Saturday, July 18, 2009

Breaching the Social Contract

Consider the following situations that I have encountered in recent weeks:

* A young lady in college is suddenly told by her parents that they no longer have the funds for her education. She will have to go to work to come up with the tuition. She cannot find work and doesn't know how she will graduate;

* A long-time employee of a large company is downsized to a part-time job and will be losing his benefits. He doesn't know how he will afford health care for his family. He heard about the earnings possible to traders and is considering applying for a training program that will tap him of much of his savings;

* A mid-career professional who has undergone an expensive divorce is horrified to find that her baby-boomer parents have declared "Chapter Heaven" after recklessly spending down their savings: they are using remaining funds to salvage a retirement income. They cannot deliver on promised financial help toward a modest new home, and she cannot find a mortgage loan, given expensive housing where she works;

* A retired couple learns that their investment adviser has put them in volatile, high load funds that were initially described as conservative. They are stunned when they see their account statement showing a large loss in their principal, and the husband is contemplating a return to the workforce;

* Midway through a job training program, an unemployed young man finds out that it will be terminated as part of budget cutbacks in his state. He offers to volunteer at firms to get a foot in the door but cannot find any takers.

In each of these cases, the individuals entered situations with expectations born of an implicit social contract. With the rending of the economy, that contract is breached--and breach brings hurt, confusion, anger, and despair. Listening to each of their stories, I am reminded of spouses who experience the infidelity of a partner: with the loss of trust, nothing is ever quite the same. It is difficult to sustain optimism and confidence in the face of doubt and uncertainty.

Looking at the debt that will constrain spending and buoy taxes for years to come, it is difficult to believe that the next generation, like its predecessors, will enjoy more opportunity than did its parents. The "Me Generation" has lived up to its name: baby boomers turned baby bummers are leaving behind a social contract in tatters and children whose levels of trust are growing as slim as their trust funds.