Wednesday, 1 September 2010

The Effects of Intergenerational Debt

With the orgy of spending that President Obama has instigated in America, and a similar monstrosity of spending and debt that has plagued Britain over the last 13 years of Labour government, the focus in the modern political climate of 2010 is that of debts and deficits, and the consequences it will have in the future.

One of the frequent phrases used to describe the magnitude of the spending that has taken place in America and Great Britain is to describe our leaders as loading us with "intergenerational debt" and committing "intergenerational theft".  The concept basically indicates that by spending so much, we are not so much loading ourselves with debt, but instead are loading our children and our grandchildren with debt and misery that they will have to bear.

There is a significant difference between America's debt and Great Britain's debt however, and this difference is one of timescale.  Many commentators and economists speak of the Obama spending binge as one that is currently committing "intergenerational theft" against future generations -  John Couretas has a brief but excellent piece for the Acton Institute in which he describes the many effects of racking up such a debt, as Obama is doing.

However, in Britain the theft has already taken place.  Tomorrow a new book called The Jilted Generation, written by Ed Howker and Shiv Malik, is released.  It analyses how the spending of the baby boomer generation has made life significantly tougher for the new generation of twenty somethings trying to make it in the world.  Robert Colville gives his thoughts in the Daily Telegraph and it is well worth a read.  He points out that it was the baby boomers who had free education, cheap housing and great pensions, but it is the modern generation that will have to pay for it.  Colville points out some interesting statistics on what the spending has caused,
"We were the first generation to pay tuition fees; we left university just as the property market started to soar out of reach; we will spend our working lives paying off the debts and liabilities that our elders have loaded on to the state (which mount up to five times GDP); and at the end of it all, the odds that there will be a decent pension system left to pay for our old age are perishingly small.
You may have seen the recent reports that eight out of 10 young people have to turn to the Bank of Mum and Dad to buy a house. That's largely because, if today's first-time buyers were getting the same deal as their parents had, the average starter home would cost under £100,000, rather than £165,500. If food costs had gone up as fast as house prices over the past 40 years, a battery chicken would cost £47.50. Effectively, say Howker and Malik, the young are transferring an extra £1.3 trillion to their parents via these inflated property prices – so a starter loan is the least they should get in return."
The argument is certainly not clear cut - many have responded to this new trend to "Blame the Boomers" as unfair.  Giles Hattersly argues instead that it is the modern generation at fault, who are spoilt brats with cheap holidays, glitzy phones and a sense of entitlement - Hattersly refers to many in the new generation as "Ipods" - Infantile Posse of Over-indulged Drunks.  Ouch!

Both sides to the argument have merit, but it does not escape the fact that Great Britain is paying a heavy price now for the privilege of living with an exaggerated debt since the early 1970's, and an Obama-esque debt for almost 10 years now.  As a result, an analysis of the problems, both financial and social, that a sky-high debt causes should be of interest to Americans who are wondering what the Obama Administration is doing to the future of the nation.

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