Phoney war between the generations masks worrying lack of reform

The battle of the generations is raging. Did the Baby Boomers have an easier life? Or are the cosseted members of Generation Y – the demographic cohort born from the early 1980s onwards – just engaging in self-pity? The truth is not “somewhere in between”, and this debate is actively damaging.

Differences between the generations reflect a number of factors pulling in opposite directions. Broad measures of living standards show vast improvements for everyone. But aggregates only move in one direction at a time, while living standards are multi-faceted. They rise in some respects and simultaneously deteriorate in others, depending on changes in the structure of relative prices and wages. In the UK, for example, real median incomes have doubled since the mid-1960s. But the ratio of average house prices to average annual incomes has risen from under three to over five, and university education has become much more expensive at the point of use.

The downsides of these trends fall disproportionately, or exclusively, on Generation Y. But it is a mistake to classify them as intergenerational distributional issues. The problems faced by Generation Y are not the result of Baby Boomers taking something away.

Take housing. In a report called Hoarding of Housing, the Intergenerational Foundation (IF) argued that the housing affordability crisis is a distributional matter. In other words, the housing stock is presented as a cake of fixed size, with the elderly first in line, leaving only crumbs for the young. The IF recommends redistributing the existing housing stock: subjecting housing wealth to capital gains tax, making council tax more proportional to housing space, and withdrawing universal benefits from those with high housing wealth. Tax the elderly out of their homes so that the young can move in.

Why does the IF think this? Few new homes are being built in the UK, it says, so the distribution of the existing stock matters. This is true, but if our insane planning laws did not prevent the building of enough homes, and therefore did not make buying a first house so unaffordable, it wouldn’t be an issue if every pensioner had two, three or four homes.

Student funding, meanwhile, is an intra-generational issue, as redistribution does not happen across but within generations. Those Baby Boomers who went to university for free were subsidised by Baby Boomers who did not go. Can we improve the situation of both students and non-students among Generation Y? Yes, by making vocational training more accessible, thereby promoting competition within the education system. Universities would not just compete with other universities, but with vocational education providers, offering young people a genuine choice.

This battle of the generations is phoney. And it is not just unhelpful but actively harmful because it distracts from the real issues. Groups like the IF should be campaigning for planning reform and greater competition in education. It is a shame they are too busy counting the spare bedrooms of the elderly.

Read the original article here.

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).

3 thoughts on “Phoney war between the generations masks worrying lack of reform”

  1. Posted 25/07/2013 at 15:18 | Permalink

    I’m not sure I totally agree – or rather I think of the issues in a different way. I think there are serious inter-generational conflicts in certain areas: housing, pension provision but also healthcare which mostly is consumed by the elderly (and now they have ever more expensive social care guarantees). However, the conflict has been created by the state in all of these areas – without state intervention, conflict would not exist as there would be no artificial constraint on housing supply and no forced redistribution of income. As so often, the state has created a zero-sum game where none should exist. In a freer society, such conflicts would not be created, but I’m convinced that in our (relatively unfree) society, they do exist.
    The IF proposals, and most others for these issues and hundreds of others, display a common pattern (i) observe a genuine social problem but (ii) fail to see that problem is caused by an initial state intervention (iii) propose further state intervention to rectify the problem which (iv) in all likelihood will create worse/unintended outcomes and will probably prompt calls for further state intervention to rectify them.

  2. Posted 26/07/2013 at 18:10 | Permalink

    correct the arguments in general across the media are not correct and unfair to the young as well as pre boomers and boomers. This chart shows that more across the board is being spent from taxes in under 25’s than every before in the history of Britain – in work welfare, family tax credits and child care support taking part of the 40% no longer assigned to the incapacitated, elderly, poor and job seekers. Taken from another blog it also shows a higher than ever investment for the under 25’s in education, sport and leisure. Where it is common for people have topped up incomes from welfare now, the corporates benefitting from that subsidy indirectly from that budget are able to enjoy larger profits and pay higher incomes and bonus payments further up the scale. You can also see the debt the country incurred at the end of ww2 and see how low the Britain made it from incomes earned in the boomer working years – they are not inheriting such a large debt that previous generations did:

    The mortgage relief miras scheme was only available to those on the higher tax thresholds. The working years of the boomer generations had the lowest tax threshold of 33% with 14-15% interest on the mortgages. The amount being paid back from incomes over the same term now is lower than it was back then even if the price the property being sold at has increased. There is a difference which supports investors with wealth to purchase buy to let homes and pushes young people out of the market is the deposits – they used to be 2-5% whereas currently it is 10-20 which is out of reach for the ordinary young couple.

    Of the 7 million 16-25s – 4 million live singly with 2 million being single parents. This is a portion of housing being supported by welfare whether or not rental and welfare payments or private. Most certainly in early boomer working years over 50% of the young working population could not and did not afford to live singly and the taxpayer did not fund it.

    The loss of income tax revenue and NI revenue from taxpayer supplemented wages is causing a shortfall making the group that the welfare was designed for appear to be costing more as a percentage to income as the collections are lower from the inwork taxpayers. Take a calculation of how much money is being used in welfare to top up an income and it can be determined how much business is saving by being indirectly supplemented by the taxpayer and also how much tax revenue of at least 31% (lowest income tax and NI) is being lost. This is not a UK issue but a global one in developed countries it would appear

  3. Posted 26/07/2013 at 18:19 | Permalink

    a small note also – university fees were never free for all. There were just under half a million students in any one year in the boomer working age and those that were funded were means tested. There are just over 2 million students in any given year who are also means tested. Maybe more people passed the test in the boomer working years however, their parents generation were broke from ww2 and there was never any”disposable income”. It may be that more qualified from the 25% that attended because they were paid a lot less and were poorer

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