Sunday, December 14, 2014

Intergenerational politics

There have been a number of articles recently about the increasing wealth disparity that exists between the baby boomer generation and subsequent generations. These take several forms:

  • The ABC had an article about the rapid accumulation of wealth in older Australians versus declining wealth in younger generations. LINK
  • This (slightly hyperbolic) ABC article was written about a Grattan report - LINK
  • Another article defended the record of baby boomers. LINK
  • Yet another article recounted a very personal debate about the vices of the baby boomers. LINK
I think that we need to step back from this. The risk in these kinds of articles is that we establish an intergenerational schism. People get defensive, or aggressive.

So, prior to any analysis I think I should observe that:

  • Cultural differences between baby boomers and subsequent generations are very minor (much less than between the boomers and earlier generations). At the individual level, we are no different and would have likely made the same choices (in aggregate) had we been in the same situation. (ie. while I think there is plenty to criticise in what the boomers have done, I think my generation will fare no better)
  • In any population or demographic analysis such as this, we are always talking about a distribution. There are many poor baby boomers, and many rich Millennials.
  • It is utterly useless to attribute blame anyway


From what I have seen, the Grattan report seems pretty good. It is not inflammatory (unlike some of the others), and is based on data. The most compelling data are shown in this figure:
Data showing welfare receipt in Australia by age. Source: Grattan
My view is that these data are unequivocal. There is a net transfer of wealth from young and relatively poorer Australians to older richer Australians. The critical thing to notice is the large increase in the right-most bar in the 65+ bracket. Also, the right-most two bars of the 25-34 bracket. 

From reading comments on a couple of online sites, there appears to be a lot of misunderstanding what this report is saying and what it means.

This report is not comparing baby boomers in their 30s against today's 30 year-olds.

Instead, it is looking at demographic changes that have occurred in Australia in the last 8 years. What they have found is that, in those 8 years, older Australians have got substantially richer, while younger Australians have become poorer [1]. Let's keep things simple: people who were in the 25 - 35 age group 8 years ago are now in the 35 - 45 age group. I don't think we can attribute these changes in wealth to big differences between these age groups. In other words, I don't think there are large differences between today's 30 year olds and today's 40 year olds in terms of frugality, sense-of-entitlement, work-ethic, etc. I don't think such differences can account for these systemic shifts. 

These are statistics that have been calculated across the entire population. They are not about individuals. This report highlights systemic problems that urgently need to be addressed. You do not want to be living in a country with a poor and disenfranchised youth -- see Libya, Egypt, Iran for what happens. 

[1] In other words, comments like "Well, I was poor when I was young too" do not apply, as what we are looking at here are rapid changes in the relative levels of wealth between different age groups.
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