ECONOMY SEPTEMBER 5, 2011
In his book The Greatest Generation, Tom Brokaw paid homage to the generation that emerged from the Great Depression to fight Hitler and other forms of tyranny. Their efforts were all about sacrifice so that their children could enjoy a better life. They sacrificed on the front lines of battle and back home in the factories that produced what was needed to wage war.
We, on the other hand, are members of the Baby Boom generation (the authors are both 60 years old)—a cohort that is hardly known for its selflessness—and we can’t help but wonder: What, exactly, happened to the children of the “Greatest Generation?” Where is our willingness to sacrifice so that our children can enjoy a life even better than ours?
RECENT POLITICAL DECISIONS have rejected sacrifice in favor of a what’s-in-it-for-me approach and, in the process, polarized the nation. To make matters worse, our leaders and opinion makers have convinced too many of us, conveniently, that our self-interest is also in the interest of the greater good, implying that no compromise or shared sacrifice is ever needed. Here are just a few examples:
1. We are fighting three wars (with a “volunteer” army) while refusing to pay for them, effectively passing the cost of financing the wars to the next generation.
2. We have an energy problem that is both a supply and a demand problem. It threatens our environment and our security, yet no politician seems willing to ask the American public to sacrifice to help solve the issue.
3. In the face of an avalanche of debt and deficits, congress and the Obama administration extended the Bush tax cuts through 2012, passing even more financial hardship to our children.
4. The country binges on debt to buy homes that we cannot afford. The political reaction (especially from the left) is to try to artificially support housing prices. The effect is to postpone a market-clearing end to the decline in prices and to keep housing prices at above-market levels for younger families who might hope to afford a home.
5. We refuse to means-test Social Security and Medicare or to come up with a more reasonable method of inflation-indexing Social Security. We will ask the next generation to pay for all of this through higher taxes and slower growth.
6. Unelected leaders came up with a bold long-term solution to our fiscal problems: the Bowles-Simpson Deficit Reduction recommendations. It ended up dead-on-arrival, however, because our elected leaders do not dare ask the nation to sacrifice for fear that they will be at risk in the next election. Again, better to lay hardships on those too young to vote than to ask today’s voters to sacrifice.
So how did the Greatest Generation, known for its sacrifices, produce a generation so focused on economic self-interest and so seemingly unwilling to sacrifice for the good of the country? That is a bit of a mystery, but we will put forth two theories.
First, our generation generally avoided military service. As we baby boomers became adults, less than 1 percent of the population served in the military. In WWII, that figure was over 10 percent. Two of the great lessons of military service are one, country before self and two, trust in leadership and authority. With relatively few of us sharing the bonds, lessons, and sacrifices of military service, perhaps there is little widespread experiential counterbalance to each of us pursuing only our self-interest.
The second theory, on the other hand, goes deeper into our country’s structural economic problems—those that have precipitated the decline of a middle-class majority and the ascent of more powerful, but divergent self-interest groups.
Indeed, if we examine the economic and political principles that have worked together to serve us so well for 200 years, we see that today they seem to be working against each other instead. Our economic foundational principles are grounded in the free enterprise system as so beautifully described in Adam Smith’s Wealth of Nations. Smith posited correctly that the greatest amount of societal wealth would be created through the invisible hand of the marketplace if individuals (and enterprises) were allowed to pursue their economic self interests. Our political foundational principle, on the other hand, is “one person, one vote.” Our founding fathers believed that if we give a political voice to the Great Majority, diverse interest would produce a fair and just society.
There will always be tension between those with wealth, trying to keep it or get more of it, and those without wealth, trying to get it. In times of general prosperity, however, the two sides strike a balance. A democracy, with its one person, one vote philosophy, provides a voice in government not provided by an economic system that skews rule-setting toward those with the most capital.
Our nation has been successful precisely because we have found ways to mitigate the concentration of wealth, produced by our free enterprise system, through tax and social policies that benefit a majority of voters. (If those policies do not directly benefit a majority of voters, they at least give the majority a “stake” in the system through various forms of equal opportunity and upward mobility.) It is this great middle-class majority that provides societal balance—the human resources needed to sustain our competitive advantage, to fight to keep our nation independent, and most importantly to maintain the majority consensus needed to sustain the nation for the next generation. If the society works well for the majority, the majority will be willing to sacrifice to perpetuate the society.
Over the last 30 years, however, the way America participates in the global economy has dramatically changed. Most of the changes have reduced the likelihood that the U.S. will generate sufficient numbers of good jobs to support the families who hope to rely on those jobs to provide a middle-class lifestyle. The drivers of this shift include, but aren’t limited to, the following factors:
1. Technology has been eroding the number of workers required to perform a given task.
2. The combination of the emergence of more formidable foreign competition, cheap foreign labor, and technology has driven still other jobs out of the U.S. economy.
3. Real wages for the middle-class worker have been declining, while incomes for those in the top 1 percent have skyrocketed.
4. The aging U.S. population and medical advances have produced costlier healthcare, and more people needing a safety net.
5. There are far fewer workers today supporting a much older population.
6. The economic and societal benefits of the middle class are shrinking with the real decline in wages and diminished real and perceived opportunities.
These factors have led to the decline of the great, middle-class majority and the ascent of more powerful, but divergent self-interest groups. We now elect leaders who do not reflect a Great Majority consensus, but more and more divergent self-interest groups, as a result. Today’s politicians can get elected by appealing to narrow interests, as well as by convincing their constituents that all can be well if only someone else is asked to sacrifice. Someone else’s children will fight the wars; bankers can continue to make huge salaries while others stand in unemployment lines created by bankers’ risky actions; Medicare subsidies will continue to be paid while there are fewer and fewer workers to pay those bills; congress can provide tax cuts for everyone while they vote to incur the increased expense of foreign wars.
THE SIXTIES GENERATION, our generation, taught the world that much good can come from organizing groups in support of causes for the greater good. Somewhere along the way, the greater good has been ignored, while organizing for self-interest continues to have great success. The information age has made it much easier to organize, influence, and empower narrow self-interest groups.
Politicians, for their part, have always promised much more than they could deliver, but now it appears that something has changed. Political leaders on the left and right are finding it much harder to compromise, while those in the middle (think Senator Evan Bayh) lose interest in fighting a losing battle. Few people are aware that Ronald Reagan raised taxes more than 10 times, while welfare reform was accomplished under Bill Clinton. The downside of the communication age is to make it difficult for today’s politicians to close the doors and deal with each other for the greater good.
In the end, however, we remain optimists. Eventually, some leader will emerge who understands and can communicate that:
1. Free enterprise (with reasonable tax rates and limited regulation) produces the largest and fastest growing economic pie; and
2. Unless a vast majority of Americans have a stake in our economic system (some combination of safety net and equal opportunity), our political system will eventually undermine and emasculate our free enterprise economic system.
It is not too late. We need leaders willing to appeal to our best, not our worst, most selfish instincts. We must reject leaders from either political extreme who seek advantage by pitting one economic class against another. Our parents left us with the legacy of The Greatest Generation. It would be ironic for our generation, which has profoundly influenced social change for the greater good, to leave a legacy of self-centeredness that leads our nation to financial and social ruin. A bit of that self sacrifice that our parents showed would go a long way to ensure a different historical judgment.
Steve Krause is the Director of Finance at the University of Chicago's Booth School of Business. Matthew Paull retired from the CFO position at McDonald's Corporation in early 2008 and now serves on several boards.