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fond of pointing out, the Iroquois, an American-Indian tribe, has, as a part of
their Great Law, the idea of Seven Generation Sustainability. Every decision
has to be taken in the light of its effects on the next seven generations. At
the moment the FRFG is a small operation and Tremmel says there is not enough
activity elsewhere. But he is sure the idea will spread as the young realise
how much they have been expropriated by the old.
This, as Tremmel says, is a confrontation that is only just beginning. We are
used to class wars, but are facing an inter-generational battle. Realising
their predicament, the young will want to fight the expropriations of the old.
Avner Offer welcomes this. He sees it as a way in which the political market
can offset the baleful effects of the economic market. In the end, he points
out, the old can‘t go on stealing from the young for ever. "How can the old
seize everything? The young will rebel... They‘ll simply go on strike."
This will mean the boomers will have to be deprived of some home comforts.
There are any number of ways of doing this. Gordon Brown‘s 1997 raid on the
pension funds might just be the beginning. One obvious way would be a massive
liberalisation of the housing market by allowing new building on an
unprecedented scale. This would slay the idiot god by driving down house prices
and, of course, it would impoverish millions of boomers. Unsurprisingly, this
step is not being openly advocated by any party.
Our leading thinking politician in this area is "two brains" Willetts. He has
a lecture on the issue that, Al Gore-ishly, he takes around the country to
spread the news. He strongly believes we have to focus more on the need of
future generations, but thinks the sting can be taken out of this for the
boomers. "I‘m an optimist. I think we can rise to this challenge. What it
requires is a different way of thinking, of making policies that take account
of the future. The questions of whether we can appeal to anything above the
selfish gene. But I‘m not a reductionist; I do think there‘s more to life than
the selfish gene."
Willetts believes that government must take responsibility. "Government and
society is an inter-generational contract and one task of government is to
maintain that contract so that no one generation exploits the others."
He is pressing for incentives for long-term thinking to be included in the
next Conservative manifesto. "There are several things we are working on: a
regulatory regime for utilities that rewards and encourage investment, a
simpler, more attractive savings vehicle to make it easier for young people to
get started with saving."
As yet, no manifesto decisions have been made, perhaps because the problem is,
as Willets knows better than anybody, highly complex. The question of how
exactly we should value the future is one that evades all academic disciplines,
though the economists have tried very hard to give an answer, notably through
the strange idea of the social discount rate (SDR). If I offer you Pounds 100
now, you know exactly what it is worth. But what if I offered it to you in a
year‘s time? How would you value it? Probably at less than Pounds 100 because,
apart from anything else, you might die or the world might end. So your SDR
involves a reduction in value over time,‘ indeed, this is standard practice.
The UK Treasury applies an SDR of 7% your Pounds 100 is valued at Pounds 93 in
one year‘s time.
Infants tend to apply a staggeringly high SDR. Researchers offered children a
choice of one sweet now or two in the near future. A minority chose two in the
future, the rest applied an instant SDR of 100%. (Unsurprisingly, the prudent
ones were found to do better later in life.)
You might think it would be virtuous to value the future more highly than the
present, and thus apply a positive SDR, making your cash worth more in the
future. But beware. Lenin and Stalin applied a very high positive SDR by
valuing the present as nothing and the future as everything. Millions died
because they had no value.
This dusty aspect of economic theory became urgent with the publication of Sir
Nicholas Stern‘s report on climate change. Stern is one of the world‘s leading
economists and he applied a very low SDR of below 1%, calling for sacrifices
and long-term investments now to ensure the wellbeing of the next generations.
He ran into fierce criticism. "It was a ludicrously low figure," said one
economist, "that would mean present generations would impoverish themselves for
the future. He just did it to make the climate change figures look very big
indeed."
On the other hand, Stern may have just been offering a corrective to the
instinctive boomer view that the future could look after itself as economic
growth would ensure that successive generations would grow richer and their
wealth would outstrip our present concerns. After all, the SDR is arbitrary,
mine is as valid as Stern‘s. It can be anything we want it to be. If we are
selfish, it is high; if unselfish, low. For boomers it has seemed high because
they expect the economic growth they have enjoyed to continue for ever.
Americans, in particular, seem to take this view for granted. In their book
The Coming Generational Storm: What You Need to Know about America‘s Economic
Future, Laurence Kotlikoff and Scott Burns argue that current government
schemes notably Medicare, which provides health care for the elderly are based
on deluded economics and are liable to explode, placing a huge, almost
incalculable tax burden on future generations. The official debt figure of the
US is understated by trillions of dollars.
"The official debt is not really the measure of anything," says Kotlikoff.
"You have to look at something fundamental, which is the generational
imbalance... I realised we were flying blind, we had no idea what our true
generational policy was. We were looking at numbers that had no clothes you‘re
probably familiar with the emperor‘s new clothes story. In current economics
every single institution is looking at the wrong numbers routinely."
Kotlikoff also points to the key political force sustaining these delusions:
the brute boomer power of numbers. "I think certainly the elderly as a group,
when it comes to election day, have nothing to do but vote. You know they‘re
not working, so they‘re a group that gets a lot of attention from politicians
and are well organised because they have nothing to do but organise."
Our position is not quite as bad. Our hospitals aren‘t, on the whole, as good
as American ones, but the NHS does keep costs under control. Medicare, in
contrast, is an open cheque written by the boomers but drawn on their
children‘s account. Also our Treasury does do some inter-generational
accounting that discourages the writing of open cheques. Yet, politically, we
are dominated by the boomer bulge and, culturally, we share the American
fondness of living on credit: spend now so someone else will pay later.
At this point it becomes clear that economics can only describe the symptoms,
the disease itself is political and, ultimately, cultural. As Avner Offer
writes in his book The Challenge of Affluence, "Contracting for the future is
difficult, For example, consumer choice finds it difficult to cope with
providing support for everyone‘s old age. The time gap between consumer
decisions and their consequences is just too long. It is up to politicians to
craft durable commitments for intergenerational transfer."
But how do they do it? At one level, human beings are just bad at thinking
coherently about the future. The great philosopher David Hume said it all in
the 18th century: "There is no quality in human nature, which causes more fatal
errors in our conduct, than that which leads us to prefer whatever is present
to the distant and remote." But, at another level, it seems the boomers are
historically bad at planning for or making sacrifices on behalf of the future.
This raises the question: are they a uniquely selfish generation?
No, says Avner Offer, we cannot blame one generation, it is simply what has
happened. The welfarist assumptions of the immediate postwar period gave way to
market liberalisation and the cult of the individual. This, in turn, led to
what he calls a "retreat from commitment".
"...in embracing the tide of new rewards," he writes, "cognitive,
occupational, and material, men and women have had to choose, and they have
often chosen the shorter view. In particular, they appear to have given a lower
priority to the longest of horizons, that which transcends the individual, and
extends beyond him and into the future, by means of his or her children."
Individualistic boomers loosened the ties of family and future just because,
in essence, they could do so. The loosening was done with an excess of
enthusiasm amounting to self-indulgence and greed. Qualms were overcome by the
thought that, just as the boomers had been much richer than their parents, so
their children would be much richer than them.
This led to more dangerous developments than just credit-card debts and
stratospheric mortgages. It led to widespread short-termism. Investment payback
times are now calculated in a few years, so all projects are subject to instant
obsolescence. In the European context, Britain is very good at short-term
profits and very bad at long-term investment. In an American context, we are
very bad at incubating businesses. Our venture-capital groups are only
interested in buying existing business; in the US they pursue start ups. We are
also ridiculously indulgent to the insanely short-term ambitions of private
equity operators, complacently watching as they manoeuvre to overthrow
long-established companies. Government is little better. Gordon Brown‘s private
finance initiative scheme is a short-term way off keeping debt off the
government balance, but, one day, someone will have to pay.
At the heart of this short-termism is the deep cultural truth that boomers
have lost the old, philanthropic view of the future. Look at it this way: Sir
Joseph Bazalgette was a Victorian civil engineer who built the Thames
Embankment and London sewers which suppressed cholera. Both are still in use
today. Peter Bazalgette, his great-great-grandson, produces Big Brother. No new
London buildings nor, indeed, sewers are designed to last as long as anything
the Victorians built.
Can the boomers be persuaded to think their way out of their short-termist,
profligate ways? It would be nice to imagine they could. The problem is the
philosophers haven‘t got much further than pointing out that economic devices
like the SDR are meaningless. How can they explain the need for sacrifice?
"We have no theory of ethics involving future generations," says Stephen
Gardiner, a British philosopher working in the US. "And I don‘t like this
notion of sacrifice. If I‘m overspending on my credit card and someone tells me
to cut back, can I say that is sacrifice?"
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