03/01/2011

A counter to the selfish baby boomers?

There's a very interesting letter in this weeks Economist which really gotme thinking about the best way to counter the selfisheness of the baby boomer generations before they bankrupt the country as they move in to the 3rd age. Before discussing the letter its worth looking at this idea about the selfish baby boomers, as set on by David Willetts in The Pinch and reviewed by Peter Oborne:

This generation - and I am ashamed to say that I belong to it [Me too] - has greedily destroyed the financial and social capital bequeathed to us by our parents.

And, as a result, we have squandered the inheritance we ought to have passed on to our children.

Here's how the Willetts thesis works. He says that in all societies there are three stages of life - childhood, maturity and old age.

During childhood and old age we are dependent on others. But during maturity - from our early 20s to our mid-60s - we do not merely provide for ourselves. We provide for the young and old, as well.

Willetts calls this the contract between generations.

The trouble is that the baby boomers - those of us aged between 45 and 63 today - have destroyed this age-old contract. We have looked after only ourselves.

There are two reasons for this. First, for the past three decades the baby boomers have been ascendant, and this has meant there have been an abnormally large proportion of people of working age.

As a consequence, we baby boomers have had to spend a lower proportion of our hard-earned cash looking after the young and the old than any previous generation.

As Willetts puts it: 'We have had an extraordinary demographic bonus over the past 25 years. There was a bulge of workers in the middle with no real increase in the number of pensioners and quite a low birth rate.' So we have had far more money to spend on foreign holidays, large houses, restaurants and other luxuries. Living standards have boomed. But now, the first of the baby boomers are starting to reach retirement age.

Soon there will be a much smaller working population - and a much larger number of retired people expecting to be paid for by a much smaller number of wealth creators.

Willetts calls this The Pinch  and it will squeeze tightest in 2030, by which time all the baby boomers will have retired.

This might be just manageable but for one extra and devastating factor. We baby boomers have been the most selfish generation that history has ever known.

We could have used our gigantic piece of demographic good fortune to build for the future. Instead, we have spent every last penny of our windfall gain.

Indeed, we have done even worse than that. We have incurred gigantic debts that will have to be paid off by future generations - who will already be reeling under the necessity of paying for the largest number of
pensioners in history.

That should give you the gist but there is one glairing example of our selfishness and it has been the cause of booms and busts since I can remember buying my first and yet we still venerate it: houses, and more specifically house prices. Despite all the pain of the past two years we still see stories about the need for house prices to continue to rise, but why? Or more precisiely Cui Bono?  Why the baby boomers of course.

How many of those baby boomers have used housing as a store of wealth that they plan to use when they retire? For years we have been told that a house is an investment [and this is where I have always disagreed with my own generation including some good friends] and that house prices will always rise. They need that rise more than ever now the baby boomers are approaching retirement and looking to sell and trade down, releasing that wealth. To understand why just look at what happens with some simple maths. A baby boomer with a house valued at £400,000 is looking to trade down to something around say £200,000, giving them a nest egg of £200,000. Lets say prices fall by 20% - they now have a house valued at £320,000 and their target house is now worth £160,000, giving them a nest egg of only £160,000, a loss of £40,000 in the baby boomers eyes.

Much better that prices rise by 20%, giving them a nest egg of £240,000. But who pays? Younger generations who now need to work harder and longer to afford the bigger house, a transfer of wealth to the baby boomers. And as such a huge demographic  baby boomers will scare politicians to death because they are more likely to vote and so we will see more efforts to keep house prices high through regulation, with planning permission being determined by locals aka NIMBYs as a current proposal. Baby boomers will also be in a position to demand higher benefits - free bus travel, higher pensions, fuel allownces, free BBC and a myriad other methods of transferring wealth (stealing?).

So what is this marvelous idea that might provide a check on those rapacious baby boomers($):

SIR – You talked about the significance of the elderly voting-age population in Japan as a factor in determining government transfers, such as pensions and health care (special report on Japan, November 20th). The median age of voters in Japan will reach 65 within the next 15 years. We should seriously consider giving children a vote and having their parents use it on their behalf. Parents with children under 18 would then control 37% of the vote.

Why should we give children a right to vote? Because intergenerational income distribution became a contentious public-policy issue with the establishment of public-pension systems. It may seem outrageous to extend the vote to children, but the extension of the franchise to women was also opposed. That historic change was achieved through the
democratic process and resulted in a dilution of the voting power of the male-only electorate. Greying populations require such a fundamental democratic change.

Reiko Aoki
Director Centre for Intergenerational Studies
Hitotsubashi University
Tokyo


Brilliant. OK, so there are a few down sides, but no more than when those children get to 18 anyway.

And if those new found voters have any sense they wil push for a Land Value Tax to force the baby boomers to allow house prices to become affordable or at least pay for their NIMBYism.

For more on Land Value Taxes follow Mark Wadsworth, a tireless campaigner for them if ever there was one.



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