"Meet the Generations" : The Millennials

Meet Nick, a 24 year old Millennial. In the first installment of our "Meet the Generations" series, we take a look at how the life of Nick (a hypothetical person) will be affected by the fiscal choices our leaders are making now, based on the alternative futures scenarios in CRFB's new paper "America's Fiscal Choices at a Crossroad: The Human Side of the Fiscal Crisis".

"Profiling" Nick. Nick is in the middle of a generation that spans the young professional, college and high school student worlds. He is a recent college graduate who is still struggling to find a job in a weak job market, thanks to the Great Recession. Because he does not come from a wealthy family but attended an expensive college, he graduated with large student loan debts. Without a decent job, he risks defaulting on his massive student loans. Furthermore, he may have to move back home if he cannot support himself.

Would Nick be better off with “Fiscal Gridlock” or “A Fiscal Recovery Plan” put in place by our policymakers?

Fiscal Future One:  "Fiscal Gridlock". If our leaders do not change our current fiscal policies, the national debt is projected to rise forever. The scenario under fiscal gridlock will undoubtedly lead to a lower standard of living and a bleak future for Nick and other Millennials. The worst: Nick will experience a fiscal crisis in his lifetime (our creditors will not let the debt rise forever), although no one can say with any certainty when it will occur. A fiscal crisis (which usually involves a sharp and sudden rise in interest rates, tax hikes and blunt spending cuts) will reduce Nick's standard of living immediately and drastically, a downshift that he may never recover from during his life. Until a crisis occurs, national debt-related pressures will gradually erode Nick's basic living conditions: interest rates will be higher than normal, growth will be slower and businesses will not add new employees at the usual pace in a recovery - all of which will make it harder for Nick (still a new entrant into the job world) to find work.

Nick may be forced to delay certain traditional life-path stages -- such as living independently, buying a car, and getting married -- because of his financial (and fiscal) challenges. Plus, as he grows older, Nick will likely have lower life-time earnings than he would have had if the job market had been stronger when he left college. By the time retirement rolls around, the Social Security Trust Fund will be in trouble (the Trust Fund will be exhausted by 2040, when he is just 53, if we fail to act). Nick will have to work longer, make less money, and have less of a social safety net to fall back on.

Fiscal Future Two:  "Adopt a Fiscal Recovery Plan". If our lawmakers act soon to stabilize and then reduce our debt burden over time, Nick will face a considerably diminished risk of a fiscal crisis. If our fiscal recovery package is considered serious ("credible") by the credit markets, interest rates will be lower and Nick will experience stronger economic growth. And as he gets to retirement, Nick will be relieved to find that necessary changes were made to ensure the long-term stability of the social safety net so that he can retire comfortably without fear. Also important for Nick's future is that policymakers include high-quality investment in the fiscal recovery plan so that basic growth will be higher over time.

These ingredients taken together should be expected to lead to significantly higher living standards for Nick over the course of his life (although the initial effects could be rough, depending on how growth-friendly the fiscal recovery plan is.)