As the defining voice of a generation, it is no surprise that Taylor Swift should offer such an accurate reflection on the economic prospects of Millennials. As TayTay sings in 22:
“We're happy free confused and lonely at the same time
The magic of the 21st century is that I can pick up my phone and video call a friend on the other side of the world. I can set up a virtual personal assistant who would manage my diary, travel plans and bookings for me. In a decade, I'll likely be able to buy a car that drives itself.
The misery of the 21st century is that home ownership, retirement, a good pension, a garden, free university education and, probably at some point soon, free healthcare are or will be entirely beyond the average Millennial's ability to have or afford.
Technology rich, asset poor – happy, free and confused at the same time. It's miserable and magical oh yeah.
As the report from the Institute of Fiscal Studies says: “Those born in the early 1980s have an average wealth of £27,000 each, against the £53,000 those born in the 1970s had by the same age.” This is big news, for the first time since the Industrial Revolution the next generation might end up poorer than the last one. Just how big a shift this is cannot be underestimated.
Take, for example, government borrowing. As a society, we justify government borrowing (that is spending in the present, that will be paid off by future generations of taxpayers) as morally good because future generations will be richer and therefore better able to pay off the debt. Yet, we are now approaching a defining moment when the next generation (Millennials) is less wealthy than the one before. So we borrow and spend in the present so that future and poorer generations will pay for it. And that is as unethical as it sounds.
Or take pensions as another example – the government and businesses are spending money now to prop up the pension schemes of an older generation at the expense of younger generations. And while that might be justifiable when the older generation was going to be the poorer of the two, such a reality is no longer likely to be the case.
Millennials will have to reconcile themselves to funding the older generation's pension at expense of their own. In the same way, we'll fund yesterday's government spending at the expense of today's. Whatever economic reality awaits us, it's not going to be fair.
And that is likely something we're just going to have to suck up to. The Western consumer culture of buy now and spend later, or short term decision making with no eye to the future was always going to have a stopping point. A generation hit by the mistakes of their fathers and forced to pay twice over to see normality restored. Once to pay off the debts of the past and once again to fund the investment required for the future.
As is to be expected, many will turn against capitalism and turn to varying forms of socialism. The old are already associated with the Tories (triple pension locks being a nice example of the sort of income protection Millennials will never know) and so the mistakes of past generations will be assigned against the economic system they used.
This is also the worst possible conclusion to draw. There is a relatively simple explanation for the economic tragedy waiting Millennials, two explanations really.
The first is for the Europeans among us, a whole generation is currently being sacrificed on the altar of the doomed Euro project. Unemployment rates for young adults in Spain and Greece are eye-wateringly high, forced upon these desperate economies by locking them in to a single currency they should never have joined in the first place. To those young people, the answer is simple – leave the EU and never return. In Britain, we managed this with a Brexit vote, you may have heard of it. It comes highly recommended.
For those in Britain, the explanation rests on the absurdly low interest rates that have been in place since 2007. Times of low interest rates cause asset price bubbles, which is great but only if you own an asset. As asset ownership grows as a function of age, the Millennial generation has largely missed out on this growing wealth. Instead, we get hammered with extremely high house prices, far beyond our ability to afford.
Low interest rates also inhibits savings and lowers return on investments which has caused a major problem for pension investments and for any millennials looking to save up for a house deposit. Deprived of a good return, pension funds need extra funding from the government and from companies. Monies that would go to investment in our future are diverted to top up the promises of the past. On top of that, current pension offerings are downgraded in order to avoid the same thing happening again.
The only positive to extremely low interest rates is that it's meant to cause high inflation and therefore reduce the real value of debt (something which Millennials have a lot of). The bad news is that this inflation isn't happening as the general level of prices has only been growing at less than 1%. The extra bad news is that the prices which are rising affect millennials the most (e.g. rent and the cost of eating out).
Millennials are being screwed, not by capitalism, but by market interference and politics. To resolve these generational issues the remedy is harsh but sure: increase interest rates, see the housing market crash, pick up the pieces and carry on. It would be nasty and in the short term we'd all be poorer but it finally make house prices affordable and be a big step to ensuring better inter-generational fairness.
For those unconvinced, it matters little. Whether we want it to happen or not, a housing market crash appears inevitable. Booms always lead to bust, an economic law as sure as gravity. But if it restores interest rates to normality, lowers asset prices and allows pensions and savings to generate a proper return, it may prove of greatest benefit to Millennials.