Posted by: Simon Lack | October 1, 2012

The Generational Wealth Transfer

The evolving transfer of obligations from old to young is a theme that deserves more attention. It’s a slow-moving, demographic event so isn’t something that’s likely to produce a headline. But a consequence of the enormous debt the U.S., has built up and the under-funded entitlement obligations is that the bill will be paid by young people including many not yet old enough to vote (or indeed not yet even born).

The Economist, my favorite weekly magazine, wrote a piece this weekend highlighting the disparity between “net lifetime tax burdens” for different age groups. Today’s retiring baby boomers are likely to receive far more in social security and Medicare than they paid in taxes. Older people vote too, so a fairer distribution of the burden or a corresponding modification of entitlements is likely to meet ongoing political opposition.

However, in one sense an adjustment is being made. Retirees are suffering disproportionately from the slow wealth transfer that low interest rates represent. By keep bond yields so low, inflation and taxes steadily reduce the purchasing power of (older) savers to the benefit of (younger) debtors. So maybe there is a modest form of justice at work, albeit not articulated that way by Ben Bernanke.



Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s


%d bloggers like this: