Baby Boomers vs. Generation Y: the phoney battle

As economists, we are used to looking at summary indicators of living standards – income, expenditure, consumption etc. – and comparing them over time. Such measures are indispensable for a holistic overview, but their obvious drawback is that they can only move in one direction at the time, which rarely describes what people experience. Living standards are more multi-faceted than that; they can easily improve in some respects whilst stagnating or deteriorating in others because of changes in the structure of relative prices and wages.

To realise this, we only need to read a book from, say, a hundred years ago, and pay some attention to descriptions of consumption habits. In old books, it is always a big drama when a child tears its trousers, because buying a new pair is out of the question. A pair of shoes or children’s toys are big investments, a roast chicken and a bottle of wine indicate a really special occasion, while foreign travel is at best described as a distant dream. Old novels describe pitifully low consumption standards; they read like something dreamt up at the New Economics Foundation.

But at the same time, protagonists of old books can often afford to smoke like chimneys, and guzzle down pint after pint in alehouses. To someone reading this with the relative price structure of modern Britain at the back of their mind, this will seem like a lavish extravagance. How could those people, who were so poor in some respects, live so large in other respects?

A similar kind of confusion occurs in the current ‘battle of the generations’, or less bellicosely, the argument about whether the ‘Baby Boomers’ had an easier life than ‘Generation Y’. Both sides of the argument can easily come up with examples of things that one generation finds/found easy to obtain, while the other generation found/finds them nearly out of reach. One side argues that the Baby-Boomers could go to university for free and then proceed almost automatically to a lifetime-job, which easily afforded them a nice house, and a salary large enough to raise a family on.

The other side sees young people backpacking through Thailand, handling all kinds of electronic gadgets, dining out regularly, and enjoying leisure opportunities unheard of a generation ago. They remember times when a ‘foreign’ holiday meant holidays in France and when an ‘exotic’ dish meant a pizza.

So both sides can make some valid points, but the truth is not ‘somewhere in between’. Rather, what we see is a number of factors pulling in opposite direction. Overall, living standards have improved vastly. Real median incomes have doubled since the mid-1960s. But aggregates hide a lot of significant variation. The ratio of house prices to incomes has exploded. The wage premium associated with a university degree has declined a lot. And university education has become a lot more expensive at the point of use.

The downsides of these developments fall disproportionately, or exclusively, on Generation Y – but it is nevertheless a mistake to classify them as intergenerational distributional issues. As far as housing is concerned, the problem is not that the elderly have snatched away all the houses; the problem is that planning laws prevent the building of enough new ones. If that was resolved, it would not be a problem if every elderly person in the country owned two, three or four homes.

Student funding, meanwhile, is an intra-generational issue, as the main redistribution stream is not across but within generations, namely from non-students to students. Baby Boomers who went to university could do so for free because they were subsidised by Baby Boomers who did not go to university. Opponents of tuition fees present some valid arguments, but they should not frame this as an intergenerational issue when it clearly is not. The only reason why there appears to be an intergenerational aspect is that fee-opponents use the old university funding arrangement as a rhetorical reference point. They are effectively saying: ‘We must have free university education, because the previous generation had it too’.

It is also true that the skills premium associated with university education has diminished, as a result of the massive increase in the supply of graduates. A university degree ceases to be a guaranteed entry ticket to a well-paid job when so many age-mates have one, too. But again, this is clearly an intra-generational issue, and rhetorical references to how things used to be in former times are not especially helpful.

The only genuinely intergenerational issue is welfare provision. It is true that old-age benefits are currently handled with kid gloves while working-age benefits have come under closer scrutiny. This is because state welfare has little to do with ‘solidarity’, and a lot with a tug-of-war between electoral groups with competing interests. The elderly are much more likely to turn out to vote, to be members of a political party etc. than people in their twenties and early thirties, so the former naturally have a lead in this game. But those who are not happy with those results should argue for a depolitisation of welfare more broadly, especially intergenerational welfare. These issues would be much less conflictual in a system in which most people simply saved during their working life, and used up their savings in old age.

Welfare apart, the battle of the generations is a phoney one, and it is not just unhelpful but actively harmful because it distracts from the real issues. Housing is the starkest example: The very people who should fight the NIMBYs at every turn are ceding the field to them without resistance, because they are too busy counting the spare bedrooms of the elderly.

Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

7 thoughts on “Baby Boomers vs. Generation Y: the phoney battle”

  1. Posted 18/07/2013 at 13:43 | Permalink

    The ‘global race’ is a relay race: we build on the achievements of our ancestors. One of the key arguments for free markets is not that they are more likely (than government interference) to increase well-being (though they are), but that they give us a much better chance of being able to adapt to unexpected changes in conditions.

  2. Posted 19/07/2013 at 07:23 | Permalink

    Yes but with respect to housing, whilst you provide the answer as to why housing is out of the reach of most / many of generation Y surely it doesnt change the fact that it is. And whilst generation Y do have many advantages growing up over the baby boomers as you state, the difficulty in affording a place to live is still surely intergenerational rather than intra generational

  3. Posted 19/07/2013 at 10:31 | Permalink

    “whilst you provide the answer as to why housing is out of the reach of most / many of generation Y surely it doesnt change the fact that it is”
    No, but surely the first step towards changing it is getting the diagnosis right, and making sure it is widely understood. And it just isn’t. Watch this programme here, for example:
    My colleague tries to get the simple point across that if you constrain the supply of a good, its price escalates. Yet the interviewer simply refuses, point-blank, to understand it, because it doesn’t fit into the story he wants to tell. Something similar happened to me many times in discussions. We will not solve the housing crisis as long as we refuse to understand its cause.

  4. Posted 25/07/2013 at 07:22 | Permalink

    I have to disagree to an extent with the conclusions. NIMBYs often fall into that category not because of environmental but economic reasons; they are one and the same problem. ‘Baby boomer’ councillors of every political colour actively oppose development up and down the country because they know limiting supply will sustain the equity in their homes; they’re not all tree huggers or occupants with a stunning view or vegetable patch at risk.

    The article also fails to consider the extent to which older voters use governments that are supposedly in favour of free markets to sustain their post GFC economic interests. Before 2008, deregulation of banking was popular because it meant banks could lend big mortgages and create more and more demand for houses at higher and higher prices. When this system collapsed, instead of letting house prices collapse as they did in the USA, successive governments chose to slash interest to a rate that benefits nobody other than those with mortgages; suspended stamp duty nominally to make it easier to buy but really to make it easier to sell; bailed out the mortgage books at a huge cost to the taxpayer and created ‘Help to Buy,’ a scheme that only serves to further inflate prices beyond the levels of demand that first time buyers are able to create on their own in a free market. Despite a huge deficit, the Government also doesn’t dare touch the tax breaks that make property a more attractive investment than businesses or tackle the constant ‘flipping’ that goes on by property developers and land lords. These actions are real and favour the old over the young. Many of the very people who are crying out for more welfare in old age are the same people dodging tax now.

    Also, the university argument is somewhat weakened when you consider it was largely the Baby Boomer generation’s parents who funded their free education. Education generally tends to be paid by the previous generation; when it was the Baby Boomer’s turn to pay for the next generation, they decided not to do it.

    Nor is it simply a question about welfare. There is also a debate to be had about debt. For the last 20 years Governments have been spending money on new infrastructure using financing models that defer payment. In other words, the Baby Boomer generation will be enjoying new hospitals today that will be depreciated out of use in the next 30 years when we need them. Yet we have to pay for them. So it is not just welfare, irresponsible spending in other areas matters too.

    Good outcomes can come from clarifying unethical practices such as these. For example, the Baby Boomers are well and truly still alive and most are active enough to go back to work to earn the money to pay off the public private finance initiatives their governments entered into. We need only increase the pension age to 80 today, with a plan to reduce it down to 70 in the next 30 years. That would be far more equitable than what is being done today where they will retire at 67, consume all that has been spent whilst only paying for 80% of it, then bequeathing us the public debt and a likely retirement date of 80 ourselves.

  5. Posted 29/07/2013 at 21:05 | Permalink

    just an input – per my comment on another page. The number of university attendees was just under half a million which is a lower percentage of the current 2 million per year. No they did not have free education, some like now had help and were means tested. Also, the baby boomers paid to build the extra university capacity.

    Liability is not debt. It is not a debt until it is incurred and regarding forecasted pensions and healthcare it is only that – forecasted and no one knows how many will live to retirement and beyond.

    The UK debt being handed over to the generation that follows the boomers (the first of which are eligible for retirement at 50 from 2012) is not even 50% of that inherited when they became adults from WW” – see my link on the other blog reply. Therefore the post boomers have contributed to policy decisions made in recent decades also

    The boomer blame is a deflection from the real problems that the young are facing currently and for as long as that can continue, the cause will not be resolved. If it is not resolved the children of the current young will hold them accountable.

  6. Posted 30/07/2013 at 09:44 | Permalink

    AW1983, you make a couple of good points, and you’re probably right that NIMBYs are predominantly Baby Boomers (though most Baby Boomers are not NIMBYs). However, the policy conclusions remain the same: Build houses, and lots of them. And that’s my problem with the intergenerational campaigners: They seem to be much more interested in the distribution of the housing stock (across the age groups) than its size. They don’t won’t to build new homes, they want to redistribute the homes that are already there from the old to the young, via the tax system.

  7. Posted 30/07/2013 at 19:56 | Permalink

    agreed Kris entirely. It would be disadvantaging young and old to follow the tax route and also there would be no continual income. Why not build small 1-2 bed units at ground level away from high employment areas to give a choice, if desired to those retiring to move to a redeveloped depressed areas. It is no good blaming the retired if there is no place for them to go or the young in high unemployment areas if there are no more places to build to house them. A redeveloped depressed area would attain employment for the services to the retired and there will be integration.

    If you check on the housing stock distribution on the ONS site it shows that 4 million 16-25 year old live singly out of 7 million of that group. 2 million are single parents. There has been provision for housing but it would not have been anticipated that so many of that age group would live singly as it is unprecedented. Some areas where young singles live are not in housing suitable for the retired (up a high rise when the lift is not maintained for example, no local facilities and without the physical or other means to transport themselves for basic needs).
    The problem will not resolve itself whilst one group is set up against another. How about alternative estate agencies advertising swaps from smaller properties to larger houses? A retired couple wishing to move could put their property on the swap list and a young couple needing more bedrooms for family planning could put their property on a swap list. This works in social housing so why not try it in private housing? There is an industry there.

    With regards to care of the elderly, the first of the post boomers reached 50, early retirement age, last year. In the next 10-20 years there will be fewer boomers but many retired of the generation that followed. The need to phase inwork welfare out so that people can live on their incomes is great as it will affect future generations and would be a far better legacy for the post boomers to leave their children and future generations. I cannot see that the A&Es should be a paid for service but the hospitals could offer courses for payment on first aid specialising in children but also a separate one specialising in first aid for the elderly. It would generate an income and reduce visits to A&E for basic problems.

    Thank you for responding I do hope a better way than taxing the young and old more highly is found

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