Saturday, 22 January 2011

Generation Y Not: Overburdened or Liberated?

Two postings ago, I suggested that a generation above me is causing all types of shit with its attitudes and actions. I said that that generation is often mentioned in the media, but avoided referring to them by their common term, “baby-boomers”, because I didn't want to fall into the trap of assigning them blame over all the problems we face (that would be unfair and untrue). These days, they are the subject of much media commentary, which tends to describe them with apprehension, like a coming natural disaster, or marvel at their numbers, which are the largest by far of any of the 4-5 generations alive right now in the West.

My generation, or the loose assortment of people under 35 who are variously referred to as Y, millennial, X, whatever, are also mentioned explicitly and often. For different reasons than in the past, however. When we first stepped on the scene as “adults”, mainstream media writing tended to focus on obvious and disdainful observations about us: ungrateful, entitled, in their own world, selfish, and sheltered. Today this confrontational vibe seems to have been replaced with a sympathetic one: Good luck to you. You're over-educated, underpaid, unemployable, living with parents, staying in school forever to avoid your massive loans, and taking jobs you considered beneath you 5-10 years ago.

I'm making a reference in particular to two articles of social studies commentary by an opinion columnist whom I respect and everything, but who is really only referring to his family and their peers' upper-middle class, petite-bourgeois experience. I am a bit embarrassed to identify with it, but I do, and am also self aware enough to know that I've never struggled per se and this experience was largely if not my own than that of many I know or see coming up. Which is why I can't help feeling a bit of a tug on my heartstrings a bit when a middle-aged person sticks their neck out for us “not having it as good/the same opportunities as they did”. I want to tell them: Your indignation at the mess were inheriting is well appreciated. Right back at you, slick. But I also want to tell them that the end of unending hope, expectation and growth is not an unfair punishment. In some ways it is desirable. Young people don't need pity because they do not pity themselves. If they do, they should acquire some awareness of forces at work right now.

Unfortunately for the well-wishes, the fact of the matter is we are in a stage of late capitalism where no amount of indignation, platitudes, or fist-banging on the table about jobs, dignity, and hard-working families will re-create the circumstances in which North America is commonly believed to have prospered during the last five decades. If any members of the younger generation, or the swaths of people in the older generation who've been left behind for that matter (It is very simple: If you don't make over 169K, you are not in the top 1% in this country), are contemplating this as a strategy, I have a message for them: Earn what you can now, save your cash, and get ready to make and manage your own opportunities. Don't listen to the government-banks-real-estate-mainstream media bullshit about keeping your nose clean, working hard and playing by the rules, and being rewarded. Some very simple economic lessons will effectively kill these myths and the perception that “everything will be OK” if that's what we all do.

Let's start with Fig. 1, the most simple capitalist calculation

Output + labour = productivity

Simply put, the workers making and doing things to meet demand puts cash in their pockets, cash in the companies' pockets, and cash in the government's pockets.

In North America after world war two, a population boom coupled with a rise in levels of education, women entering the workforce, a widespread explosion in suburban living and cheap, convenient appliances to fill those homes resulted in more cash in anybody's pockets than had ever previously been witnessed. This was all real cash generated by real demand and paid over from real accounts where the money was really sitting. It was what enabled Lyndon Johnson and Lester B. Pearson to enact in the mid-1960s the social programs we hold so dear today. Basic health care, old age pensions remain the most popular for obvious reasons, and, well, those are the ones that are pretty much untouchable.

Good old uncle Lester was profiting from our country's branch plant economy at that time, which had been set up by the elites of the four previous decades. Since our neighbours were succeeding, we were succeeding. Government revenues everywhere were way up.

Since then, cash has gone down, people giving cash has gone down, and people asking for cash has gone up. Way up. Decade over decade, year over year, and rapidly accelerating. That is the simplest way to put it. When one regards Mount Debt, the symbol of both hope and delusion in western societies, they quickly abandon that pesky habit of wasting their time and sense of hearing on governments and CEO s prognostications about “growth” and “recovery”. An instructive analogy for this is a fictional defined benefit pension plan, for company “A” (Defined benefit pension plans are no longer offered by companies anywhere, just in the public sector, but more on that later).

Company “A” is a manufacturing shop/factory. In 1975, they have 500 workers, average age 27, and everybody is making money hand over fist. The company is doing so well they decide to reward their employees by telling them “We're so grateful you come to work and work hard everyday, that we don't want you to worry about providing for your young families in their old age, so we will guarantee you a monthly pension plan until you die, and maybe even to your widows after you die.”

As outrageous as this proposition sounds to our ears today, at the time it probably made sense because if you got another 35 years out of these 500 guys making those profitable things, and added another 2,000 younger ones to keep up with rising demand for your product and the higher profits that would come with it, you would have more than enough money in the kitty to reward all those who were loyal and honest to you by taking care of them and ensuring they could spend their golden years in a situation befitting their increased wisdom and vulnerability.

Unfortunately, in most cases, that demand never materialized. Predictions of ballooning growth and prosperity more often than not materialized as lower demand, obsolescence, cuts, layoffs, cheaper labour elsewhere, and bankruptcies. This decline of North American and British industrial societies is well known. Any enterprise that wants to survive in these environments for any reasonable amount of time today knows damn well not to encumber itself with an endless huge expense paying people not even working for it unless it is feeling suicidal. Because they're mean and callous? No, because as they've learned from the historical experience of the example above, the numbers will not materialize. Or they might, but it is foolhardy to assume that they will.

Companies are forced to submit to reason and logic by virtue of their size and the fact that without money coming in, they cannot pay their employees and suppliers and have to shut down. Governments, unfortunately, are governed by these same rules of logic yet refuse to heed them. They continue to lie to us that we will all be provided for, taken care of, and paid out a bunch of government entitlements in our old age until we die. How this will be done when the ratio of workers paying taxes to retirees is going to drop from 4-1 to 2-1 over the next 15-20 years is not a mystery, it is an impossibility.

I just did a very simplistic and amateur calculation. I pulled a number out of my hat that out of our population of 34 million, there will be perhaps 10 million people asking for $800 a month CPP. With the $950 Billion in the CPP fund right now, there is about 10 years of payments in the tank. The CPP's solvency has been assured by the contributions we all make to it, but like the defined benefit analogy, these will not be large enough to catch up to the withdrawals.

Then I checked out this chart and realized the situation is much worse than I thought.

Then I thought about how this is $950 billion is not cash but a complex mix of bonds, stocks, asset-back commercial paper, and all kinds of other bullshit that is going to be essentially worthless once the kool aid supply that fools a good part of the population into thinking these things have some sort of economic value runs out.

When you look at the demographics of any western country and the entitlements they still maintain they are going to be able to pay out, it is the same. It is not a matter of if it is a matter of when. We have to look at Greece and Ireland in the coming months and years to look into the crystal ball of where we are headed. Two countries with perhaps 40-50% real unemployment, huge national debts and deficits, that collect very little tax and have rapidly ageing populations, had hundred billion euro “bailouts” foisted on them to “reassure” the “international market”. I had one simple question: If these countries were in this kind of financial shape now, what was another unthinkable amount of money added to their debt going to do to improve the situation?

So yes, in the sense that young people today are not going to have the luxury of sitting around watching TV, going to the buffet on cruise boats, and getting picked up in accessible publicly funded vehicles to do their shopping, they have inherited a burden. But in the sense that they will have no choice when faced with this reckoning to throw their hands up in the air at its absurdity, take care of whoever they can, and otherwise walk away, they are liberated. They will not see the “moral imperative” the elites of the late 2000s of their parents generation felt to save a system which was clearly rotten, manipulative, exploitative, and worst of all, bulletproof-rigged to fail.

But tell that to esteemed 55 year olds that we're listening to right now. The worst is when they talk with absolutely no shame about how technology is going to save us. John Ibbitson was in Waterloo region this week writing about the Liberal strategy on some seats here they narrowly lost to the conservatives in the last election and need to win back. But of course, the one person he talked to was upbeat about the economy here in the “technology triangle”. Well, if I ever meet that guy I'll be sure to tell him that RIM is not a bottomless pit to provide for the needs of half a million or 34 million people. Meanwhile on the Fareed Zakaria show last Sunday morning, national economic council chairman Larry Summers was actually reduced to saying the word ipad by itself when grilled by his host about why he was so bullish about America's growth prospects. These devices will not sell like they do now forever, and someone needs to tell politicians that the revenue from those sales go to the publicly traded companies that make them, not the coffers of the state as their statements presuppose.

Hence the pun in the title of this posting. Why is my generation ripe to be the most critical and cynical on record in recent memory. Per the reasons in this article, Why not?

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