Wednesday, November 25, 2009

Boomerang kids: recession sends more young adults back home

Christian Science Monitor article "Boomerang kids: recession sends more young adults back home" (November 24th, 2009) makes a claim that is neither backed up by empirical evidence nor necessarily by economic theory. The article suggests that America's youth will pay for today's government borrowing tomorrow.

But some analysts say the youngest generations are being hit twice by this recession: once up front with the tough labor market, and again later as they’ll pick up a big share of the taxpayer costs of government programs to rescue the economy. This year’s stimulus spending package and other strategies by presidents before Obama have involved buoying the economy with borrowed money. [Emphasis added].

Parents care about their children. If government agents are acting against the wishes of the elderly and transferring money from their children to them in the form of government debt, then parents are free to transfer it back to their children in other forms--such as paying for their children's rent (allowing them to move home). It is possible for the introduction of Social Security to have no impact at all--parents who are getting more than they and their children desire can transfer their income back to their children. So too with all government spending programs. Of course, as with all government spending programs, deadweight loss is added, as offspring will be taxed in the future.

Nonetheless, the central point remains: it is unclear that children are the ones being harmed by taxes that have to be paid 40 years in the future.  If parents have their children's budget constraints in their preferences, then it could simply be this generation that pays for future taxes through monetary transfers now.  These transfers can come in the form of educating children, or allowing them to move back home.

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