Generational Shift? Fiscal Crisis Plus Global Migration Equals ...

What if they had a fiscal crisis, and nobody came? What if the chump generation figures out the Ponzi scheme? Bob Samuelson thinks the fallout will be political:

... As baby boomers retire, higher federal spending on Social Security, Medicare and Medicaid may boost Millennials' taxes and squeeze other government programs. It will be harder to start and raise families.

Millennials [ages 30 and younger] could become the chump generation. They could suffer for their elders' economic sins, particularly the failure to confront the predictable costs of baby boomers' retirement.

Samuelson asks the question in a political context, and that's how most analysts interpret the looming fiscal crisis, as if young voters will punish fiscally irresponsible representatives in Washington. My alternative theory focuses on the context of immigration. Already you may have heard about the millions of illegals who departed the U.S. when the Great Recession dried up job opportunities. A lot of crass nativists might think "Good Riddance!" but I wonder what they'll say when their own children seek greener pastures abroad in 10 or 20 years?

Consider: almost everyone younger than the Baby Boomers expects to get the short end of the fiscal stick. We were laughing about the unlikeliehood of getting Social Securiyt Checks when I was in high school in the 80s. So now that the reckoning is all but unkickable, do the Boomers think their kids and grandkids will just become fiscal serfs?  Think again.

The consequences of U.S. fiscal calamity will go hand-in-hand with globalization. The world is in the early stages of globalization, but already member states in the EU are feeling the effects of combining tax competition with the right of movement. A 2006 BBC report noted that nearly 10 percent of Britons lived aborad, a million in Spain.  Two emigrant types dominate: retirees and workers!  Here's a more recent report from the OECD

... the share of immigrants in the OECD population almost doubled from just over 4.5% in 1975 to 8.3% in 2005. It is also noteworthy that 45% of immigrants living in OECD countries in 2008 came from other OECD countries.

The threat America faces is a world that competes for our greatest natural resource: it's young. If we make the tax climate hellish, the U.S. is going to suffer outmigration as places like Canada, Australia, Brazil, Mexico, Chile realize what an opportunity they have to cream our entrepreneurial talent. If we don't, and let the deficit spiral out of control, the dollar will fall and workers will go elsewhere for value reasons. There's already a migratory tension in Europe, waged primarily with favorable tax treatment for high net worth immigrants.

Go ahead and worry about the fiscal crisis of 2020, and worry about its implications across the generations. Just make sure you worry on a big enough scale. We all know that globalization will deepen, and the national borders that seem so tall and vital today will look more and more like borders among the 50 states of yesterday. Remind me again, how difficult does Texas make it on fleeing Californians to move in to their state?

Comments

[H. Protagonist]

I'm thirty-one, highly educated, just started a family, and I've already got one eye on the exit. I have a network of contacts in various industries in my target country, and it is one that has significantly easier immigration and naturalization rules than the US does. Our time horizon to departure is about 5 years at this point.

[Shayne Cook]

Excellent, excellent post!

"Just make sure you worry on a big enough scale." is the most quotable, relevant statement I've seen on the current U.S. fiscal path.

I might add that it will be the BEST (most potentially productive) of the young that will have the greatest incentive to emigrate - on two dimensions. The first is that the Best will have the most to gain from their greater potential productivity in other jurisdictions - and they'll likely know it. Second, also due to their greater potential productivity, they will be most likely to be penalized in the tax codes in the U.S. - and they'll likely know that as well.

[Tim Kane]

Hiro Protagonist is here!

Shayne, you articulated something I left out which is that means-testing will only accelerate the creaming. Thanks for commenting guys!

[John Bailey]

I am working on solutions to our “fiscal challenges,” and I am looking for other people who are interested in producing choices, good choices for our citizens to consider.

In my view, the challenges are fundamental and immediate. You may view my point of view as alarmist and ill-informed. If so, I would greatly appreciate being corrected. I am neither a trained economist nor a policy professional, so being corrected won’t hurt my feelings.

My first concern is that our first cut at guaranteeing retirement, health care, financial security, housing and employment have created far more promises than can be delivered. Similarly governments, at all levels, have outspent and outpromised the ability of the tax-producing sector to create.

My second concern is the difficulty that I expect the U.S. will encounter trying to finance its deficit over the next six months to a year. To finance another $1.9 trillion and rollover the debt that is maturing, the Treasury will need to borrow $100 billion per week ($60 billion roll over and $40 billion new debt). The entire savings of the U.S. population ($500 billion) and China’s trade surplus ($250 billion) won’t come close. The only realistic option that I see is for the Federal Reserve to resume “quantitative easing.” Effectively that is default.

We need to be working on answers before that happens. We need them now!

The first step in my opinion is to agree that the people who have to bear the burdens make the choices. Everyone also needs to have the opportunity to participate in the decisions that impact their lives.

Beyond that we need to learn from our first attempts to build on our prosperity and longer lives, so that we can create better programs for retirement, health care, financial security, housing and employment.

John Bailey
jbailey@radiowebsite.com
(706) 252-2474

[Steve Burrows]

Unless they are willing to renounce their US citizenship, all these millennials will still be paying their parent's largess, taxes are collected from US citizens, regardless of where you are on the globe. Renouncing costs half of your current net worth in cold hard cash on the spot. And don't think you can hide that foreign income from Uncle Sam, even overseas banks are required to report accounts over $10,000 held by US citizens.

This transition will be far from easy.

[Patrick Martin]

Excellent topic for discussion, this is the greatest problem facing the United States since slavery.

In the 1990s a whole genre books were published on varying aspects of generational shifts, decline of the state and the rise of the sovereign individual. One referenced in your blog is “Snow Crash” a science fiction tale set in an all too real dystopian future. Other more academic books such as Generations, The Great Reckoning, The Great Disruption and the Sovereign Individual described and predicted this crossroad 15 years ago.

Here we are and now what? I’m preparing for jurisdictional tax arbitrage as I head into retirement. I’m insisting my daughter get her advance degrees overseas so she is prepared for international living. I think for most people (entrepreneurs) reading this blog would be welcomed in any country because you bring the promise of economic development.

Foreign citizenship and emigration are real possibilities for us but not for our average fellow citizens. I have more in common with my competitors and partners all over the world than I do with my own neighbors. Just like you, I compete every day with some of the brightest people in the world. Our fellow citizens are scared because they know if we leave their prospects diminish and the gravy train ends.

Are you free to leave the US? Unfortunately not because you are too valuable as an economic engine and as a tax payer to the US government. On June 8th 2008 anyone with assets value more than $2.0 million must forfeiture 50% of your wealth before emigrating to a foreign country. Sounds more like the Soviet Union than the United States.

So the fences are being built at home to keep us in while the rest of the world is eager to have us move in with them. The next 20 years will be very interesting for entrepreneurs and because we are entrepreneurs it will be very difficult to keep us locked up.

I am eager to read your comments on this topic.

[Sam Sewell]

Young people have been taken in by a big city con man and will pay for it for the rest of their lives:

Stupid is as stupid does - IMPORTANT!
http://thesteadydrip.blogspot.com/2008/12/stupid-is-as-stupid-does-important.html

Uninformed voted Obama - Informed voted McCain - Poll...Who Elected Obama?

http://thesteadydrip.blogspot.com/2008/12/uninformed-voted-obama-informed-voted.html

Who elected Obama?http://thesteadydrip.blogspot.com/2009/01/who-elected-obama.html

[KB]

I'm 37 and am married to a French citizen. We never considered going back until the recent healthcare debate. It is clear that the Boomers want us to foot 100% of their bill...and by the way, don't waste a dollar on yourselves because WE need all your money.

France and many of the EU countries have many of the same problems, but at least they give their young SOME consideration. Here people think that Europe has high tax rates, but they actually get something for their money...healthcare, education, retirement, etc. We pay almost as much here and get NOTHING for it!

We have two kids and our biggest fear is that Medicare and SS will crowd out spending on education for our kids. It is already beginning and that spells the beginning of the end of US economic dominance.

[S. G.]

I think KB's comments are well taken - up to the last paragraph, and then well, true colors and all. I agree with KB that we should get something for our taxes. Our government at every level has betrayed our faith through the poor use of our common funds.

I am a Boomer. Guess what? I may never be able to retire because of the second Great Depression - one brought on by the greed of the very wealthy, and the creative financial industry "entrepreneurs" whose golden rule is "caveat emptor".

Let's look at the intent of the author of the article. Sounds like he is trying to scare Americans the old fashioned right-wing, necon, tooth and claw capitalist way - the message is always the same - don't ask the very rich (best and brightest) to pay taxes cause if you do, they will just leave and find a more wealth friendly place to live. I say - get thee to the Philippines - or some other God forsaken place where the poor are so exploited that the rich have to hire private security, and even then, they have reason to worry. What a great way to live - the ultimate two class utopia the rich dream about.

I once had a roommate who got all upset when asked to pay her share of the common expenses. She was always trying to weasel out of paying her share of the rent, electricity, the phone. There was always an excuse - like her needing to use all her money on some sort of investment that would eventually, if it paid off, trickle on down to me. She never paid on time, and always had an excuse for not contributing her time for household chores, like cleaning the bathroom. When pressed, she would have a temper tantrum and threaten to leave! I did not loose any sleep when I told her to get out.

So, if those best and brightest young folk who have the skills and bucks needed to immigrate elsewhere (inherited wealth from parents who paid little in taxes) want to leave the USA - unless we lesser beings get smart quick and get rid of the things like SS, medicare, unemployment compensation, teacher pensions, decent pay for teachers (they should teach the kids for a pittance and save some of the pittance for their own retirement), etc - well, I say - get out - and don't try to hawk whatever your trying to sell here on our shores.

[John Hardisty]

It's pretty frightening to consider the Baby Boomer tsunami crashing on the retirement shore and being so ill-prepared to pay for the non-working years. And with the economy still struggling, it will be difficult for this generation to "catch up." Adding to concerns is your March 10 story reporting Millennials [people ages 30 and younger] are figuring out they will become the Chump Generation, left to pay the Boomers' retirement tag. These "chumps" may, instead, head for the hills -- or a move to a foreign country. So far, the nation's policy is the bury its collective heads and hope the worse will not happen.
John Hardisty
Bakersfield, Calif.
http://www.svs2help.com

[Kris]

I am 25 and as soon as I finish school and repayment of incurred debt I am out of here!

Why should I stay to finance a generations retirement when said generation got a free ride throughout life and I have to pay with high debt to go to school and a high cost of living?

On top of blatant anti-male gender discrimination I have to deal with in order to get an education; I have learned to loathe America and the nightmare it represents.

[Diana R]

Hello Mr. Kane (et al. on this thread)

This is a really interesting post and scrolling through the comments has been fascinating too.

I am a product of a previous wave of late-empire global migrations (nineteenth century Britain and India to Zimbabwe/South Africa). And I guess I have continued to enact that history of migration too, through my own move to the U.S. as skilled individual 10 years ago. I came seeking a more stable society to which I could contribute, and where I felt valued for those contributions.

So, all this is to say that I too think more internationally and in terms of the long duree. Coming from a part of the world plagued by inequality and debt, I'm too concerned to see the US potentially head down that road of deepening inequality and quite serious fiscal issues. (e.g. Gov. inability to tackle percentage of GDP spent on healthcare is of serious concern. Read any Atul Gawande, anyone? Can't we look to Switzerland or the Netherlands? It's not like we're dealing entirely in the realm of the theoretical and the untried.)

To get to the point, however, my thought is: Couldn't we foot the Boomer bill by accelerating highly skilled migration to the US and thus expand the Gen-X/Millenial tax base? New talent and immigrant energy create more wealth, jobs, and tax revenue.

I haven't seen immigration mentioned here, and would love to hear your thoughts on this as a means to even out the "boomer bulge".

You know, I don't want to get all sentimental on you and all, especially as a non-native, but the US does have some very wonderful things worth saving and valuing; intangible values like democracy and freedom of speech, openness and energy, that frontier spirit. And though I am as ready as the next person on this thread to move off and have an interesting life in an upwardly mobile, culturally vibrant, open democracy like India, say, or Argentina, Brazil, China-- (I come from Africa, and as they say, "Africa is not for sissies") let's not romanticize the experience of living in these extremely socially and economically unequal societies.

Encouraging immigration just seems the more positive, community-minded and solutions-oriented option than it's opposite-- witnessing a wave of proverbial rats scurry off a sinking ship.

[Diana R]

ps. oops - didn't mean to include China in my list of countries with an 'open democracy'

[Diana R]

Hooray! I just saw from "crucible and colossus" post that you do advocate immigration, and quite passionately.

(I came to this particular post via @futureofmuseums, and took a while to explore the site at large).

Two further thoughts:

1). Is that scale of immigration you suggest sufficient to offset Boomer deficit?

2). Also, as one of those individuals who may consider 'greener pastures,' I wanted to emphasize the need to look more holistically at potential drivers for emigration. I don't think it's just about tax rates and the possibility of realizing greatest possible returns on your risk/capital.

For example, it is difficult to 'put a price' on safety and security that comes from living in a relatively economically equal country like the US. Take it from me: Coping with unflagging threat of violent crime in a city like Jo'burg takes a heavy toll. And no matter how little tax I had to pay, I seriously would not want to move to Mexico while drug cartel violence still held government to ransom-- a social problem that is at least partly underpinned by Mexico's economic inequality, if you think about it.

You also mention Aussie and Canada as possibilities-- both are very egalitarian, high tax countries that offer high returns on those taxes. Notwithstanding that both will have Boomer problems of their own to contend with, I think their "fair-go/equal opportunities" ethos is large part of what makes them attractive, and is a strong selling point.

(Although, personally, coming from africa, i think i would die of boredom living in either one of them.)

The question, or problem to be solved, as I see it, really is how to make the wonderful experiment that is the USA more stable and sustainable.

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[M.E.]

This article is gen-warfare nonsense. I and all my peers paid for our own Social Security and Medicare--and for that of some of our worthless loser non-peers as well. If young people fail to ante up, then I'll just emigrate right alongside them. And the commenter above is correct, there's no escaping US taxes. So re-run those numbers before you commit to moving.

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