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December 09th 2010 print

James Allan

Boomers win, kids lose

Baby boomer parents will get a better deal on retirement and pensions than their kids do. In many countries in the West the kids will be in the bizarre position of having to pay for their parents’ retirement while also funding all of their own retirements.

Generational fairness

The concept of ‘fairness’ is an awfully vague and amorphous one, not to say so indeterminate it can often come close to being useless. To some extent the expectation of some sort of reciprocity in social life may be hard-wired into us humans. And that can be described as a demand for fairness.

Or maybe it’s just a demand to play by the established rules? It’s only fair that people do that many would say.

Or it can be a much deeper demand, that the rules themselves be shaped in accord with some fundamental and overarching vision of society. Meeting or not meeting that sort of test can be described in terms of fairness, though of course almost all of us will differ on our preferred visions of the good society.

And even if we can get past those sort of difficulties, we run into another big problem when it comes to criticizing some aspect of social life in terms of ‘fairness’. That problem is an empirical one that even kids pick up on pretty quickly. It’s that life just doesn’t seem to be fair whatever your preferred understanding of this vague and amorphous concept.

So we look around us and we see that there is no obvious link between merit and reward in social life. Generally speaking you simply don’t always get what you deserve. And there are lots of examples of a lack of reciprocity in society. And a good many people who don’t play by the rules seem to do just fine in life. And most any overarching social vision you care to mention turns out to have unintended consequences, often pretty diabolical ones. (Think of communism, if you need an example.)

Let’s admit all that, or at least the possibility that all of that is correct. Let’s be a tad sceptical about the usefulness of any critique of social arrangements in terms of ‘fairness’. And yet let’s nonetheless have a crack at playing the ‘this just isn’t fair’ game ourselves. We’ll keep it simple and by ‘fairness’ mean some variant or other on ‘they’re getting a really raw deal’.

Asked in those broad terms, who do you pick as getting an unfair or raw deal in social life in the West?

My pick is the younger generation. In a way the whole welfare state in the West can be seen as stacked against our kids. Start with pensions. These could be nice and generous and pay as you go when the system was in effect a big pyramid scheme with lots and lots and lots of young people coming in at the bottom to support those going out at the top, especially when life expectancy wasn’t too prolonged.

Watch the birth rate fall and life expectancy rise and you see the system demand either massive new immigration to keep the inputs coming in at the bottom, or an end to defined benefit pensions for new entrants (which is more or less what has been done here in Australia, unlike many European countries like France which can barely raise the retirement age from 60 to 62 without days and days of Gallic riots).

Cut it any way you like, then, and the fact is that baby boomer parents will get a better deal on retirement and pensions than their kids do. In many countries in the West the kids will be in the bizarre position of having to pay for their parents’ retirement (as part of the pyramid scheme) while also funding all of their own retirements (because the scheme has collapsed).

We know which generation wins that one.

Then there’s the money spent on the old versus the young. It wasn’t all that many years ago that old age generally meant penury, unless your own kids looked after you. Now we spend loads and loads on the old. In countries without compulsory voting, it’s the old that vote. And so in the US you don’t touch their Medicare and prescription benefits, you just keep adding to them.

Meanwhile the number of active workers supporting each retiree just keeps falling. That means something has to give. We can keep importing workers whatever the intended and unintended consequences of that. Or we can raise taxes, which includes those on the working young.

Again, it’s hard to see how baby boomers didn’t get a better deal than their kids.

Hang on, you might say. What about all the extra money being spent on education? That goes to the young. And there is clearly something to that riposte to the extent that money is bringing a better product. But I have my doubts about that. More young are staying in education and for longer. Yes. But it’s not clear all that extra money spent on education is producing better educated young, as opposed to more bureaucracy (in universities for sure) and higher pay.

Let me put it no higher than this. Our kids are going to enter into a very mobile, global world. Those with the most talent, smarts and drive will do very well indeed. But those further down the endowment tables look to me to be entering into a world that will be harder on them than it was on their parents.

If it makes any sense to think of that in terms of getting a raw deal, or fairness – and it probably doesn’t – then there’s a distinct absence of generational fairness in the air.