It Can Happen Here: The Screwed Generation in Europe and America

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In Madrid you see them on the streets, jobless, aimless, often bearing college degrees but working as cabbies, baristas, street performers, or—more often—not at all. In Spain as in Greece, nearly half of the adults under 25 don’t work.

Call them the screwed generation, the victims of expansive welfare states and the massive structural debt charged by their parents. In virtually every developed country, and increasingly in developing ones, they include not only the usual victims, the undereducated and recent immigrants, but also the college-educated.

Nowhere is this clearer than in the European Union’s Club Med of Spain, Greece, Portugal, and Italy, the focal point of the emerging new economic crisis. There’s a growing sense of hopelessness in these places, where debt is turning politics into an ugly choice between austerity, which reduces present opportunities, or renewed emphasis on public spending, which all but guarantees major problems in the bond market, and spending promises that can’t be kept.

“We don’t know what to do now,” Jaime, a Madrid waiter in his late 20s told me last week. “My wife lost her auditor’s job, and I can’t support the whole family. Maybe we have to move somewhere like Dubai or maybe Miami.”

Many young Greeks, Italians, Portuguese, and Spaniards already have made their moves, with a half million leaving Spain alone last year. But it’s not just Club Med youths who are contemplating greener pastures. Ireland, which in recent decades actually attracted new migrants, is exporting a thousand people a week. In recession-wracked Britain, nearly half of the population say they would like to move elsewhere.

Driving this exodus is a growing perception that this collapse is not cyclical but secular. Increasingly, young Europeans are deciding not to start families—the key to future growth—in reaction to the recession. The stories about divorced Spanish or Italian young fathers sleeping on the streets or in their cars are not exactly a strong advertising for parenthood.

Even in once-rigidly Catholic Spain, marriage and fertility rates have been falling for decades, and family structure weakening. Spaniards are having fewer children now than they did during the brutal civil war of the late 1930s. Alejandro Macarrón Larumbe, a Madrid-based management consultant, in his 2011 book, El Suicidio Demográfico de España, points out that the actual number of Spanish newborns has declined to an 18th-century level.

This demographic implosion makes sense given the legacy left behind by the boomers, who have held on to generous jobs and benefits but left little opportunity for their children, not to mention a high tax burden on what opportunities they do find. For a generation academics have sold higher education—the more the better—as the cure for unemployment and the great guarantor of success. Yet rising education rates in places like Spain have not created jobs for the rising generation, but only expanded unemployment and falling wages among the ranks of the educated.

Even America, traditionally a beneficiary of European woes, seems to have turned on its young. College debt is crushing many young people with degrees—particularly those outside the sciences and engineering—that are not easily marketable. The spiking number of people in their 30s working as unpaid interns reflects this erosion of opportunity. This has happened even as the price tag for college has shot up; 94 percent of students who earn a bachelor’s degree now owe money for their educations, compared to 45 percent two decades ago. Here’s a tribute to futility: today a majority of unemployed Americans age 25 and older attended college, something never before seen.

Governmental priorities here continue to favor boomers and seniors over the young. For a generation, transfer payments have favored the elderly, a trend likely to accelerate as the boomers continue retiring and demand their due. According to Brookings, America spends 2.4 times as much on the elderly as on children. 

Forced to take lower wages if they can find work at all and facing still-expensive housing in those markets where many of the jobs are, roughly one in five American adults 25 to 34 now live with their parents—almost double the percentage from 30 years ago. Increasingly both Wall Street and green “progressives” urge young people to abandon homeownership for a poorer, more crowded life in expensive, high-density apartment blocks.

Across the developed world, wages are being cut for young Americans, Europeans, and Japanese as politicians prefer to offer less to the young than to take anything away from those already ensconced in employment, particularly if organized into unions. In the U.S., everything from government jobs to employment in auto factories and even supermarkets is now on a two-tier track, with older workers’ guaranteed pensions and higher salaries not shared by newer hires.

Pensions represent a bigger generational issue than salaries do. The European welfare state makes America’s seem Scrooge-ish. Their lifetime guarantees are so extensive, and unsustainable, that even the über-frugal Germans are calling for a special tax on younger workers to fund their parents’ pensions.

This generational transfer will likely be accelerated by an aging electorate. In Spain, notes Larumbe, voters over 60 now make up more than 30 percent of the electorate, up from 22 percent in 1977; in 2050 they will constitute close to a majority. The same patterns can be seen in other European countries and, although less dramatically, in the U.S. as well.

As a result, boomer- and senior-dominated parties, both right and left, generally end up screwing young people. This occurs even as they proclaim their fulsome concern for “future generations.”

Politicians on the right, in Europe and elsewhere, scapegoat immigrants in part to hold on to their share of older votes. Left-wing analysts rightly point out that the boomer- and senior-dominated Tea Party here is not likely to cut their own entitlements, preferring instead to push cutbacks in education and other disbursements that aid the young while fighting spending on job creation and productive forms of infrastructure investment.

Politicians on the left, meanwhile, tend to favor redistribution and “sustainability” over the new wealth creation critical for youthful advancement. Many boomers seem to suspect economic growth itself, as when John Holdren, now President Obama’s senior science adviser, back in the 1970s called for the “de-development” of high-income countries. A cynic might conclude that since the progressive boomers already got theirs, it’s fine for the young to live in an era of limits.

With the kind of tax and regulatory regime advocated by today’s regressive progressives—already largely adopted in my home state of California—greens and their allies many not have to worry about too much new growth. Only those connected with the government, or able to ride asset inflation, will do well in the new “progressive” order.

In Europe, east Asia, and America alike, the left and the right have both proven unprepared or unwilling to address the fundamental growth crisis facing the next generation. Neither austerity nor a “progressive” focus on greater government spending and “sustainability” can create the jobs and new opportunities so sorely lacking on the streets of Athens and Madrid and increasingly in American cities as well.

The developed world’s youth shouldn’t expect much help from an older generation that has preserved its generous arrangements at the cost of increasingly stark prospects for its own progeny. Instead the emerging generation needs to push its own new agenda for economic growth and expanded opportunity.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

This piece originally appeared in The Daily Beast.

Unemployed woman photo by BigStockPhoto.com.



















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Thanks. I really approve with your points. The young generation can’t find n apt job for their qualification. And it’s leading to big unemployment problems. They are forced to take up any job. You should really come-up with similar informative articles.
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It Indeed Is Ugly Out There

This is an excellent article that distills a number of concerns I have been mulling over of late. What we are seeing is the death of European social democracy built on generous benefits. It has been clear for 30 years that the actuarial present value of those benefits make them unaffordable. Nearly all continental European nations have promised old age pensions whose cost is forecast to exceed 10% of GDP by 2050. The English speaking countries are better off here, mainly because their public pensions are lower. In the USA, Social Security pays no one a middle class income in old age.

The demographic data from the Club Med is a proverbial canary in the coal mine. Something is fundamentally unwell that is inducing Europeans to not procreate.

A major problem in continental Europe is that employment law makes it very difficult to lay off employees. Hence the main way employers cope with hard times, such as now, is by hiring freezes. People, if we are to have reasonably full employment in bad times as well as good, wage flexibility is required.

In the USA, Social Security should be made fully taxable, ASAP. The ceiling on the FICA tax should be raised to at least 200K, ASAP. All underfunded state & local govt. defined beneft plans should be closed to new members ASAP. The pensions owed by closed plans should be capped at no more than 60K/year. Amounts between 40K and 60K/year should get a haircut. I agree with Joshua Rauh's argument that state & local govts. in the USA have unfunded pension liabilities on the order of US$4 - 4.5 trillion. This gap cannot be closed by raising taxes. Radical cuts in benefits are required.

Over the course of my career, I have opted out of defined benefit plans, because I did not trust them. I trusted defined contribution plans, because they built on a notion everyone understands instinctively: private property. In exchange for the benefit of owning and directing an investment account, I gladly accepted the fact that the return on such an account cannot be guaranteed.

Continental European public pensions will have to be drastically reduced. The cuts should apply to current retirees as well as to future ones.

The Euro means that monetary policy is not a way out. Without a central bank that stands ready to buy sovereign debt that finds no buyers, the public sector cannot borrow massively and hence fiscal policy is not an option either.

The historical response to European crises such as the present one, is emigration, of a kind that has enormously benefited the children of Mother England. I expect such emigration to ramp up soon.

In 1960, the USA Supreme Court ruled that Social Security does not constitute a contract between the Federal govt. and the American public. Congress and President can cut SS benefits in any amount, at any time. I submit that this constitutional doctrine will have to be extended to all retirement benefits promised by any govt. body, anywhere on the globe.

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Euro, productivity increase, wealth distribution

Although I agree with much in the article, I feel it misses several key points:

1) Adoption of Euro has caused the economies of some countries who had a history and culture of inflation and continuing devaluation of their currency to carry on with the same policy under the Euro. This means that now they are faced with deflation and the inability to regain competitiveness. If they had continued with their own currency's these countries would not have had an increase in their standard of living as much in the last ten years, but would not have to fall as far now.

2) This article doesn't take into account the huge increase in productivity of the last 30 years due to automation. The same living standards should easily be maintained with a shrinking real work force with massive increases in productivity we are seeing. Why isn't everyone in the industrial world able to retire at age 60 with a good defined benefit pension that was wisely invested in stocks and bonds, further helping to improve investment?

3) This article does not mention that a large part of the wealth generated by this increase in productivity has gone to the top few percent of earners, see http://en.wikipedia.org/wiki/Income_inequality_in_the_United_States. Had this wealth gone to pension funds for everyone instead of the richest few then investment and retirement should be economically feasible for all without the problems this article states.

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your comment

these are all legitimate points but i think there is a point where the 'burden of support' --- young supporting old --- becomes overwhelming.

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Sources

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