The elderly, in laying plans for their retirement, bet that young Americans
today would be much richer than they have turned out to be, and also less
healthy and more inclined to raise large families. Those errors probably will
not—and should not—cost senior citizens their entitlements. But they do point
up the need for young Americans to be more prudent in devising their own
institutions for retirement. For Baby Boomers especially, the margin for error
is very small.
The augmentation of capital is central to the implicit contract between
generations, and members of the Baby Boom generation will neglect that at their
peril. Throughout history it has been the practice in most cultures for people
to strive during their middle years to build up or hold on to some store of
value, such as land or gold, for the eventual purpose of providing their
children with a legacy. Their chances of being supported and respected in old
age are thus much improved.
A British folktale, for example, tells of a poor old man who was mocked by his
sons, until a friend, hearing of his plight, lent him a bag of coins for a day.
The old man allowed his sons to discover him at the kitchen table counting what
they took to be his secret treasure, and thereafter they all treated him with
proper veneration until he died.
In an agrarian economy, such as that which prevailed in colonial New England,
the old could often retain enormous power over their middle-aged children by
refusing until the last possible moment to convey title to their farmland.
"Better it is thy children should seek to thee, than that thou shouldst stand
to their courtesy," went the common advice to the aged. As the social historian
David Hackett Fischer, of Brandeis University, has observed, in colonial New
England "land was an instrument of generational politics—a way of preserving
both the power and the authority of the elderly." According to Fischer, "Sons
were bound to their fathers by ties of economic dependency; youth was the
hostage of age."
With industrialization the balance of power between the generations shifted.
Factory workers could start young and achieve a tolerable standard of living
without first inheriting an estate. But by the same token, having gained this
freedom, most could not save enough out of their wages to provide for their own
turn at being old.
Under the rules of the welfare state the remedy for this problem has been to
allow each generation to tax its children, through such programs as Social
Security and Medicare. Because these programs are not capitalized, it might
seem that the social contract between the generations has been fundamentally
altered: each generation appears simply to appropriate by law some share of the
next generation's wealth, without providing any compensation.
Yet, as we have seen, the long-term solvency of these programs depends on
robust economic growth. Barring extraordinary good luck the only way any
generation can bring about such compounding prosperity for its children is to
build up capital and invest it wisely. In effect, then, the terms of the social
contract have remained the same. Each generation, in exchange for support in
old age, still must provide its children with a legacy. All that has changed is
that the necessary sacrifice falls not just to the individual but to the whole
of his generation.