Wednesday, 3 October 2012
A baby boomer goes on pension
On the other hand I feel that I form part of a generational betrayal which the democratic force of the numbers of the baby boomers generation is imposing on the next ones. Let me explain.
As the boom of babies born between 1945 and 1965, the decades after the end of WW II, reach pensionable age, the unfunded pension systems of most European states, including Malta, will feel the stress of larger number of claimants and the reducing number of contributors. The ratio between pensioners and economically active contributors will shrink putting more burden on the upcoming generation to keep the system sustainable.
The baby boomer generation has been extremely lucky. We have lived through a period of peace and unprecedented economic development during which the standards of living have increased beyond anything previous generations could aspire. Now the baby boomer generation feels entitled to retire and draw on the social security and public health service benefits for a period much longer than any actuary could have imagined when the contributory systems to such entitlement schemes were initially designed.
This is leaving a legacy of huge public debts and enormous future obligations to subsequent generations. This is the result of short term economic management where development was based on consumption rather than investment, on credit rather than on savings, leading the baby boomer generation to benefit from higher entitlements and lower taxes even during their economically active age.
Furthermore baby boomers benefited from rising asset prices. The property homes they bought with pennies are now worth tens of thousands. Their savings in financial assets have also grown, provided they were carefully managed.
The younger generations now have to take care of the deficit being left as legacy which cannot even be reduced through privatisation revenues as whatever could be privatised has already been privatised. So the younger generation face the prospect of higher taxes to keep the deficit from exploding beyond the point of no return ( somewhere between 90% and 100% of the GDP for most economies other than Japan) and has to suffer austerity measures including reduced entitlement benefits coupled with the need to show more flexibility in their work practices to bolster productivity.
I therefore feel somewhat ashamed that my baby boomer generation, unlike our predecessors who went through great sacrifices - including two world wars in the first half of the 20th century - is not leaving a better world to our successors.
In economic terms what I am going to say used to be considered as a heresy just a few years back. But faced with a dire situation caused by the generational betrayal of the baby boomer generation may be it is worth considering that part of the re-balancing ought to be through toleration of higher inflation. A few years of 5% inflation will do wonders to transfer wealth from the retiring baby boomer generation ( who at our age normally have interest bearing financial assets and no debts) to the economically active younger generation ( who at their age have real assets bought at high prices and financial debts).
May be in the end it is the only way to avoid a general depression where all would be losers.