Democratic presidential contender Elizabeth Warren introduced the “Accountable Capitalism Act,” one of her myriad “plans,” to the Senate a little over a year ago and commentators on the right have been fretting about it ever since (increasingly so as her poll numbers tick up). The act is meant to ensure that companies are accountable to their workers and the communities that they rely on as well as their stockholders. Perhaps predictably, the discussion of the act, which was introduced to the Senate in August of 2018 and is now part of Warren’s platform, has come to parallel fraught family money discussions — always awkward — about the flow of cash between generations, specifically Boomers and their Millennial children, many of whom are now trying and failing to handle the costs of raising children of their own.
The folks most concerned with Warren’s plan portray themselves as looking out for the aging and elderly. This makes sense. In the early 1980s, Reaganauts normalized the optimization of returns for shareholders, the board members, and CEOs, and stopped sharing profits with American workers. This occurred as the Baby Boomers entered the workforce en masse and certainly diminished the degree to which the average worker benefited from a period of massive economic growth. Boomer middle management got a bit screwed, but matters have only gotten worse for their kids. Today, corporations give a whopping 93% of their earnings back to shareholders.
The catch, of course, is that Boomers became shareholders. Currently, Boomers represent a disproportionate number of investors, with at least 51 percent invested in the stock market.
Which brings us to the argument against Warren’s plan, which was made in the Wall Street Journal this week by Phil Gramm and Mike Solon. The authors argue that Boomers gained their wealth — the average Millennial household has about $100,800 in wealth, while the average American Bomer household today has a net worth of $1.2 million — through grit and thrifty spending and that Warren’s plan to reshape who shareholders are accountable to will unfairly punish that generation for putting money into the market. There’s some truth here, but Gramm and Solon are also ignoring some inconvenient facts.
What Gramm and Solon conveniently leave out is the other big change brought about in the 1980s. Boomers have benefited profoundly from tax cuts. In the early 1980s, as boomers entered the market, the marginal tax rate dropped from 70 percent to 50 percent. It’s only dropped further over time. Those tax cuts led to disinvestment in Social Security, Medicaid, and other social safety net programs. The gutting of these programs and the steady increase in working women has led to the very specific skyrocketing costs that Millennials are now facing down. Daycare is wildly expensive. Homes in the suburbs, which the Boomers colonized so effectively, are wildly expensive. Health care is… well, a whole thing. (Somewhat ironically, Warren plans to levy income taxes on high earners, who will mostly be Millennials, in order to revitalize social programs.)
Gramm and Solon say that Warren’s plan to force companies to not simply prioritize shareholders would rip the hard, honest-earned wealth out of the hands of the elderly. The reality is far more subtle. Warren’s plan would make it easier for working Americans to benefit from working. (Also, the wealthiest 10 percent of American households own 84 percent of all American-held shares in the stock market so not everyone is affected). Regardless, this draws some very familiar battle lines. You know the wons. Entitled generation. Handouts. Etc….
Fundamentally, the argument over Warren’s policy is a common family conversation projected onto a national screen. That conversation tends to begin like this: “Dad, I need to borrow money.”
After all, many millennials still rely on their Boomer parents for help paying rent, bills, and other expenses. A Merrill Lynch survey showed that 7 in 10 adults from 18 to 34 still get financial help from their parents, and more than half of those who still receive help are in their early 30s. About 1 in 4 millennials still have their parents pay their cell phone bills, 1 in 10 help with groceries, and significant number still get help with rent, health insurance, and gas. There’s a reason for this (and it isn’t laziness). Millennials, who entered the workforce during the Great Recession experienced a near decade worth of lost wages and have never recovered. In addition, Millennials have accrued $1,000,000,000,000 in student debt at a time when the costs of homes, historically a reservoir for personal capital, have ballooned largely because Boomers have declined to leave the suburbs and corporations have declined to leave the cities.
The borrowing money conversation, which Millennial parents are particularly familiar with, is becoming a national issue not because Warren and Senator Bernie Sanders wants to expropriate wealth, but because there is a legitimate concern that the economy does not serve its workers and, in particular, that it has failed to serve the largest population of workers and baby-havers in America today. This isn’t really a generational conflict — the needs of Boomers and Millennials are entwined — but it will be cast in those terms, specifically given the demographics of the electorate. In 2016, Donald Trump received 53 percent of the vote of people over 64 and boomers turned out in scores. Millennials voted the other way.
Here’s how this will play out: Millennials will resent Boomers who benefited from low taxation but didn’t face high costs, let the national debt boom, and are still cashing government-sponsored retirement funds… and Boomers will resent Millennials because they want money for nothing and chicks for free. Both of these narratives are a tad simplistic, but the fascinating thing here is that the result of real political change and the result of no political change may be largely the same — at least for the middle and upper middle class. Boomers are going to give Millennials money. Their money could build out a social safety net and make life easier for a wide range of American children or it could be delivered one holiday card at a time. Regardless, the dynamic is the dynamic.
The question is whether or not this happens behind closed doors or out in the open. What type of power Boomers will demand? The soft power of the checkbook or the hard power of political dominance? Hard to say.
But it will be tough when the personal becomes political for Boomers if they have to face down the fact that their children will fair worse — that generational progress, that old American promise, will stall. They will watch their children struggle to make gains in an economy that was broken when they entered it. The question of what, if anything, is owed to the next generation or the last generation is complicated. Perhaps the answer is nothing. But money will change hands regardless. Whether that changing of hands will be understood as theft or generosity is the question. The end results are the same, but they feel very different. Having to beg hurts. No wonder that Warren, who is very much a Boomer, suddenly looks so good to so many.