Victor Davis Hanson over at NRO’s Corner blasts the baby boomer generation
for their leadership during the current economic situation:
If anyone wished to know what the baby-boomer generation would do when, in its full maturity, it hit its first self-created, big-time recession, I think we are seeing the hysterical results. After two decades of unprecedented economic growth, rampant consumer spending, and unimaginable borrowing to satisfy our insatiable appetites, we are suddenly going into even larger debt and printing trillions of dollars in paper money to ensure that someone else after we are gone pays the debt. As if the permanent solution to a financial panic and years of spending wealth we didn’t create were a government take-over of the economy in the manner we currently witness in Spain, Italy, and Greece—or the high-tax, high-spend ethos of a bankrupt California.
The reaction to the economic panic was sort of analogous to the call to ‘charge it!’ after 9/11 (cf. Ike’s fights about the surtax to pay for Korea), or to the Iraq 2006 upsurge in violence, when suddenly our leaders declared the war lost, blamed the nebulous “they” for tricking them into voting for the war, and calling for immediate withdrawals and retreats. Ditto the Stalag-Gulag Guantanamo that, by January 19, had ruined the Constitution, shredded the Bill of Rights, and forever tarnished our reputation. Yet, on the 20th, it was suddenly complex and problematic, and required a “task force” to do a year-long inquiry into the bad and worse choices confronting us. At some point in all this serial hysteria, we are beginning to see the problem is not in the stars of the economy or of the war, but in ourselves—a weird generation that, when it finally came of age, proved to be just about what we could expect of it from what we saw in its youth.
One could go on for hours about the rather frightening combination of a Baby Boomer leadership obsessed with material wealth combined with a chattering (Twittering?) class of the opportunistic and entitlement-oriented Gen Y/Millenial generation. The wallets of Generation Xers (born from ’64 thru ’74) and the elite Gen XY/MTV Generation (born from ’75 to ’82) sincerely tremble at their approach.
In the end, these are genuinely problems on the micro- level. The question how the United States will answer some of the long-term financial problems presented in today’s financial crisis — and more acutely, America’s standing in the 21st century — will revolve around which generational inheritance offers the answers.
The UK Economist gives a rather interesting insight into the deeper causes of the current crisis . Ironically, many of the reason start not with the Baby Boomer’s appetite for consumption, but with the currency reserves of developing nations:
The authors found that a measure of financial depth—the ratio of broad money to GDP—helped to explain the size of reserves. In a more recent study they found that countries with insufficient reserves to insure their financial systems suffered bigger currency crashes during last year’s turmoil. The currencies of countries with full war chests did not depreciate; some rose. If economies draw the lesson that their reserves were not big enough, global imbalances will be even harder to tackle.
Mr Taylor reckons the policy of accumulating reserves accounts for a significant and growing fraction of global surpluses—enough (in the early years of this decade) to finance as much as a third of America’s current-account deficit. The self-insurance against financial fragility is part of a more general bent towards precautionary saving in the developing world. If it persists, as seems likely, it will throw the problem of deficient global demand back to America.
An unsatisfying implication of the literature on the saving glut is that it paints America as a tragic victim of forces beyond its control (though some of the authors insist this is not their belief). The emerging markets’ need for insurance, in its many guises, drives them to export capital to America (and to similar places, such as Britain). America, by implication, has no choice but to make room for it.
Here’s another curveball: Developing nations find it easier and more stable to buy the infrastructure of already developed nations. So all of this cheap money comes flooding into the United States; money to fund things like dot-com or housing booms…
Policymakers blithely assumed they would avoid a dollar crisis and that America would export its way out of any trouble. And that was how things were starting to play out before a quite different crisis, in the financial system, blew up.
With luck and good judgment some of the worst excesses of the financial system will now be reined in. The danger is that by focusing on regulatory reform and less clumsy ways to deal with bank failures, policymakers fail to tackle the underlying causes of the crisis. The anxieties that prompt emerging markets to run big current-account surpluses have not been assuaged. Indeed, the crisis may have spurred some countries to seek even more self-insurance in reserves and other forms of prudential saving.
So what to do? The article explores all sorts of impending scenarios, from nationalization to increased regulatory oversight. One proposed solution — talks to ensure emerging-markets that accrued wealth will be at less risk to economic pressures, or “pooling” the wealth in an IMF-style organization — are two outlets. Neither of these solutions resolve the problem that both the United States and the United Kingdom “drowned themselves in cheap credit from abroad.”
What’s worse is that the “problem” of cheap credit and sovereign wealth funds are not going away anytime soon, most certainly not for America.
Given the choice between three sets of generations — one materialistic, one entrepreneurial, and another entitled — which should we assume is in the best practical position to bring America back from the precipice?
The only inoculation against a credit addiction is savings, just like any budget. The less America relies on cheap credit — much like cheap oil — the more resilient we are to changes in the market.
The question for America is whether or not the current generation of leadership has the propensity to lead this way, or rob from the future to continue to fuel the addiction.