Historic economic times, generations of change

California’s K-12 public school teachers are staging political actions this week on behalf of higher taxes. Organized by their union, the teachers want state lawmakers to extend tax increases that are set to expire this summer. If they expire, schools could face $4 billion in new cuts.

California teachers are tapping into something interesting: indications that Americans may be willing to put up with higher taxes in these dire economic times, if those taxes are specifically for things they care about, and if rich people (the other guy) are taxed first.

Polls in Nevada, Utah, Wisconsin, and nationwide for that matter, all show healthy margins of support for tax increases of varying amounts (especially increases that go towards worthy purposes such as shoring up Medicare or funding education at the state level).

This trend, if it fully materializes, may be an example the Great Recession rewriting how a several generations of Americans view their relationship with government and civic society. Just as we all know children of the Great Depression who, to this day, inform their actions and habits based on the difficulties of that time, I wonder if we are now forming generations who will be shaped – albeit in more subtle ways – by the current world.

Taxes may be among the most relevant of these changes. For decades, the answer to virtually every climb and drop of the economy has been to cut taxes and reduce the role of government. But especially in these hard times, more Americans are relying on the government for work, unemployment money, healthcare subsidies, and even funds that helped shore up banks. Americans are realizing there are services they expect from their government, and that paying for those services is important to them.

In the meantime, the government’s reduced regulatory role directly impacted the near-collapse of the U.S. and world economy. One has to wonder whether over the next several decades of policy-making, Americans would be more supportive of government oversight and understanding of the collective need to contribute via taxes. Balanced with more conservative viewpoints of limited government, will the U.S. nevertheless drift towards limited but more robust government involvement in civic and economic life?

As for civic life, I am curious to see how the generations most impacted today will reform their relationship with debt – credit cards, car loans, mortgages, etc. When I was in college a decade ago, credit card companies had booths on campus giving away free t-shirts to those who signed up for a credit card. And many students did, often without understanding much about the fine print of what they were signing. Credit cards were easy to get and came with large credit limits. Students were using these cards to charge up fun, as well as pay for education expenses when their student loans didn’t cover everything.

Now, many of my peers are saddled with giant debt burdens that reduce their options and choices in everything from job location, living location, type of work, lifestyle, planning for the future, whether they can afford to create a family, get married, get a car, and the list goes on and on.

These debt burdens, while lucrative for some sectors, must be having an impact on the buying power and consumer decisions of generations of young people. Now with jobs more scarce and money even more tight, I wonder whether we will have generations of people who will look negatively (or at least more cautiously) on credit cards and debt for decades to come. At the least, recent credit card practices of arbitrarily raising interest rates and lowering credit limits just prior to new federal rules taking effect, must have given pause to many of those saddled with large credit card debt. Will they trust credit card companies again? What impact will this have on future consumer willingness to charge up credit cards, get into 30-year mortgages or purchase cars on 6-year loan terms? I wonder if we will be slowly, but fundamentally, reshaping our economy from one based on debt and credit, to one that is based more on access to cash.

And if cash becomes king, will that cause a subsequent readjusting of price structures in the American economy? For example, a decade ago, when I stepped onto a Honda car dealership, I could have purchased a fully-loaded Honda Accord for $23,000. Today, that car costs around $30,000. Not a problem for so many consumers who simply took on bigger loans with longer terms (keeping their monthly payments affordable). But what now? Will car prices, along with home prices and so many other prices, have to come down in order to adjust for a consumer who is no longer willing to be indebted at the same levels as before?

If that happens, and if it is a long-term trend, will price pressures of the next few decades lead to a slow, painful contraction of overall wealth? Afterall, if people pay less, others make less. If they make less, they pay less to others. Could this be a vicious cycle that causes a slow spiral downwards in our overall quality of life and economic prosperity?

While we are focused as a nation right now on some important short-term goals – balancing budgets, reducing national and individual debt, shoring up social safety net programs such as Medicare, Social Security, and programs for the poor, and figuring out how to pay for important things such as education and healthcare – it is important that we also begin to consider the long-term.

We have seen that at least a decade of stagnating and shrinking wages among most of the middle class caused a sharp rise in the consumer’s willingness to take on debt in order to hold onto their standard of living. What will our present realities bring about?

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