Media Maneuvers: Math made simple

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Published August 30, 2006 at 1:31 PM

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Remember the adage that age is only a state of mind? Well, it doesn't seem to apply anymore, and we don't mean that in a youth-obsessed, let's-all-inject-our-face-with-botulism kind of way. Instead, age, or more specifically generation, is now being offered up by the media as a handy-dandy explanation for many of the ills that ail us. Didn't get that promotion? Your pension fund has been bled dry? Don't blame yourself or even your employer: Blame the baby boomers.

That, at least, is the impression we came away with after reading two wildly different yet weirdly similar pieces that recently crossed our desk. The first is Malcolm Gladwell's simplistically complex and much-blogged about look at the nation's pension problems and the "demographic logic" behind them in The New Yorker; the second is a Fortune story on the "Gray Ceiling," a term the magazine has coined for baby boomers who refuse to retire, thereby standing in the way of Gen X'ers manifest destiny. Both appear to be an outgrowth of the media's obsession with aging boomers — how many more insert-famous-person's-name-here-is-turning-60 stories must we endure? — which insists on treating 77 million people as a single demographic, with little regard for differences in race, class, education, income, geography, etc. And both are notable for their total acceptance of numbers, mathematics and demographics as controlling forces of the universe.

In his piece, Gladwell sets forth the "dependency ratio" — the relationship between the number of people who aren't of working age to the number of people who are — as the key to understanding pensions. To illuminate this, he whips out a study by two Harvard economists that suggests that Ireland's economic miracle is largely the result of the lifting of the country's limits on contraception in 1979, which caused its dependency ratio to plummet, freeing it of the enormous cost of supporting a large dependent population, namely, kids. Of course, that could become a problem when the current working population retires, and there are fewer workers to take their place. But as Gladwell sees it, "Getting to a 1-to-2.5 ratio doesn't make economic success inevitable. But, given a reasonably functional economic and political infrastrucutre, it certainly makes it a lot easier."

Gladwell then looks at companies like General Motors Corp. and Bethlehem Steel in the same demographic terms, which he says should change the way we view their pension problems. As technology increased their productivity in the post-war period, he argues, they didn't need to hire workers to replace the thousands who were retiring. That sent their dependency ratios — and therefore, their pension costs — soaring, as a small pool of current workers had to support a large pool of retirees.

"Looking at General Motors and the old-line steel companies in demographic terms substantially changes the way we understand their problems," Gladwell writes. "It is a commonplace assumption, for instance, that they were undone by overly generous union contracts. But, when dependency ratios start getting up into the 3-to-1 to 7-to-1 range, the issue is not so much what you are paying each dependent as how many dependents you are paying." The issue is also for how long you are paying them, but weirdly enough, the fact that people are living longer — a demographic development that clearly contributes to pension woes — never makes it into Gladwell's demographic-driven discussion.

Gladwell then goes on to explain that: "A second common assumption is that fading industrial giants like GM and Bethlehem are victims of their own managerial incompetence. In various ways, they undoubtedly are. But, with respect to the staggering burden of benefit obligations, what got them in trouble isn't what they did wrong; it is what they did right. They got in trouble in the nineteen-nineties because they were around in the nineteen-fifties — and survived to pay for the retirement of the workers they hired forty years ago."

So let's get this straight. GM and Bethlehem Steel's pension problems were not only not their fault; nobody was at fault — not management, not the unions, not any one of a myriad of woes that rained down on Industrial America in the late 20th century. In fact, Gladwell maintains that GM and Bethlehem actually did things right. But what Gladwell doesn't entertain is that perhaps these companies did not do enough things right; that they were unable to increase or improve their productivity to a level where they could not only survive, but prosper in a way that would enable them to meet their pension obligations. GM may now have much fewer workers than retirees, but why should that really matter? If it were posting big profits, it would be better able to pay out its pensions, no matter how small its current work force.

Moreover, both of these companies could have chosen to more aggressively fund their pension plans over the years to ensure against future shortfalls. But they did not. After all, shareholders and a stock market obsessed with short-term results don't often view shoring up or overfunding a pension plan as a good use of company cash. And both companies had other problems to contend with over the years, from increased foreign competition to outdated, lousy or unappealing products.

Despite all this, Gladwell lays the blame for GM's and Bethlehem's pension problems squarely on demographics and his handy-dandy dependency ratio. But while it's pretty obvious that the pension crisis has a demographic component, it's only one of a long list of factors that have brought the system to the brink. The pension crisis is a big, hairy and complex problem. It cannot be explained away with demographics, even if it makes for a good read.

Demographics also comes in for blame in Fortune's Gray Ceiling piece, which introduces us to a handful of thirtysomething middle-managers who are being kept down by job-hoarding boomers who simply won't retire. "The Gray Ceiling is purely a function of mathematics," the magazine tells us, before spewing forth a bucket of statistics on declining birthrates and workplace makeup by age. Its conclusion: "Generation X, it would seem, is in danger of turning into the Prince Charles of the American workforce: perpetual heirs apparent waiting for the keys to the kingdom."

To be sure, with all the talk of boomers having to defer retirement — a side effect of the pension crisis — it's nice to see a magazine finally try to examine what that means for the next generation. But like Gladwell's piece, Fortune is too simplistic in its reliance on demographics. For proof, see "50 and Fired," a Fortune story from last year referenced in the Gray Ceiling piece. In that story, it was the boomers, not Gen X'ers, who Fortune said were getting "screwed" by generational workplace issues. Back then, the magazine admonished companies to increase their ranks of older employees or risk falling off what one commentator called "a demographic cliff."

A year later, Fortune is prescribing the opposite — that companies adopt "Gen X retention drives" to ensure their futures. In truth, most companies would probably benefit from multigenerational work forces. But demographics are sexier when used to support a single conclusion, even if it's not the whole story. —Yvette Kantrow

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