The following is an excerpt adapted from the new book “Fear Your Future: How the Deck Is Stacked against Millennials and Why Socialism Would Make It Worse.”
In early 2018, a large, recurring poll of young Americans conducted by the Harvard Kennedy School Institute of Politics asked, “At this moment, would you say that you are more hopeful or fearful about the future of America?” In response, 64% — nearly two-thirds of those aged 18 to 29 — said that they were more fearful, compared with just 33% who said they were more hopeful.
It would be easy to dismiss this pessimism as a common feature of younger adults facing an uncertain future. Struggling to cope with all the “natural shocks that flesh is heir to” goes back to Shakespeare. Novels from “Lost Generation” chroniclers Ernest Hemingway and F. Scott Fitzgerald explore the dark underbelly of the American Dream. The 1970s — a decade that saw Vietnam, Watergate, rising crime, oil shocks, and stagflation — certainly wasn’t a high time for optimism in the United States. Today, millennials, who were born in the early 1980s to mid-to-late 1990s, carry around iPhones in their pockets that have more computing power than all of NASA had in the 1960s when it sent the first men to the moon. Those who take a broader view of the sweep of history, who lived through tumultuous times and witnessed progress, have difficulty producing much sympathy for younger Americans.
As such, millennials may be the most mocked generation in American history. The stereotypes abound. Millennials all think they’re special snowflakes. They use social media to deliver play-by-play commentaries on their daily activities, from shopping for clothes to flossing their teeth. And, of course, they have a psychotic obsession with avocado toast.
For all the joking directed toward them, millennials have legitimate reasons to be resentful, particularly toward boomers. It was the baby boomers who grew up during a massive postwar expansion in America, amassed tremendous wealth, selfishly refused to grapple with any of the nation’s serious problems, and left a staggering level of debt and obligations for future generations.
As millennials grow and try to form families, they will be entering a period in which federal debt will reach the highest sustained levels in American history. Absent action, they will be staring at a crisis, facing some combination of crushing tax increases, massive inflation, sky-high interest rates, and sudden, significant cuts to retirement programs when they reach their twilight years.
Even though millennials have little reason to believe that retirement programs will deliver what’s been promised to them, they are hamstrung in preparing. Despite recent economic improvement, they were held back by uncontrollable growth in college costs that have saddled them with student debt. Meanwhile, housing and health care costs have gone up as well.
Democrats looking toward 2020 have been promising that they can solve the generation’s economic woes through massive government programs. But socializing major sectors of the U.S. economy, far from solving millennials’ problems, will only make their situation worse by adding to the unsustainable federal debt that threatens their futures.
So yes, millennials face obstacles, but there’s a risk that this leads them to make a fatal error: embracing seemingly easy solutions that, in reality, would irreversibly alter the trajectory of American history.
In the past, there was a broader recognition of the problem posed by the nation’s mounting debt, and thus the debate was mostly about whether the solutions should come more in the form of higher taxes or of reduced spending. Yet now, with both parties deciding to ignore the issue, it’s important to recognize exactly what’s so unprecedented about the coming decades.
The Congressional Budget Office has charted U.S. public debt back to 1790 (the Washington administration) and projected it out 30 years from now, to 2049. The federal debt, which stands at nearly 80% of the nation’s economic output, exceeds the levels seen in the aftermath of the Revolutionary War, the Civil War, World War I, and the Great Depression.
The U.S. experienced higher debt at the peak of World War II, but this was a result of a short-lived event, and once the fighting stopped, the debt steadily fell.
There will be no quick retreat for our debt burden, however, because it isn’t the result of a one-off economic event or national mobilization. Instead, in a time of prosperity and relative peace, deficits are growing, and the accumulated debt is on track to exceed the World War II record of 106% of GDP in the coming decades and then soar to 144% by 2049. In dollar terms, that’s $99.5 trillion. And if economic conditions deteriorate and interest rates increase, these numbers could end up even worse, with debt reaching 219% of GDP.
The generational imbalance is quite stark. Baby boomers, who were born from 1946 to 1964, entered the workforce at a time when the postwar debt had dwindled. During the period that the first baby boomers were in the workforce (1964 to 2011), public debt averaged 36% of GDP. Now that millennials are in the workforce, it’s more than double that amount. By the time early millennials approach retirement age in the 2040s, it will be four times the average debt burden experienced by baby boomers.
The burden is even more dramatic when broken down to the individual level. Between 1974 and 2017, median income for 24-to-34-year-olds grew from $7,880 to $35,455 per person. But during the same time, each person’s share of the federal debt soared from $2,221 to $62,263. That means that since the time early baby boomers were in their late 20s, young Americans’ share of the federal debt increased 28 times while their incomes only increased 4.5 times.
Although many would like to blame tax cuts for the accumulation of debt, that isn’t supported by the data. To be clear, there is no doubt that if the government were collecting more tax revenue, deficits would be narrower and the debt would not be growing as rapidly. That having been said, it is undeniable from the data that even after the most recent Republican tax cuts signed into law by President Donald Trump in 2017, federal revenues are projected to be above historical levels in the coming decades. In contrast, spending is way out of whack with historical averages, primarily due to growth in Medicare and Social Security and the accompanying spike in interest payments.
The clear driver of the massive expansion in debt is retirement programs to fund the baby boomers. In 1968, when the earliest boomers would have been at college graduation age, Medicare was in its infancy, having been passed into law just three years earlier. At the time, the two major retirement programs, Social Security and Medicare, accounted for 15.8% of the federal budget. In 2018, the share had soared to 40%.
The demographic reality is that when baby boomers were the bulk of the workforce, they not only had a larger working-age population with whom to share the burden of caring for retirees, they simultaneously had fewer retirees for whom to care. This is attributable to the sheer number of boomers as well as longer life spans.
While the cost growth of Social Security is driven by the increase in the retirement population, Medicare growth is affected by this and by the soaring costs of health care. As a result, it’s a much more complicated problem to address. In the past several decades, the cost of health care in the U.S. has undergone dramatic growth, easily outpacing the expansion of the economy during the same period. From 1970 to 2017, spending on health care went from $1,797 per person to $10,739.
Put another way, millennials are going to be taking care of a lot more retirees, at a much greater cost, for a significantly longer time, than any previous generation.
Complicating matters is that at the same time millennials are inheriting an unprecedented level of federal debt, they are also encountering significant headwinds when it comes to their personal finances. The first millennials started entering the workforce in the early 2000s, and they had to navigate the fallout from the bursting of the dot-com bubble and the Sept. 11 attacks. By 2007, the housing market started to implode, and in the years that followed, another wave of millennials graduated into the worst economy since the Great Depression.
Despite the stereotype of a profligate generation chowing down on avocado toast, millennials actually are in many ways much more disciplined than earlier generations. Studies and available data show they are less likely to play the lottery, drive around brand-new luxury cars, seek out big houses, or take on credit card debt than prior generations. But cost-of-living increases have made it difficult for them to gain traction financially.
Health care costs have gone up, exacerbated by the fact that Obamacare’s effort to extend insurance to older and sicker Americans has forced younger and healthier individuals to pay more. Millennials also face higher housing costs than previous generations. In 1974, when the first baby boomers were 28, the median sale price of a house was $37,200. In 2017, the price had multiplied more than nine times to $337,900. Yet median income only went up 4.5 times during that same time period. As home ownership has gotten out of reach, on an inflation-adjusted basis, median rent (including utilities) jumped 46% between 1970 and 2017, according to an analysis of Census Bureau data.
In addition to the sheer cost of housing, a significant reason why home ownership rates have declined is that millennials are having to defer major life decisions, such as purchasing a house, because of the 800-pound gorilla in the room: They are burdened with an incredible amount of student debt as a result of the runaway increase in college costs over the past several decades.
From the 1971–1972 school year to the most recent 2018–2019 year, according to the College Board, the cost of a single year at private institutions soared 216% in inflation-adjusted terms. At public institutions, it increased 285%. These increases have taken their toll.
At the start of 2006, there were $481 billion in student loans outstanding. By the end of 2018, that figure more than tripled to $1.57 trillion. Student loans have surpassed auto loans and credit card debt to become the second-largest form of consumer debt, trailing only mortgages. Only, unlike the other forms of debt, student debt is heavily concentrated among younger generations.
The long-term consequences are that it’s been much more difficult for millennials to save for retirement. A series of studies at the Center for Retirement Research at Boston College has closely tracked the retirement prospects for millennials. Two researchers there, Alicia Munnell and Wenliang Hou, concluded in a 2018 study of millennials born from 1981 to 1991 that they were “well behind other cohorts at the same age” when it comes to being prepared for retirement. This was mainly due to the double whammy of having graduated into a weak labor market and being saddled with student debt.
A look at Federal Reserve data shows how millennials are lagging behind their predecessors when it comes to building wealth. In 2016, the net wealth of households headed by somebody 35 and under was 25% lower than the same age group in 1989. During the same period, wealth for those aged 65 to 74 soared 56%.
Even as they have trouble preparing for their futures, millennials may not be able to depend on federal retirement programs. Under current projections, about a decade and a half from now, as early millennials enter their 50s, payroll taxes would only be sufficient to pay 80% of scheduled benefits, meaning, absent action, retirees at that time would be facing the prospect of having their benefits slashed by 20%. The core Medicare program covering hospital stays, home health services, and skilled nursing facilities faces an earlier crisis in 2026. At that point, existing taxes will only be able to cover 89% of the costs, and by 2043, that number will drop to 78%.
In reality, lawmakers are unlikely to let retired baby boomers face that sort of immediate and drastic benefit cut. More likely is that the solution will be to increase payroll taxes or impose cuts on the working-age population, which at the time, would be primarily comprised of millennials who would be in their 30s, 40s, and 50s. The increase in taxes would likely be substantial and would only grow the longer lawmakers wait to act.
Given the massive size of the debt, according to the CBO, if Congress were to magically address the debt problem in 2020, lawmakers would have to come up with a reduction in deficits of 1.8% of GDP, or about $400 billion based on today’s GDP, every year going forward just to keep debt around where it is now in 2049. That’s roughly the equivalent of eliminating Medicaid or doubling the amount of corporate taxes collected. If Congress waits until 2030, that number would go up to 2.7%. That means within 10 years, Congress could eliminate about the equivalent of the base defense budget each year, and it still wouldn’t be enough to maintain long-term debt at its elevated levels.
If lawmakers waited until 2030 and actually wanted to return debt to its average of the last 50 years — that is, more in line with what the baby boomers experienced — it would require 4.4% of annual deficit reduction. That would translate into an across-the-board increase of income taxes of nearly 50%.
But focusing on the magnitude of spending cuts or tax increases that would be required to constrain the increase in federal debt in the coming decades does not account for other factors — namely, how hamstrung policymakers would be in trying to address other national priorities or in responding to unexpected national emergencies, such as severe economic downturns or security threats.
There’s also a growing chance that well before debt reaches this point, the nation will face what economists refer to as a “fiscal crisis,” in which investors lose faith in the U.S. and wince at extending the nation more credit. This would result in a vicious circle that’s difficult to get out of. The country would face trade-offs among crushing tax increases, severe and sudden cuts to government services, and/or rapid inflation.
The possibility of a fiscal crisis is the subject of a lot of debate within the profession of economics, and there’s no magic formula to predict when it might happen. But it’s widely believed that at the minimum, massive and growing debt without any response from lawmakers makes such a crisis significantly more likely.
Unfortunately, both parties are moving further than ever away from confronting this issue. During the Trump administration, Republicans have abandoned all pretense of caring about the debt. They passed a $1.5 trillion tax cut that was not offset by any sort of reductions in spending. They also blew up various spending restraints that were put in place by the 2011 debt ceiling deal that was the crowning achievement of the tea party so they could bolster the defense budget. They have also, quite comfortably, acquiesced to Trump’s unwillingness to address the twin Medicare and Social Security crises.
Democrats are incensed that after years of obstructing President Barack Obama’s agenda with lectures on the unsustainable debt, Republicans abandoned their concerns once Trump took office. Leading candidates for the 2020 nomination are now using the 2017 tax cut as a justification for getting behind tens of trillions of dollars in sweeping new spending proposals without feeling the need to detail how they would pay for them. The prevailing view among liberals now is that it would be unilateral disarmament for Democrats to curb their ambitions in the face of outcries about the debt. So, it’s full speed ahead.
Democratic presidential candidates have embraced ideas including a universal basic income, a federal government job guarantee, free college, universal child care, subsidized housing, cancellation of student debt, and free health care for everybody. Even if these programs are too radical to happen in the near term, they are undeniably much more mainstream then they would have been just a few years ago and a signal of where things could be heading as a new generation takes over the party.
Given the twin challenges we’ve explored, millennials could have gone two ways. They could look at the staggering growth in the federal debt and become more worried about the size of government. Or, they could look to government to alleviate economic concerns. They are increasingly choosing the latter path.
Polls have shown that, generally speaking, millennials either do not care about the issue of the federal debt, or they deprioritize it relative to other issues. Though conservatives may decry the new wave of spending proposals from leading Democrats as “socialism,” that label carries less stigma for millennials. In 2018, the GenForward Survey of the University of Chicago found that 45% of those aged 18 to 34 had a positive view of socialism, nearly as many as the 49% who had a positive view of capitalism.
Millennials don’t have the experience of having lived through the Cold War and many failed socialist experiments. They did, however, spend formidable years during the Great Recession, which they perceive as a consequence of the failures of capitalism. They are also facing daily struggles in their economic lives. At the same time, millennials have not yet faced the tangible consequences of the rising debt. The stark choices outlined here — significant tax increases, drastic benefits cuts, runaway inflation — have not actually happened yet.
And while the debt burden does not seem to affect their daily lives, millennials are actually struggling to juggle health care, student loan payments, housing costs, child care, and so on. So they are increasingly susceptible to the straightforward message of those promising to have government step in and relieve their burdens.
Vast new government programs might come with a promise of fixing millennials’ problems, but this is an illusion. The proposals would add tens of trillions of dollars in new spending over the next decade alone, exacerbating an already unsustainable debt problem without solving the underlying issues.
The $32 trillion “Medicare for all” proposal is so expensive that if the federal government were to collect double the individual and corporate income taxes each year between 2020 and 2029, lawmakers would still need to come up with an additional $5 trillion to finance the new spending.
The proposal from Sen. Bernie Sanders that has been endorsed by Democratic primary front-runner Sen. Elizabeth Warren would require kicking nearly 180 million people off their private health insurance within four years to put them on a new government-run plan. The proposal promises not only to cover everybody, and with more generous benefits, but also to have no premiums, copayments, or deductibles. This drastic expansion of demand for health care services is not met by a plan to increase the supply of doctors, hospitals, and other medical providers. In fact, the whole argument for such a plan is that it would save money by using the government’s bargaining power to reduce payment rates. Doing this, however, would make the medical profession less profitable, if not completely unprofitable in some cases, such as in small rural hospitals.
The result of this would be that everybody would be issued a card that promises unlimited free health care, and yet in reality, people would find it increasingly difficult to access care in a timely manner. Should government respond by increasing payment rates, it would only make the program that much more costly.
Canceling student debt would create a moral hazard by signaling that people who make sacrifices to pay off their debt are suckers because if they wait long enough, the government will just step in. Far from getting rid of the debt problem, it would just encourage students to borrow even more money in hopes that theirs will eventually get canceled, too. And the flood of money would give a green light to schools to hike up their tuition even more. Furthermore, as Reason’s Peter Suderman has noted, student loan forgiveness “is a massive giveaway to relatively well-off people.” That is, those who have college degrees are relatively wealthier and more connected than those who do not, and this is who would be gifted government largesse.
It’s easy to simply say that health care, and all other human needs, will be available for free and financed by a small number of millionaires. But in reality, the resurgent socialist vision for America would require massive tax increases on the middle class while only adding to the existing debt burden. It would be impossible to raise taxes enough to pay for these initiatives without devastating economic consequences.
Millennials have the power to force lawmakers to make the necessary changes to avoid this outcome and secure a better future. But nothing will change unless they recognize the consequences of the looming crisis and resist the allure of politicians promising that government will solve all of their problems.
Philip Klein is the executive editor of the Washington Examiner and author of the forthcoming book “Fear Your Future: How the Deck Is Stacked against Millennials and Why Socialism Would Make It Worse.”