OK Boomer: The Economic and Political Origins of Intergenerational Conflict
It’s fairly common to find instances of poor intergenerational relations, from news headlines claiming that millennials or gen Z’s are killing certain industries to elderly politicians claiming that today’s youth can’t afford to buy homes due to extravagant spending habits like drinking coffee from Starbucks or eating avocado toast. One of the most notable examples of intergenerational animosity is the phrase “ok boomer” meant used to dismiss those perceived as out of touch, even leading to a New York Times article declaring that “OK Boomer Marks End of Friendly Generational Relations”. Why has intergenerational relations become so antagonistic? I believe that it’s because the political and economic structures that were made to create previous generations’ great increase in wealth have been replaced with structures designed to conserve realised gains. In this week’s blog post I will explore the ways in which current political and economic structures benefit the old at the young’s expense.
According to statistics from the US Census Bureau (table 19) 37,5% of Americans under the age of 35 own a home whereas 75,1% of 45-55-year olds own their home. In England in 2017-2018 the average homeowner was 57 years old, according to the Ministry of Housing, Communities and Local Government. This creates obvious opposing interests in different age groups when it comes to housing policy. The older you are the more likely you are to own your home and therefore a higher pace of building homes would be against your interests as a greater supply of homes would likely lower the value of your home, whereas young people would stand to gain the most from a higher pace of homebuilding as it makes the barrier to entry for the housing market lower. A high rate of homeownership has been one of the most important ways in which previous generations have built their wealth. As housing prices have increased over time and as mortgages force the mortgage taker in to saving in the form of amortisation homeowners have been able to save more due to lower housing costs than if they were renting while automatically investing in an asset with a non-zero rate of return. When a generation of young people has to rent their homes due to a lack of affordable housing for first time buyers robs today’s youth of one of their parents’ avenues to wealth while at the same time creates a system of wealth transfers from young to old as older people are more likely to own rental property.
Another arena in which there are obvious diverging interests among generations is Quantitative Easing (QE), a topic I’ve written extensively about on the blog. QE is a programme where the central bank buys government bonds with newly created money in order to get inflation and economic growth going. QE is a way to lower interest rates and force financial institutions to invest in riskier assets which as it happens greatly benefit those with mortgages and those who own assets which tends to be those who have had time to save and invest, i.e. the older generations. Lower interest rates makes it cheaper to have debts and drives up the home prices as people can afford to borrow more which, as we’ve established, benefits those who owns homes at the expense of those who don’t which quite neatly lines up against age. Similarly, QE makes bonds less exciting investments by increasing prices which in turn lowers yields, this benefits those who own bonds which tends to be pension funds, and it benefits those who own stocks as funds shift from owning bonds to owning stocks. The more time you’ve had to work and save the more tends to have more assets, be that in the form of real estate, bonds or stocks and QE generally drives up the prices of all three of those asset classes, and as asset prices increase so too does the barriers to entry to investing.
I’d like to shift from the economics to the politics of policies which benefit the old at the young’s expense. In many liberal democracies the average age of democratic representatives is somewhere in the 50’s or even 60’s which makes politicians far more responsive to the problems of the older generations than the problems facing the youth. Couple this with the fact that turnout tends to be higher in older age groups and it becomes clear that the election winning strategy is to propose policies which benefit middle-aged middle-class voters. Both QE and not building enough affordable housing are policies which actively exacerbates intergenerational inequality and cements a system where your economic fortunes are to a fairly large extent is based on your parents’ class. This creates a hereditary apartment owning class as most young people can’t afford an apartment in the big cities without the help of their parents, assuming their parents have the resources to be able to help them. This problem is unlikely to be fixed as long as the average voter, which as we’ve established tends to be middle-aged and middle-class, is more concerned with how policies affect their wallets than the futures of the younger generations. I believe the reason why some politicians dismiss millennials and gen Z’s as lazy or irresponsible is not deliberate but caused by a genuine lack of understanding of how the young think and what we value.
Finally, the most widely discussed reason for why intergenerational relations are poor is the environment. It’s easy to become nihilistic about climate change when we hear about how fast the amazon is being cut down or how much plastic there is in our oceans, and it doesn’t help that young people feel that it’s up to us to fix it as previous generations are sometimes seen as not having taken responsibility for their actions. Two of the most common solutions to the climate crisis one hears is a form of idealistic techno-optimism or a comprehensive rejection of modern lifestyles. Either people tend to places their hope in innovative green solutions, the idea that new more eco-friendly technology will enable us to continue our current lifestyle without the environmentally destructive externalities, or the idea that everyone must radically change their lifestyles from the current decadence to a less convenient lifestyle which isn’t as taxing on the environment. Both of these perspectives frustrate the young however, as both place great expectations on the young. It’s the young who have to invent the technologies which can save the planet, implicitly making us responsible for the potentially disastrous consequences should we fail. The view that we have to change the way we live is also frustrating as we have to make do with a lower quality of life for the sins of our mothers and fathers.
Intergenerational relations are poor as the young are faced with a system which is less egalitarian and less responsive to their needs than their parents did at that age, while at the same time it seems that the old can’t see the structural disadvantages young people face and therefore presume the young’s failure to live up their standards as being due to character rather than circumstance.
If you liked this post please share it with a friend or boomer who needs to understand that times have changed. If you want to read more of my writing, you can find the rest of my posts here. If you disagree with me the best place to tell me I’m wrong is on Twitter @ipolecoblog. Please return next week for a new blog post!
Written by Karl Johansson, Founder of Ipoleco
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