The Boomers Behind the Bust

David Brooks reports some sobering statistics in his column today, "The Great Unwinding."

"The ratio of debt-to-personal-disposable income was 55 percent in 1960. Since then, it has more than doubled, reaching 133 percent in 2007."

He adds: "Consumption as a share of G.D.P. stood at around 62 percent in the mid-1960s, and rose to about 73 percent by 2008. The baby boomers enjoyed an incredible spending binge." The post-WWII baby boomers have brought us new blessings with each successive decade of their self-absorbed lives.

When credit froze up last year, the government "replaced private borrowing with public borrowing." The result has been a dramatic increase in public debt: "In 2007, the federal deficit was 1.2 percent of G.D.P. Two years later, it’s at 13 percent."

The effect of this and the various bailouts in general has been a historically unprecedented spike in the money supply. This has ominous implications for inflation.

Source: research.stlouisfed.org

To move the country from a mostly consumption based economy (easy credit and imports) to an investment and production dominated economy (which requires much higher rates of savings), "[t]he members of the political class face a set of monumental tasks. First, they have to persuade a country to postpone gratification for the sake of rebuilding the country. This country hasn’t accepted sacrifice in 50 years." Fifty years takes us back to 1959. Again, that's when the boomers started to dominate American society, even as children.

Brooks says the Obama administration is aware of the need for this shift and of what it requires, but he is skeptical that Congress is up to the task. "Congressional leaders have been fixated on short-term conventional priorities throughout this entire episode. There is no evidence that the power brokers understand the fundamental transition ahead. They are practicing the same self-indulgence that got us into this mess." Congressional leaders are...baby boomers.

The baby boom generation is not solely responsible for this and every other mess, but since they were toddlers, they have had the shaping influence on our culture and economy. Brooks subtley identifies the characteristic excesses of his own generation in this present crisis too.