War and peace – David Willetts reviews two of the latest books on Intergenerational equity for the Financial Times


Class used to predict how people would vote in Britain and elsewhere — in 1974 if you were a member of the working class you were three times more likely to vote Labour than Conservative. Now the distribution of votes by class in the UK is almost even between Labour and Conservative: the new divide is by age. In the 1970s, 40 per cent of voters supported Labour in almost every age group. Age was a political irrelevance. But by the 2017 general election it had become a key driver of how someone votes. A 30-year-old was almost twice as likely to vote Labour as a 70-year-old, and a 70-year-old twice as likely to vote Tory as a 30-year-old.

This political divide reflects an underlying economic reality. Older people own the wealth — housing and pensions. And now, for the first time in British history, pensioner incomes after housing costs have caught up with those of working-age families. All this has put fairness between the generations high on the political agenda. So both parties promise to get more houses built for young people — though they do want to keep free TV licences for the over-75s as well.

Joseph Sternberg and Jennie Bristow take diametrically opposite approaches to this in two new books on the subject on intergenerational economics. Sternberg’s The Theft of a Decade is full of evidence, mainly from the US, which shows the scale of the problem. In particular he shows how the financial crash of 2008 has hit young people particularly hard and the policy response to it in turn has boosted the assets of older generations, widening the gap with the young.

Bristow’s approach is very different. In Stop Mugging Grandma she treats “generationalism” not as an economic fact but a pernicious social and cultural narrative, largely analysed through the British debate to which I myself have contributed. (Full disclosure: Sternberg cites with approval our work on intergenerational fairness at the Resolution Foundation, whereas Bristow regards it as part of the problem she is attacking.)

British social thinkers are familiar with differences of class, gender and ethnicity as powerful tools for explaining economic differences. Compared to them, Bristow regards the accident of when you were born as rather trivial. It just does not seem to her to bear much weight, so she tries to explain why it is now taken so seriously and has become so prominent in the public narrative. She argues it is a device to hide the shared interest in, for example, good pensions and divert attention from real economic problems — such as an insecure low-wage labour market — which are nothing to do with the generation you belong to.

But when you were born does matter. The formative experiences that shape people’s view of politics often occur during their early twenties. It determines the economic environment when you enter the jobs market. Those born after the second world war who came of age in the 1960s enjoyed rising wages without competition in a global labour market from workers in China and India. While entering the labour market after the 2008 financial crisis may have permanently scarred the millennials unless we do some really bold things to help them. Sternberg also cites evidence that it affects lifetime consumption patterns too. That is the decade which Sternberg rightly says has been taken from the millennials. Being born into a big cohort like the baby boomers — roughly those born between 1946 and 1964 — gives you greater power in the marketplace and the ballot box so you can shape society to favour your generation.

Government policies themselves are littered with age rules: it is a political choice that a 21-year-old travelling to work on London transport pays full fare but a 61-year-old travels for free. It was a political decision to protect pensioner benefits with the so-called triple lock that ensures British pensioners enjoy benefits rising by a minimum of 2.5 per cent, average earnings growth or inflation, whichever is highest, while imposing a freeze on benefits for families of working age. Behind these political choices are judgments about who is deserving — and who votes. Drawing attention to these decisions is not promoting generational warfare, it is asking whether we are really delivering fairness between the generations.

Bristow replies that this is shameless boomer-bashing, which erodes the contract between the generations. But would she argue that drawing attention to the continuing disadvantages faced by ethnic minorities is promoting ethnic hatred? No — we draw attention to these divides not to deepen them but because we want to overcome them.

We even get what one might call the “Eton fagging defence” — you might not like being a servant to your elders when you are junior but don’t worry, eventually you will get your turn when you are senior. But young people are rightly sceptical that in 50 years they will in turn benefit from generous policies for pensioners because there might be different spending priorities then. The evidence so far is that the big generation of boomers have enjoyed policies favouring the young when they were young and policies rebalanced to the old when they are older.

Meanwhile, the millennials are caricatured for consuming avocado toast instead of saving. Yet the evidence is that their consumption on holidays or eating out is actually growing less than affluent boomers. When the boomers were young in the 1980s, people aged 25-34 consumed roughly the same amount as people aged 55-64. Now they are aged 55-64, the younger generation coming along behind are consuming 15 per cent less than them.

Bristow is right that there is mutual affection and support between the generations. Young people do care about granny and want her to have a decent pension. Indeed, the social contract between the generations is what holds a society together. She is eloquent that we are located in a historical narrative linking us to generations that are dead and generations as yet unborn — as the great 18th-century political thinker Edmund Burke put it. But we have to hold a society to account for how it is maintaining that contract and she is surprisingly uninterested in the actual empirical evidence of what is happening. A cultural critique of generationalism has to engage with the evidence that young people today do actually face a set of distinctive problems.

The strength of Sternberg’s book is the skilful way he assembles such evidence to provide a coherent account of what has been happening to America. He shows for example that Republicans, however hostile they may be to most domestic spending programmes, actually protect and even extend Medicare and Social Security for their older base. Indeed, they pushed through the single most expensive increase in these programmes when in 2004 they extended Medicare coverage to drug prescriptions with no increase in contributions to pay for it, adding up to a trillion dollars to the US national debt so far. The trouble is that Sternberg has not got a worked-out programme for what to do about this — and that is the hard part. It is also now increasingly urgent.

My own view is that there is one overwhelmingly significant economic event behind all this: the doubling of the value of the assets of the American and British economies relative to gross domestic product. In Britain assets have gone from three times GDP to more than six times over the past 30 years. This is partly due to the boomers’ loose money policies but also due to planning restrictions and pension enhancements, all powerfully explained with US evidence by Sternberg. Boomers have defined benefit pensions payable after a certain age, so as they live longer the value of the pension goes up. Millennials have defined contribution pensions with a fixed pot of money that will pay out less per year as their life expectancy rises. And trying to save earnings for a deposit on a house illustrates when the rise in assets relative to incomes shifts from an economic abstraction to a personal reality — it would have taken a typical young Boomer family about three years to save for a deposit whereas now it takes 19.

That is why the biggest, boldest thing we have to do is boost property ownership among the younger generation. It happened in Britain in the 1980s with the sale of publicly owned council houses and access to shares in privatised industries. We need a contemporary version of that — one option is a capital endowment of perhaps £10,000 when a young person reaches the age of 30. Otherwise we will face a young generation of the dispossessed. That really would be an issue for the Tory leadership campaign.

This article was originally published in the Financial Times.