kind of depression has set in,” writes Washington Post columnist Richard Cohen. “We’ve lost our mojo, our groove.”

It can be argued that all this glumness repeats a historical error: projecting the present onto the future.

After World War II, the Nobel Prize-winning economist Robert Fogel has recalled, there was widespread “alarm about massive unemployment.”

Eleven million veterans and 9 million defense industry workers had to be re-employed. People feared a new Depression. It didn’t happen, because pent-up demand for homes, cars and appliances fueled a hiring boom.

Our future would certainly be brighter if the economy resumed strong growth, but that wouldn’t automatically ensure higher living standards.

A society generates those through productivity — increases in efficiency, technology or business organization that lower costs or enable firms to pay higher wages. Without higher productivity, living standards won’t rise.

Even with it, the young may not enjoy gains. The reason: Productivity improvements have already been committed to demographic trends we can’t alter (aging) or problems we haven’t addressed (runaway health costs, deteriorating infrastructure).

Future productivity and income gains will be diverted to these uses: higher taxes to pay for an older population; health spending; and taxes to repair roads, schools and water systems.

It’s already happening.

“A decade of health care cost growth has wiped out real income gains for an average U.S. family,” a recent report the journal Health Affairs found.

From 1999-2009, compensation of a typical four-person family with employer-paid health insurance rose $23,000. Of this, almost $22,000 went to inflation and health care, including employer costs, family premiums, out-of-pocket payments and taxes.

For most families, higher costs didn’t deliver parallel benefits. The reason: Health spending is concentrated; the sickest 5% account for half the total.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: