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Neil H. Buchanan

Our Grandchildren as Political Props: What Are Our Real Obligations to Future Generations?


Thursday, February 11, 2010

Perhaps nothing is more predictable than politicians' sanctimoniously referring to the interests of "our grandchildren." With the recent resurgence of hyped-up concerns about the federal budget deficit, we are once again hearing politicians invoke such misleading rhetorical phrases as "generational theft" to justify taking benefits away from older Americans. Who could be in favor of theft, after all, especially theft from our grandchildren and from generations yet unborn?

As a recent example, David Brooks, one of the conservative columnists who writes regularly on The New York Times op-ed page, joined this chorus last week Although Brooks's column was initially dressed up as a discussion of new research on the cognitive abilities of people as they age, in truth it was really nothing more than the usual young-versus-old rhetoric. He selectively cited a few scary-sounding numbers -- "the federal government now spends $7 on the elderly for each $1 it spends on children" -- and concluded that older generations are being unfair to the young.

In fairness, it must be noted that Brooks has no expertise whatsoever when it comes to analyzing economic forecasts or interpreting their meaning. In that respect, he is in the company of virtually every politician and pundit who opines on the subject. One might hope, however, that that very lack of expertise would cause some of these commentators to avoid exposing their ignorance and to be more modest and limited in their claims.

Yet rather than acknowledge any such limits, Brooks ultimately issues the familiar call for "geezers" to stop "taking money," "taking freedom," and "taking opportunity" from younger Americans. This is pretty powerful rhetoric, and it appears to have a receptive audience, with politicians from both parties wringing their hands about how spending on elderly Americans will supposedly harm our grandchildren. Long before he became a U.S. Senator, for example, Al Franken unexpectedly devoted a chapter of his book Rush Limbaugh is a Big Fat Idiot and Other Observations to arguing that we are cheating our children and grandchildren with overly generous entitlements. (Franken is, of course, generally considered to be a solidly liberal Democrat.)

The problem is, this claim is simply not true. The current economic forecasts will not, if they come to pass, mean that future generations are worse off economically than we are. It is true that current generations are harming the interests of future generations, but that is because of our ongoing destruction of the planet, not because of the increase in the national debt. If we are going to use our grandchildren as emotional props in policy debates, therefore, we should be talking about global warming, not spending freezes.

Even Under the Most Pessimistic Forecasts, Future Generations of Americans Will Be Much Richer Than Americans Are Today

Much of the debate about the generational effects of budget deficits begins with the annual forecasts issued by the Trustees of the Social Security Administration. President Obama, for example, noted last week that the Trustees' most recent forecasts (issued last Spring) showed the Social Security trust fund being depleted in 2037. (The Congressional Budget Office predicted a few months later that this would not happen until 2043, based on slightly different forecasting methodology, but politicians' purpose in referring to such forecasts is the same: Both forecasts see the fund being depleted long before future generations could take advantage of it.)

In future columns, I will aggressively dispute the accuracy of such forecasts, as well as the false implication that Social Security will be "out of money" in the year predicted (whether it is 2037 or 2043 -- or 2011 or 2155, for that matter). I also discussed some of the details of the 2009 Trustees' report in a FindLaw column last May.

For my purposes in this column, however, what is most interesting is what the Trustees' forecasts tell us about the living standards of future generations. We are constantly reminded that the Baby Boom generation's retirement will reduce the number of workers that are supporting a growing number of retirees, with the implication that younger persons' living standards must fall. What we almost never hear, though, is that there is a countervailing force at work here: Each worker in the future -- because of what current generations will bequeath to them, in the form of knowledge, technology, infrastructure, and an advanced economy -- will produce much more than current workers are able to produce today.

It is Assured that Future Workers' Greater Productivity Will Outweigh Generational Demographic Imbalances -- and the Trustees' Report Proves It

This tension, between the rising number of non-workers that future workers must support vis-à-vis the increasing productivity of those workers, raises an important empirical question: Which effect is larger? Happily, in the United States, there is no question that the good effect will outweigh the bad. In fact, it is not even a close call.

Ironically, the Trustees' annual report -- which most commentators cite as proof that things are going to get worse for our grandchildren -- itself gives us the answer to the question. The report provides three different 75-year forecasts, using different scenarios based on assumptions that range from mildly optimistic, to somewhat pessimistic, to highly pessimistic. Although the Trustees do not perform the relevant computations, for the past several years, in my own research, I have been using their numbers to determine what future living standards would be under the Trustees' three scenarios. The results of such computations are, in a word, stunning.

The most pessimistic scenario that the Trustees describe uses assumptions that lead to the conclusion that the Social Security trust funds will be depleted less than 20 years from now (well before 2037). Even under this scenario, the numbers show that future living standards (adjusted for inflation) will be more than double current living standards. In other words, in 75 years, when current newborns might be celebrating the birth of their first great-grandchildren, the average American will be more than twice as well off as the current average American. That would, moreover, be the case even after several decades of historically low growth.

In the mid-range scenario, the average standard of living will be more than triple the current level. In the moderately optimistic scenario (in which the economic assumptions are still notably less optimistic than the experience of the past fifty years), future living standards will be more than four times today's levels. This remained true, moreover, even in the Trustees' 2009 report, which was the first to take into account the historic downturn in the economy that started in late 2007, and that intensified during the final months of the Bush administration.

It is, of course, true that long-range forecasts are notably unreliable. If one wants to categorically question the validity of long-range forecasts, however, one loses the ability to say anything at all about the long-range outlook. Moreover, the forecasts that I reported above were based on exactly the same underlying economic assumptions that the doomsayers use to chastise current seniors for being too greedy. If those assumptions and forecasts are unreliable, then we have no reason to believe, in the first place, that the long-term picture is bleak.

Is the Future Really Bright for Our Grandchildren? Not if They Enjoy Breathing

For those of us who care about future generations (and, at least by what they say, that includes all politicians and pundits), the question is whether higher living standards in the future are all that we owe our grandchildren. Put differently, the question is what we include when we measure living standards in the first place.

The most widely used measure of living standards is, of course, the Gross Domestic Product (GDP). All of the results that I reported above are based on that measuring stick, in order to be consistent with the forecasts that the Trustees (and, in turn, politicians) emphasize. The problem with GDP as a measurement of living standards, however, is that it ignores such important matters as the quality of the natural environment, how hard people must work to support their standard of living, and other issues. These shortcomings are well-known to economists, but the GDP standard still remains the starting point for all discussions.

If we expand our view to include these other factors -- which are unquestionably matters of great interest to all generations, present and future -- then we are left with a troubling conclusion: Current generations seem to be ready to bequeath to their heirs an economy that produces a lot of "stuff," but future generations will be left trying to enjoy that stuff in a world with poisonous air and water, rising oceans, and increasingly frequent "natural" disasters.

Fortunately, we do not face a difficult tradeoff between economic growth and environmental protection. It would be one thing if we had to decide whether to make future generations poorer than we are, in return for making their environment more livable and stable. Instead, even in the worst forecast, we have the ability to divert resources from economic growth (as traditionally measured) to enhance environmental protection and remediation.

This is where deficits can come in. Even if we ignore all of the things that the government can (and often does) do to raise future GDP levels, a deficit that is incurred to spend money on the environmental interests of future generations can leave our grandchildren and their grandchildren with both a cleaner planet and living standards that are significantly higher than ours.

Of course, it remains true that wasteful spending (whether financed by deficits or taxes) is bad for everyone, present and future. Therefore, if we really care about future generations, we need to think carefully about how we spend our money. Without cutting into the living standards of today's seniors, however, it is happily the case that we can still provide a future for our progeny that is both economically richer and ecologically more responsible than the world that they will receive if we continue on our current course of environmental denial and misplaced deficit hysteria..

Neil H. Buchanan, J.D. Ph. D. (economics), is a Visiting Scholar at Cornell Law School, an Associate Professor at The George Washington University Law School, and a former economics professor.

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