The baby boomer generation is unique. Never before has one particular generation exerted so much influence on society and the economy.
In Britain the baby boomers are generally defined as those people born between 1945 and the mid-1960s. In 1962, when the Beatles had their first hit, the oldest of the baby boomers were in their late teens. Some were still to be born.
Compare the baby boomer generation with that of its parents and grandparents. The First World War had a devastating effect on a generation. Roughly 16 million deaths occurred as a result of the Great War and over 21 million were wounded. For the UK, there were just shy of one million deaths, or just over 2 per cent of the population. There were around 1.6 million wounded. Then a further 250,000 died from the Spanish ‘flu. This had a pulverising effect on society. The next generation were those born too late to fight in the First World War. Many spent their formative years fighting in the Second World War.
For baby boomers it was different. The sheer scale of their numbers, and the fact that there was no fighting in Britain left them in a dominant position. It was the 1960s. “You say you want a revolution? Well, you know, we all want to change the world,” sang John Lennon. The Goons were superseded by Monty Python. Humour, music, fashion and attitudes to sex all changed. A new generation, born into an age of optimism in a time of peace, but living in fear because of the ever-present prospect of nuclear war, changed society.
Their parents must have been aghast.
But thanks to the proportion of the population it represented, the extent of the baby boomer generation’s influence is without precedent. When they were teenagers, the baby boomers dominated popular culture and dictated fashion to the elders. Today, they still hold sway; now their influence is over those who are younger than they are.
A crisis is in the making. What will happen when the baby boomers have all retired? In Japan, the demographic time bomb went off two decades ago: the Land of the Rising Sun has suffered twenty years of perpetual economic sunset. Japan’s problem of the nineties and noughties will be the challenge of the West in the second half of this decade, the next, and indeed beyond. As McKinsey forecast, by 2056, US healthcare costs will be 100 per cent of GDP.
In mainland Europe the problems associated with ageing of the population are even more urgent. As the baby boomers age, they become less flexible, less willing to listen to new ideas, less willing to change. We all do this as we age. But the baby boomers will never vote for a political party that tells them an uncomfortable truth; and democracies do what the majority requires.
The generation that changed the world has become resistant to change. The generation that gave us revolution has wrapped society in a straitjacket of intolerant tolerance.
See how the baby boomer generation and the need to fund their retirement interact. During the 1980s and 1990s, funding your retirement was easy; stock markets boomed, modest savings multiplied and multiplied to eventually become a substantial sum. When stocks crashed in 2000, rising house prices became the means by which many of the baby boomer generation hoped to fund their retirement.
But that truth is that the only way an economy can sustain a large proportion of its population is via growth, innovation, and rising productivity. If the ratio of the working population to retired population falls, to fund those who are retired, the working population needs to find ways of producing more goods and services from fewer inputs.
The baby boomers face choices. They can save more to fund their retirement, but when most people save more, the result can be less demand across the economy, and falling GDP, which can make it harder to save.
They can hope that the value of their home will rise. But what will happen when this generation retires and downsizes en masse in an attempt to realise all that pent up equity residing in the home? There will surely be an influx of property for sale, pushing down house prices, and making it harder for the baby boomers to realise a profit from the sale of their home.
And what will happen when the baby boomer generation has retired in its entirety? It will have no choice but to live off savings, and that means by definition this generation will be spending more than they produce, and when a large proportion of society does that, the risk is that inflation will shoot up and interest rates will rise sharply.
© Investment & Business News 2013