The horizon is as far as we can see. A time horizon is as far as we plan for, as far as we care about. The ancient Greeks had a proverb which runs as follows: “A society grows great when old men plant trees whose shade they know they will never sit in.”
The middle aged and old run society. They make up the bulk of senior executives and the bulk of powerful politicians.
The men and women who lived through the Great Depression always planned for the future. They built power plants which produced more power than needed, bridges which could handle more traffic, water purification plants which produced more water. They made sure infrastructure would last for decades, and then built it so well it outlasted even their specifications.
Their heirs, the Silents and the Boomers, thought this was absurd. Why not party now, and let the future take care of itself?
Call this the “death bet”. In it’s pure form, the death bet is just that, a bet that when the bill comes due, you’ll be dead. If you live a good life and die owing millions, well, what do you care?
But someone will pay that bill. Maybe it will be your creditors, who might even go out of business, unable to collect what they are owed. Perhaps it will be your heirs, if the millions adhere to property. Perhaps it will be someone you don’t even know.
But someone will pay. The good life, bought by debt, is always paid for.
The death bet is why we are not dealing with climate change, even though we know that it is coming and we know it will kill hundreds of millions and might even destroy our entire society. The death bet is why our governments make huge tax cuts today knowing that either taxes will have to be increased in the future or spending will have to be drastically cut. But in the meantime the government can borrow, or print money, so who cares? The politicians who make the tax cuts won’t be in power, and many of the people who receive the cuts will be dead, so what do they care?
The death bet is why America had a 2.4 trillion dollar infrastructure deficit as of 2009. It is why Californians voted in 1978 to disallow property tax increases of more than 2% per year. And it is why tuition rates have increased by hundreds of percentage points more than inflation in many countries.
A death bet always come due. It just isn’t always paid by those who made it. The GI generation who voted Reagan in are mostly dead, they won the death bet. Most of the Silents will win as well.
Only about half of Boomers are going to win the bet, though, and if you’re a Gen-X’er or below, unless you die young, you might want to stop taking death bets.
No society will remain prosperous if the time horizon is only so far as our grasp. rather than so far as we can see. The future always arrives, and the bill we’ve put off is always paid by someone.
Celsius 233
“It is why Californians voted in 1978 to disallow property tax increases of more than 2% per year.”
~~~~~~~~~~~~~~~~~~
Interesting you mention that. I’ve always considered property tax obscene. I may allow that as a working person it may be okay, but; once one retires it should be finished.
I live in a country where there are no individual property taxes on ones home after the initial tax upon purchase. Commercial properties sure, but not one’s domicile.
Our home is payed for in fact. Nobody can take it for failure to pay property tax. Now, that is a just system. In America you’re always a renter. 40 years in, paid for, for decades; fail to pay the tax and you’re on the street. That is just fucked up!
I just do not understand Americans tolerance of injustice to their person.
Celsius 233
Oops, forgot to say; otherwise excellent thread, the death bet. Sure are guilty of that…
Cheers.
Ian Welsh
The practical effect of Prop 8 has been that corporations (which never die) keep tax increases to almost nothing.
Robert Cruickshank
This is an excellent explanation of a phenomenon I’ve seen crop up in numerous places, situations, and fields. I’ve often described the excellent film “Children of Men” as a documentary, not a piece of dystopian fiction, since it shows a society that has given up on its future and is living only for the present, assuming that they will die before the bill comes due. As the Boomers get older, their tendency to double down on this death bet only increases, meaning things may well get even worse in the coming years.
This is especially pernicious when it is linked to a similar attitude among the 1%. Many of them are convinced that western civilization is doomed, they understand perfectly well the terms of the Death Bet as you describe them. Rather than help solve these problems, however, they simply want to rob the commons of as much wealth as they can in order to build their own lifeboats that will allow them to meet death in the maximum amount of comfort and opulence possible.
Bill H
According to Paul Krugman you are wrong here, because he says that governments do not ever repay debt. He has a throey about how debt relates to GDP, and how the latter keeps growing and the debt as a percentage of GDP keeps shrinking until the debt, apparently, disappears altogether. He doesn’t include eventualities such as a GDP which doesn’t grow fast enough, or a debt which grows too fast, or people who hold government debt who don’t subscribe to his theory and want to be repaid. But he is a Princeton professor, so…
He claims to be a Keynesian, but I’m pretty sure that Keynes included in his theories that governments paid down debt in economic good times, and that he abhorred inflation. Krugman has repeated many times that “governments do not repay debt,” and his objection to our current economic policy is that inflation is far too low.
Anyway, I’m sure you will be devastated to know that Paul Krugman has proven you to be completely wrong, and that the bill for government policy will never come due, taxes will never be raised, spending will never be cut, and magic ponies will grow out of everyone’s front lawn any week now.
Dan Lynch
Yes and no.
Our “leaders” are certainly not tending to our future. That’s because they are tending to their owners’ future.
Taxes have nothing to do with it, except to note that our taxes are becoming more regressive (a feature, not a bug). The shift is to regressive taxes on payroll, fuel, sales, booze and smokes, and property (large landowners get exemptions on their properties so the property tax is regressive).
Budget deficits are a good and — usually — necessary thing (refer to Wynne Godley and sectoral balances). That Depression generation that built all that wonderful infrastructure? — they did it with deficit spending. Today’s problem is that our budget deficit is not nearly big enough.
Why are our “leaders” obsessed with deficit reduction, when the 99% are clearly more concerned with jobs? Because our “leaders” work for the 1%, not for the 99%.
Re: borrowing to “fund” deficits. That is a political decision. With a simple majority vote, Congress could chose to run deficits without borrowing. The effect would be disinflationary, since it would remove interest payments from the economy.
Bill H
@Robert Cruickshank
Yes, and even more so it debunks the idea that the steps they took which crashed the economy were caused by stupidity. They were not. They knew precisely what they were doing. They knew precisely the effect it would have on the economy, and they didn’t care. They, personally, would walk away wealthy and sheltered, and that was their only concern.
Ian Welsh
Taxes have plenty to do with it in societies that use taxes to pay for things and won’t run infinite deficits outside wartime (deficits were paid down from the WWII peak). That we could theoretically just print money is nice, but money only gets printed to bailout rich people.
Cities and States like California cannot print money and if you don’t believe it has an effect, I suggest you look what happened to the California education system, once arguably the best in the country, after Prop. 8.
There are also effects that occur when you just print money (inflation shows up in many different places: take a look at the Dow). I’ll have to do a major post on money at some point.
Ian Welsh
I don’t think what Krugman is saying disproves anything I’m saying, and not because I disagree with him. What he’s saying is an empirical point. Deficits are of many kinds: the money you haven’t spent on bridges, for example, is paid in bridges collapsing, and people dying. The money you have spent on a housing and stock bubble instead of education has other costs; the money spent on Iraq has other costs, etc…
What matters is not the # in the debt/deficit chart, what matters is what that money was spent on. The things it was not spent on, that it should have been, are the real deficits.
At the end of the day everything you need is created by the working generation: how productive they are when you retire is what matters. If they can’t produce what you need, no matter how much money the retiring generation has in theory, it doesn’t matter.
guest
Hey, you gloomy Guses, if Fukushima starts going south (a very real possibility) and wipes out all human life (and a big chuck of the rest of carbon based life) via radioactive fallout, we ALL win the death bets on climate change, overpopulation, taxes, etc. E’rrbody dies a winner! Frankly, I can’t see why the international community, much less the Japanese govt hasn’t stepped in to address that mess, which is by far the scariest thing I see in our futures.
Pelham
The death bet phenomenon you describe is accurate as far as it goes, but it doesn’t have a bloody thing to do with generations and everything to do with a system. For instance, the same admirable American generation that you note built the wonderful infrastructure of the 1930s is also the damnable generation that insisted on the European allies of WWI repaying their war debts, which in turn and by extension led to the breakdown of Germany’s Weimar Republic and WWII. Hardly noble.
But, again, it wasn’t a generation. It was a system — an Anglo-American banking and capitalist economic system that insists on its pound of flesh whenever it can get it. The insistence on ascribing various characteristics to various “generations” is much like the insidious identity politics that so infests, divides, discredits and disables the left.
David Kowalski
It may or may not be generational but my bet is that the French with their extremely heavy casualties were involved in seeking a pound of flesh from Germany after WW I.
The “greatest generation was not much involved in making decisions for either WW I or WW II. Truman and Eisenhower served in World War II and FDR was 26 when the war ended. JFK, LBJ and Nixon were in pre-school at best.
There were two different generations involved in America’s great run. FDR (born 1882), Truman (born 1884) and Eisenhower were clearly one generation while JFK (born 1917), LBJ (born 1908), Nixon (1913) and Ford (1913) were from another generation. LBJ was terrified of leading us into a major war by conceding too much, JFK was the flexible one of the group, while Nixon and Ford indulged in realpolitik, at least abroad.
It was the old guys who, in fact, built for the future. Truman personally suffered from hard times and his mother-in-law never trusted him because another politician cost the family dearly circa 10900. Nixon was terrified of poverty and bad fortune and liked to moon about the advantages of the wealthy Kennedys.
FWIW, the generation born after the American revolution ended and before the Civil War was over produced 19 Presidents with only Polk and Teddy Roosevelt doing any good. The others were either forgettable or just plain bad. The generation born while we were still a British colony did far better producing eight Presidents with one pretty much total failure, an incomplete (William Henry Harrison), and one overall bad President.
guest
Celsius 233 PERMALINK
January 6, 2014
“It is why Californians voted in 1978 to disallow property tax increases of more than 2% per year.”
~~~~~~~~~~~~~~~~~~
Interesting you mention that. I’ve always considered property tax obscene. I may allow that as a working person it may be okay, but; once one retires it should be finished.
______________________________
Many or most places in the US have various exemptions or reductions for property taxes for the elderly. But if the government does not tax that value, someone else always does. Without property taxes (which are a form of rent), you just allow the other rent seekers, such as the mortgage lenders, landlords and speculators, to squeeze more blood from that particular stone.
So you see places with high property taxes and no income taxes (like Texas) are much less prone to bubbles in their housing markets, and the bubbles they have never inflate that big or cause nearly so much damage when they burst.
So if you compare a $2000/month payment on a house in Texas with the same payment in California, much more of the payment in Texas is going to the government (and thus to pay for critical services), and much less is going to interest and principal, even though the house in Texas might be bigger/newer and better located within its local market. The California house probably has a much higher sale price, and so the interest payment will be much bigger, and the capital gain for the previous owner is bigger too (and they probably foolishly think they shrewdly made a huge profit, and it would be almost unthinkable for them to contemplate a market that did not allow such a gain, but in the end they still need a place to live, so unless the are speculators or move down in the market to a smaller places or to a hell like Arizona or Texas, all of that gain still needs to be tied up in real estate in perpetuity. It doesn’t do them any good, and the illusion of wealth it creates is also leads to dangerous financial decisions).
You also have retired grandmothers in prime working locations like San Jose living alone in huge houses and paying taxes on a small fraction of the market value, while their grandkids are struggling on two incomes to afford something much smaller and more expensive in a crappy school district with overcrowded classrooms in trailers located 90 minutes or more from work. Texas has plenty of sprawl and traffic problems, but it certainly does not have people staying in houses they would rather sell because they don’t want to trigger a property tax increase. Some of those people are not just the grandmothers with appreciated R/E, but families that would like to move to larger or better housing, but they don’t want to or can’t afford to give up the tax subsidy they have already accrued at their current homes.
Property taxes are socially valuable in that they are a strong incentive for people to put their assets to work most efficiently, or if they can’t or won’t, then to sell the assets to someone who can and will.
Mike in SLO
Just a small correction, Ian. You mean Prop 13, not Prop 8. Otherwise excellent article. I grew up in the LA City School system and got a fantastic education until 10th grade when Prop 13 went into effect. I’m guess I’m from that half of the boomers who are going to lose the bet…
S Brennan
Thanks Ian for splitting the “boomers” in two.
Late “boomers” have FAR more in common with early Xer’s…particularly if you didn’t get any breaks coming into the labor market. That’s not to say the late “boomers” haven’t produced some real losers….Obama comes to mind.
Van Varga
A whole generation did this? Come on Ian, you’re a smart guy. Do enough homework and you can name names of bankers and politicians who actually organized this insanity. Why pull me into this (I’m 63)? The only thing I did was NOT shoot the banker/politician. But then, neither have you.
Mary McCurnin
“Their heirs, the Silents and the Boomers, thought this was absurd. Why not party now, and let the future take care of itself?”
Sorry, I take exception to this. I am a Boomer. I was there when that asshole Reagan and then that asshole Clinton and then that asshole…….ruined the country. I am tired of my generation being blamed for what a very few, very powerful people did. We are guilty of one thing – thinking that participating in the process actually worked.
Mary McCurnin
I had a little hope until about 2009.
Bill H
Sorry, Ian, I was being facetious. The phrase most often used as a title for posts on my blog is “Paul Krugman is an idiot.” the second most common one is “Dean Baker is an idiot.” Paul Krugman has never proved anyone wrong, and he certainly cannot successfully refute what you say in this post.
I love the proverb, “A society grows great when old men plant trees whose shade they know they will never sit in,” and plan to quote it more than once.
Running up a a long term debt to pay for the satiation of today’s passing appetites is the height of irresponsibility. Something like taking out a 30-year mortgage to buy a hamburger.
Celsius 233
Good one Bill H.
Reminds me of Popeye’s friend, J. Wellington Wimpy; “I’ll gladly pay you tomorrow for a hamburger today.
As true today as it was more than 60 years ago.
Ian Welsh
As usual, the generational apologists are out in force. Of course every Boomer or Silent or GI did not betray their children. Just enough of them. The idea that there is no such thing as generational character is absurd, unless you think that ones upbringing has no effect on one’s character.
Your generations voted for these guys, including Reagan. You let what happened, happen. In Democratic primaries you repeatedly voted for the rightmost possible candidates.
Eat it, it’s yours.
As for my generation, Gen-X, as a group, we’re scum. I don’t pretend otherwise.
Celsius 233
Ian Welsh
January 7, 2014
Above: You do not speak with forked tongue…
Larry
“I don’t think what Krugman is saying disproves anything I’m saying, and not because I disagree with him. What he’s saying is an empirical point. “
I agree. Looking beyond a mere bank balance due for the American public is a threat to basic survival needs if we continue to ignore the pressing threats of climate change and income disparity.
In a recent post of mine I note that “time and efforts by various special interests have undermined much of what gave birth to an income-secure working class. The public resolve has become weakened and made more susceptible to the neurosis of people who want to replicate a past where self-serving ideals often dominated our politics and our economic structure. The shallow, mean-spirited ideals of the fringe groups once scoffed at began to take on an air of plausibility by many who felt there was no way left to turn.”
I so doing we have, I think, replaced the generation of “we” thinking with one that promotes the “me” universe.
Pelham
The people who buy into this crap about distinctive “generations” are falling for a classic BS marketing ploy. That’s all it is.
Like identity politics, it divides the left just when unity is needed. As we can see from the comments here.
Any “generation” produces its fair share of jerks, with the so-called Gen X and Millennials among the most brilliant minds now ravaging the economy as ply their hideous trade in hedge funds and investment banks.
But it’s not because they belong to any particular “generation.” It’s because of the political/economic system in which we’re all trapped — and have been trapped for many “generations.”
Pelham
And then there’s this from today’s selection on Nakedcapitalism:
“Stock speculator Jay Gould remarked, ‘I can hire one half of the working class to kill the other half.’ That, sports fans, is the real foundation of the generational warfare propaganda effort.”
Does Ian really want to stick with these generational divisions? How about this as an alternative: Drop the generation talk and just classify anyone at any point in history over the age of 18 as a responsible adult? And then focus on systems that endure, corrupt, corrode and crappify our lives regardless of what year we were born.
Or shall we carry on with the broad mischaracterization and name-calling? It is, after all, more fun.
Ian Welsh
I tweeted that yesterday, and it was picked up by Nakedcapitalism. Try again.
lambert strether
I don’t go around peddling nonsense like “the millennial elected Obama.” That’s because fuzzy, marketroid-driven categories like “millennials” can’t have agency, so that would be a category error. Ditto, “Boomers.” To be fair, such category errors do have their uses: In strategic hate management, for example.
Avedon
“Their heirs, the Silents and the Boomers” – This sounds like you’re saying whole generations of ordinary working people made these decisions, but I don’t know anyone who thought, “Hell, let’s just let the bridges fall apart so I can buy overpriced wine.”
Normal people weren’t getting the tax cuts – we were paying taxes just like we always had, as did our parents before us. We paid just as much in taxes as they paid in other countries where they got more for what they paid.
A tiny handful of people created this disaster – people we can name, people whose faces we’ve seen on the news and in the magazines. Famous powerful people. Of the rest of us, most probably don’t even understand what’s been done to them because it is so unbelievable that anyone would do it, and those who have come to see what’s happened are just not powerful enough to make their voices heard. But there are more of the latter, in any one generation, than there are of the whole cross-generational group that authored this enormity.
Ian Welsh
Enough ordinary people of those generations voted for such things to make them happen. Running on raising taxes was impossible — you would lose. They voted on Greed, thinking they would get theirs. And let’s be frank — they did. If you owned a house in 1980, or stocks, you made out like a bandit.
Axel Harvey
It’s “when the bill comes due”, not “do”. But it’s not your fault: you’re probably Usanian so you don’t scoop your U’s lke English-speaking persons, with the result that “due” and “do” sound identical.
Ian Welsh
Thanks for catching that. I find it hard to edit my own work, so your help is appreciated.
RW
In it’s pure form – > In its pure form
Barry
Bill H permalink
“According to Paul Krugman you are wrong here, because he says that governments do not ever repay debt. He has a throey about how debt relates to GDP, and how the latter keeps growing and the debt as a percentage of GDP keeps shrinking until the debt, apparently, disappears altogether. He doesn’t include eventualities such as a GDP which doesn’t grow fast enough, or a debt which grows too fast, or people who hold government debt who don’t subscribe to his theory and want to be repaid. But he is a Princeton professor, so…”
No, they repay individual debts; they don’t have to repay the entire debt. If you buy a bond, you get repaid.