“Play now – Pay later”

Feb 04, 2020

We live in a play now - pay later culture that borrows heavily on the future to sustain an increasingly unsustainable way of life. 

In the process, the toxic IOUs we are leaving for others – in the form of our carbon, ecologic, economic, and other footprints – will impede their ability to achieve the American Dream. 

This travesty is a central theme in my soon-to-be-released book, “Mortgaging the American Dream: What Were We Thinking?” The “Tax Cuts and Jobs Act of 2017” provides an egregious   example of this intergenerational malpractice in action:

Tax cuts are usually passed to prop up a sluggish economy with at least a pretense of being revenue neutral by virtue of the economic stimulus they are supposed to generate, but It was different this time.

Prior to its passage, the economy in 2017 was already strong. Unemployment was low, and the GDP growth rate stood at 2.4%. (By comparison, it was about 2.3% in 2019). Though unneeded, tax cuts play well with voters, and though this one was front-loaded for corporate America and other sectors, there was a little something for everyone – at least on a temporary basis.

It carried a hefty price tag, however, with a trillion-dollar deficit shift baked into it for future generations to pay; a classic play now-pay later maneuver. Concerns about intergenerational fiduciary responsibilities were cast aside; let others worry about it.

To be sure, the sudden burst of liquidity and tax windfalls ginned up an already booming economy. Corporate earnings climbed and massive stock buy-backs inflated share prices and turbocharged Wall Street. Consumers were confident and household debt was again on the rise.  Like many intoxicating events, this one left a hangover that we are now beginning to feel.

Despite the booming economy, our national budget deficit in 2019 was nearly a trillion dollars, and the CBO projects these trillion-dollar deficits will be our new norm for years to come. This year, we will borrow about 22 cents on every federal dollar we spend, and our entitlement liabilities will surge as 10,000 new baby boomers retire daily. The long-term reserves needed to fund them were spent on our budgets of yesteryear; replaced with a stack of IOUs.

We will also spend roughly $400 billion this year in interest to fund a gross national debt that exceeds our entire GDP. As interest rates rise to finance this growing debt, the ripple will spark rate hikes on long-term mortgages, credit cards, and auto loans. Debt, by the way, is a global addiction, and the world’s ability to combat the next economic meltdown will be compromised by weakened balance sheets and strained relationships.                                  

It is difficult to grasp the enormity of the debt risk as we enjoy a record bull market, but bubbles always burst. We cannot forever borrow our way into prosperity. At some point, it will collapse of its own weight. When it does, look for a spate of reactive measures like raising new tax revenues, cutting entitlement benefits, selling assets, or printing more money. Whatever, it is a cruel legacy to foist on others.

Our play now–pay later mentality is perpetuated by tendencies to apply linear thinking to exponential problems. (See: “Linear Lunacy”). Quick fixes will never resolve the broad, systemicproblems we face, and our myopic approach is not just limited to debt. Climate change, protecting the environment, preserving ecosystems, global overpopulation, and more, are all part of the equation. Global problems require global solutions, and the need for collaborative approaches has never been greater, nor more lacking. 

On the brighter side, we have the resilience and technological capacity to address our debt and other challenges, but it won’t happen until we awaken to the threats and build the political will to confront them in an aggressive and resolute manner. Sugar coating or shifting challenges to others is a blatant form of intergenerational misconduct, and we are better than that.

The Millennial Generation now outnumbers the Baby Boomers, and the older Gen Z cohort will be voting for the first time in 2020. As victims of our intergenerational IOUs, they have the voting power to reshape the playing field with policies that fit our changing times. Politicians that ignore their concerns will do so at their own peril.

We’ll see.


Mike Conley


For more information, please visit our website at www.weatheringthestorm.net  

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