Big bang: baby boomers are blowing the future for us all
A reckless post-war generation is not only crippling its children with debt but is the force driving broken Britain
David Willetts
We all know the story. The parents return to find a teenage party has got out of hand and the house has been trashed. Every few months a particularly dramatic episode hits the headlines, complete with a picture of a middle-aged couple standing distraught amid the broken windows left by their children’s Facebook friends.
The image plays to a deep-seated fear that the young will not appreciate and protect what has been achieved by the older generation. But what if, when it comes to the big things that matter for our futures, it is the other way round?
What if it’s actually the older generation, the baby boomers, that has been throwing the party and leaving a mess for the next generation to sort out?
The boomers have concentrated wealth and power in the hands of their own generation. A big cohort — at 17m, bigger than those before or since — they have presided over huge social change and prosperity. Now they are getting old, the bills are coming in, and it is the younger generations who will pay them. We have a good idea of what some of these future costs are — boomer pensions and servicing the debt that the government has built up, to name but two. The charge is that the boomers are guilty of a monumental failure to protect the interests of future generations.
Wealth first: there is about £6.7 trillion of wealth in our country, and my personal rough estimate is that the boomers — those aged between their mid-forties and mid-sixties — own about £3.5 trillion of this, with the older generation owning most of the rest.
This would not matter so much if it were just a repeat of the usual pattern of wealth distribution between generations, in which the young always own less but catch up as they too get older — but it’s not. The younger generation today has much worse prospects of building up wealth in the same way. The ladder has been pulled up. That is the real injustice.
Just how has this happened? Imagine a group of hunter-gatherers in which everything you kill is eaten. Children and the elderly need to be fed out of the surplus caught by the adult hunters.
Over the course of each life everyone is both a contributor and a beneficiary, so the food you catch and the food you consume roughly net out to a balance. Each generation, in this setup, eventually consumes an amount equal to what it produces. Living together in a tribe enables consumption to be spread across lives in this way. This informal contract between the generations is fundamental to the family and society.
Our tribe is stable until some mild winters mean more babies survive infancy. It has a baby boom. What happens?
For a start, more hunters means they can hunt more mammoths. Moreover, the surge in the number of hunters means that there are more of them relative to the elderly members of the tribe who are not hunters. There is a greater feeling of prosperity as each has to distribute less to other members of the tribe.
They can devote more time to cave painting. They can cut back on the frequency of hunting and gather exotic berries that make them feel good at their tribal festivals. It is an age of plenty and of experiment.
Then this big generation of hunters starts to grow old and hands on its spears to the younger generation. There is no avoiding the fact that there are more old ex-hunters to be maintained. So the next generation of hunters finds that more of what it catches needs to be taken for other members of the tribe. Life seems tougher.
There is a final, crucial twist. The clan is run by a democratic tribal council. That big generation therefore has the most votes and power and uses this to protect itself.
Younger hunters face a double squeeze — with more retired hunters to support and more expected from each one of them. They have to spend more time hunting. They want to raise their kids in the same generous way that their parents raised them but it seems harder and as a result they don’t have so many of them.
Our thought experiment shows a society that worked until a big generation came along that took more of what it produced during its prime and then tried to take more from later generations when it was in need.
Maybe the problem was size. Maybe it was the way it used the power that came with its size. But, whatever the reason, the principle of fairness across the generations was broken. And it threatened to break that society.
Now look closely at what’s happening to the boomers and the generations that followed them today, comparing the situations faced by a classic boomer and a 25-year-old.
Our classic boomer aged 50 was at the peak of his earnings, with average net weekly household income of £584, the highest of any age group. Over the previous decade, his assets had shot up, too, from £40,000 to £160,000.
Boomers are likely to have been a member of a good occupational pension scheme. Although it may have closed now, they have built up some pension rights that are inflation-protected with provision for their widow or widower too.
By contrast, the 25-year-old probably had to pay for university education, so he or she started work with heavy debt. He could well have no assets, once debts have been deducted, for another decade at least, longer than any previous generation.
His jobs are likely to be temporary and modestly paid. Thirty years ago, when the baby boomers were entering the jobs market, the biggest private sector employer was GEC. That company is now history and the only significant surviving asset is its pension scheme, to pay final salary pensions to its former employees. Instead, our biggest private sector employer is Tesco. The biggest employer of young people is McDonald’s.
The typical under-35 now owes more than £9,000 in credit card and student debt. Their repayments are more than £200 per month, three times as much as they are saving in a pension. Their chances of catching up with the generation above are low.
We can link these snapshots by measuring the average of when people in Britain do their consuming and the average when we do our producing. Economists take all the consumption going on by adults in one year and work out the average age of the consumer.
Two researchers have done this calculation for contemporary Britain: John Ermisch for the mid-1980s and Martin Weale for early this century. They get a broadly similar answer of an average age of production of about 41 years. So half of our national output is being produced by people aged 41 and under.
We can also measure the average age of consumption. In the mid-1980s this was 46. But it’s now 48 and going up. So half of all the consuming in our country is now done by people aged 48 and over. It is rising as the baby boomers age. This is important evidence — because it backs up my intuition that over the past 20 years Britain has seen a real shift of power and wealth to the baby boomers.
Nothing illustrates the shift more clearly than the boomer response to the house price explosion. About four-fifths of boomers are owner-occupiers. As their homes shot up in value, some years earning more than they did, the boomers increasingly came to think of their houses as not just places to live but their own personal gold mines that could pay for holidays or cars, or be their pensions. Encouraged by the governm