WASHINGTON, D.C., Nov. 15 (DPI) — Every generation or so, America falls into collective despair, a cyclical sense of decline brought on by a bad economy or lousy leadership. And every time, one way or another, the nation snaps out of it.
But these days the sense of pessimism, especially among young people, feels worse than ever. Based on today’s public-opinion polls, there’s a national sense Things Will Never Get Better.
Ongoing comparisons with The Depression may sound compelling, but they are largely misplaced and not very meaningful, according to historians and economists — and even according to opinions of the elderly, who experienced it.
For starters, the US economy — and the global economy — bear no resemblance to those of 70 years ago, or even 30 years ago. The massive accumulation of wealth, the rise in living standards, longer life expectancies, the eradication of major diseases and hunger, huge strides in productivity spurred by technology, and the interconnectedness of world markets of all kinds, well, have conspired to create a different world.
The root of America’s problems is political and in the way we govern ourselves, many agree. Two dominant political parties, with large well-funded constituencies, and with competing visions, are unable to forge any kind of long-term policy framework — for taxation, for public debts, for entitlements and other spending.
As a result the private sector is unwilling to act — to invest or hire — until it receives a clear message from public policymakers. So far, private employers are sitting on their hands, and on their cash.
It is a “Cold Civil War” – and it’s been going on since the 90s, and only worsened since then. This “war” threatens our future, on many levels, but ironically the relatively stable economy — it may feel horrible, but it’s still growing — has forestalled the kind of crisis required for political action.
The events of September 2008 triggered sudden action — in the form of a stimulus and rescue of the banking system – but since then Washington has slithered back to a predictable inertia, and resistance to reform itself.
Why is the economy holding up? A big reason: The modern pension system, both public and private. Widespread guaranteed benefits for the elderly simply did not exist in the Great Depression — indeed, the Social Security Act was a response to the Depression — and the absence of benefits exacerbated the suffering throughout that period.
Today total US pension assets, public and private, are roughly $16 trillion, slightly greater than US GDP:
The pension system — and the expansion of it following the passage in 1974 of the Employee Retirement Income Security Act (ERISA) — is one of the unsung counterweights to America’s current economic problems. The pension system is a true safety net — just not for the young and unemployed.
With checks sent every month to the elderly, America’s problems of excessive debt and low employment growth are at least offset, for now.
Yes, unfunded pension liabilities — promises not yet set-aside for — are by some estimates three times the size of the pension system itself. But that problem will likely be resolved through pension reform, such as cutting benefits, eliminating cost-of-living increases and raising the retirement age, an especially sensible move when life expectancy keeps climbing. Indeed, in states like New Jersey it is already happening.
The pension system, too, has empowered the elderly politically. The elderly naturally don’t want to see their fixed incomes hurt by inflationary policies, and, like the elderly in Japan, American retirees are a potent voting bloc. They influence policy every day. That’s why greater fiscal stimulus is unlikely, and a Japan-style slow-crawl recovery is likely to continue.
The growth and the success of the public and private pension system is reason for something else: The policy actions of the US central bank, The Federal Reserve. The Fed has maintained interest rates at such low levels that investors are forced to bid up prices of other assets, particularly stocks. Many private observers regard such action as an artificial inflation of asset values — but, with a pension system highly reliant on rising stock values, it’s a prudent course of action.