Tobold's Blog
Monday, May 27, 2024
Being loaded and stingy

The Economist has an article titled: Baby-boomers are loaded. Why are they so stingy? I have trouble believing that this was written by an economist. To me, there is just a simple confusion between cause and effect. Turn the phrase around, and you get "Baby-boomers are stingy. Why are they so loaded?". And the answer to that one should be obvious: The less money you spend over your lifetime, the more money you will have accumulated when you are old.

As the baby-boomer generation is the one born just after the war, we need to consider two things here: The parents of the baby-boomers lived through a war, and educated their children accordingly. And when the baby-boomers were young, and were forming their habits, many of today's luxuries weren't as common as today. Baby-boomer as young people did a lot less air travel than young people today, and they didn't get the latest iPhone every 2 years. Those things simply weren't invented yet, or were unaffordable to the general populace. Everyday life is a lot more luxurious in 2024 than it was in the 1970's, in terms of material possessions and things like entertainment possibilities. Baby-boomers had books, not Facebooks. On the other hand, house prices were at a lower multiple of average earnings. I don't think that baby-boomers are fundamentally different from other generations, they just grew up under different circumstances, and formed different habits as a result of those.

There also isn't a problem with the generation "dying rich". Macro-economically it doesn't make a big difference whether some pensioner is spending all his money, or leaves it to children who then spend it. What makes a difference is how within a generation the wealth is distributed. While there are definitively poor baby-boomers, the social and employment situation in the years where the baby-boomers were earning was less unequal than today. The wealth of the baby-boomer generation is better distributed than that of later generations. While the average millennial has less wealth at the age of 35 than previous generations, the top 10% of millennials have 20% more wealth than the top baby boomers at the same age. Graphs showing aggregate wealth of whole generations are misleading, as obviously both the number of people in each generation isn't the same, and age isn't the same. There is nothing surprising in somebody just around retirement age having more wealth after decades of work than somebody who just started earning. Millenials will be the richest generation in 2050, because the baby-boomers will be dead, and the younger generations won't have had the time to accumulate wealth.

I sometimes get the impression that there is an intentional effort to foster inter-generational economic jealousy in order to create a smoke and mirrors screen shielding us from the real problem. The real problem is economic inequality, and a diminishing part of the wealth created by capitalism going to the people who worked to create that wealth, while an increasing part is going to investors. Passive income is taxed lower than income from work, and wages haven't kept up with the growth of the economy. Higher minimum wages and higher taxes on dividends and capital gains would be the easiest solution. And that would also somewhat equalize the wealth between generations.

You hit the nail on the head with one of your last remarks. If one were to graph the rise in the S&P 500 over the past 50 years and the rise in all wages adjust for inflation (not just minimum wage), the line for the wages looks flat, almost like it's the baseline. The line for the S&P 500 goes up significantly. One did do just such a chart, see link below.

If it's this bad in the US, I can only imagine the chart would be more drastic for other economies. Until people stop spending on everything except on the bare necessities, and/or wages increase to counter inflation, the economy is going to continue to be abysmal. The wealthy obtain more wealth from the market, and the wager earner earns less than ever.
I live in a country that was borderline third world back in 60s 70s and 80s but which has become relatively wealthy today. Back then there was no money, no jobs and the only escape for most people was emigration. Despite this some young people have picked up on the message that "baby boomers" had it easy. The phrase is utterly meaningless in my country. However there is one thing that was better. I think young people had more optimism about the future. Even though things were bad we believed the world could be a better place. Nowadays young people are constantly bombarded with negative messages about the future. I do blame my generation for not giving them more hope.
To be fair, in those those days we were bombarded with the message that we were all going to die in a nuclear war. Or failing that, a population explosion would cause us all to starve. Plus ca change...
> Or failing that, a population explosion would cause us all to starve.

And at the same time, we are being warned that a population collapse will cause the downfall of the civilization.
We laugh at people in medieval times who thought the Apocalypse was around the corner, but nothing changes!
Among many problems with letting inequality get completely out of control, is that eventually it will hurt the entire economy. You can't sell stuff to people that can only afford rent and food. Part of the reason that there is so much wealth available to get re-concentrated at the top now is that sane economic policies made the middle class prosperous in the 50s and 60s. A healthy middle class is absolutely essential to being a developed/ prosperous country.

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