Almost every major new economic initiative proposed by Democrats — the Green New Deal, Medicare for all, debt-free college — has a common feature: Unlike most social programs, it would benefit younger Americans at the expense of older Americans.
Since the New Deal, the US’ social insurance programs have primarily transferred resources from the relatively young to the old.
Social Security was designed as a program to support those unable to work, but over time, its spending came to be dominated by payments to retirees. Medicaid was intended for the poor, but now mostly pays for medical care for lower-income older Americans. Medicare has always been focused on serving senior citizens.
True, healthcare spending tends to go toward older Americans anyway, but these programs are prone to letting younger Americans fall through the cracks.
Last year, the uninsured rate for Americans overall was 8.8 percent, but for Americans aged 26 to 34, it was 16.2 percent.
Medicare for all would represent a much larger expansion of health insurance among younger adults than among older adults — with a corresponding increase in costs. These costs would have to be made up with higher taxes or, more likely, reductions in services for those who currently have Medicare.
Likewise, the young have the most to gain from a Green New Deal. First, and most obviously, they are likely to live long enough to reap the benefits of any impact it might have in mitigating the effects of climate change.
Second, and more immediately, the Green New Deal is likely to create jobs in the development and installation of renewable energy technology. Both the technical skills and the physical labor required for this work are likely to come disproportionately from the young.
The argument that a debt-free college policy would mostly benefit the young hardly needs an explanation.
Yet, it is even more skewed toward them than it appears: It is not a given that such a program would result in many more Americans going to college (if that happened, the overall benefits — from the increase in skilled workers — would be widespread).
Instead, more students would leave college without owing tens or even hundreds of thousands of dollars in debt. That reduced debt burden represents a direct transfer from older Americans to younger ones.
None of this is to argue against the goals of these Democratic proposals, but they represent a radical departure from the past and present model.
It is interesting to consider why they are all being introduced now. My favorite theory — and that is all it is — is that they are payback for decades of pro-elderly monetary policy.
If you bought a house, or started investing in stocks and bonds, in the late 1970s or early 1980s, you probably did pretty well. At the time, interest rates were high. At their peak in October 1981, the average home mortgage rate was 18.5 percent.
High interest rates tend to push down the value of the underlying asset, so while interest payments on homes might have been exorbitant, the principle was relatively small.
These high interest rates were designed to reduce inflation — and they worked. However, as inflation fell, so did interest rates and, in response, asset prices soared.
That means that houses — as well as stocks, bonds and other assets that Americans of that generation bought — went up in value. With the new, lower interest rates, many homeowners could refinance and save even more.
Those low interest rates made student debt look less daunting, so numerous states allowed their university systems to raise tuition. In many cases, the rationale was that the students paying full price would subsidize aid for lower-income students.
All those paying customers radically changed incentives for universities. Instead of focusing on academics, they spent lavishly on administrative staff, campus renovations and amenities, largely in an effort to improve the student experience.
However, upon graduation, students found that their more expensive educations had not brought them more lucrative job opportunities.
The same monetary policy that pushed down inflation also reduced job growth, particularly for entry-level workers. College students were entering a subpar job market with an above-par amount of debt.
It seems that they have finally had enough. They want to use fiscal policy to help repair the damage wrought by monetary policy.
This is not necessarily the way that I would address the issue. I would argue for fixing monetary policy instead of spending vast additional sums to support a new suite of government entitlements, but I am certainly sympathetic toward those who think otherwise.
Karl W. Smith is a senior fellow at the Niskanen Center and founder of the blog Modeled Behavior.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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