As economists, we are used to looking at summary indicators of living standards – income, expenditure, consumption etc. – and comparing them over time. Such measures are indispensable for a holistic overview, but their obvious drawback is that they can only move in one direction at the time, which rarely describes what people experience. Living standards are more multi-faceted than that; they can easily improve in some respects whilst stagnating or deteriorating in others because of changes in the structure of relative prices and wages.
To realise this, we only need to read a book from, say, a hundred years ago, and pay some attention to descriptions of consumption habits. In old books, it is always a big drama when a child tears its trousers, because buying a new pair is out of the question. A pair of shoes or children’s toys are big investments, a roast chicken and a bottle of wine indicate a really special occasion, while foreign travel is at best described as a distant dream. Old novels describe pitifully low consumption standards; they read like something dreamt up at the New Economics Foundation.
But at the same time, protagonists of old books can often afford to smoke like chimneys, and guzzle down pint after pint in alehouses. To someone reading this with the relative price structure of modern Britain at the back of their mind, this will seem like a lavish extravagance. How could those people, who were so poor in some respects, live so large in other respects?
A similar kind of confusion occurs in the current ‘battle of the generations’, or less bellicosely, the argument about whether the ‘Baby Boomers’ had an easier life than ‘Generation Y’. Both sides of the argument can easily come up with examples of things that one generation finds/found easy to obtain, while the other generation found/finds them nearly out of reach. One side argues that the Baby-Boomers could go to university for free and then proceed almost automatically to a lifetime-job, which easily afforded them a nice house, and a salary large enough to raise a family on.
The other side sees young people backpacking through Thailand, handling all kinds of electronic gadgets, dining out regularly, and enjoying leisure opportunities unheard of a generation ago. They remember times when a ‘foreign’ holiday meant holidays in France and when an ‘exotic’ dish meant a pizza.
So both sides can make some valid points, but the truth is not ‘somewhere in between’. Rather, what we see is a number of factors pulling in opposite direction. Overall, living standards have improved vastly. Real median incomes have doubled since the mid-1960s. But aggregates hide a lot of significant variation. The ratio of house prices to incomes has exploded. The wage premium associated with a university degree has declined a lot. And university education has become a lot more expensive at the point of use.
The downsides of these developments fall disproportionately, or exclusively, on Generation Y – but it is nevertheless a mistake to classify them as intergenerational distributional issues. As far as housing is concerned, the problem is not that the elderly have snatched away all the houses; the problem is that planning laws prevent the building of enough new ones. If that was resolved, it would not be a problem if every elderly person in the country owned two, three or four homes.
Student funding, meanwhile, is an intra-generational issue, as the main redistribution stream is not across but within generations, namely from non-students to students. Baby Boomers who went to university could do so for free because they were subsidised by Baby Boomers who did not go to university. Opponents of tuition fees present some valid arguments, but they should not frame this as an intergenerational issue when it clearly is not. The only reason why there appears to be an intergenerational aspect is that fee-opponents use the old university funding arrangement as a rhetorical reference point. They are effectively saying: ‘We must have free university education, because the previous generation had it too’.
It is also true that the skills premium associated with university education has diminished, as a result of the massive increase in the supply of graduates. A university degree ceases to be a guaranteed entry ticket to a well-paid job when so many age-mates have one, too. But again, this is clearly an intra-generational issue, and rhetorical references to how things used to be in former times are not especially helpful.
The only genuinely intergenerational issue is welfare provision. It is true that old-age benefits are currently handled with kid gloves while working-age benefits have come under closer scrutiny. This is because state welfare has little to do with ‘solidarity’, and a lot with a tug-of-war between electoral groups with competing interests. The elderly are much more likely to turn out to vote, to be members of a political party etc. than people in their twenties and early thirties, so the former naturally have a lead in this game. But those who are not happy with those results should argue for a depolitisation of welfare more broadly, especially intergenerational welfare. These issues would be much less conflictual in a system in which most people simply saved during their working life, and used up their savings in old age.
Welfare apart, the battle of the generations is a phoney one, and it is not just unhelpful but actively harmful because it distracts from the real issues. Housing is the starkest example: The very people who should fight the NIMBYs at every turn are ceding the field to them without resistance, because they are too busy counting the spare bedrooms of the elderly.