Un­bur­den­ing the Face­book gen­er­a­tion

Financial Mirror (Cyprus) - - FRONT PAGE -

Once again, young peo­ple have got­ten the short end of the po­lit­i­cal stick. The out­come of the United King­dom’s Brexit ref­er­en­dum is but another re­minder of a yawn­ing gen­er­a­tional di­vide that cuts across po­lit­i­cal af­fil­i­a­tion, in­come lev­els, and race.

Al­most 75% of UK vot­ers aged 18-24 voted to “Re­main” in the Euro­pean Union, only to have “Leave” im­posed on them by older vot­ers. And this is just one of several ways in which mil­len­ni­als’ eco­nomic fu­ture, and that of their chil­dren, is be­ing de­ter­mined by oth­ers.

I am in my late fifties, and I worry that our gen­er­a­tion in the ad­vanced world will be re­mem­bered – to our shame and cha­grin – as the one that lost the eco­nomic plot.

In the run-up to the 2008 global fi­nan­cial cri­sis, we feasted on lever­age, feel­ing in­creas­ingly en­ti­tled to use credit to live beyond our means and to as­sume too much spec­u­la­tive fi­nan­cial risk. We stopped in­vest­ing in gen­uine en­gines of growth, let­ting our in­fra­struc­ture de­cay, our ed­u­ca­tion sys­tem lag, and our worker train­ing and re­tool­ing pro­grammes erode.

We al­lowed the bud­get to be taken hostage by spe­cial in­ter­ests, which has re­sulted in a frag­men­ta­tion of the tax sys­tem that, no sur­prise, has im­parted yet another un­fair anti-growth bias to the eco­nomic sys­tem. And we wit­nessed a dra­matic wors­en­ing in in­equal­ity, not just of in­come and wealth, but also of op­por­tu­nity.

The 2008 cri­sis should have been our eco­nomic wake-up call. It wasn’t. Rather than us­ing the cri­sis to catal­yse change, we es­sen­tially rolled over and went back to do­ing more of the same.

Specif­i­cally, we sim­ply ex­changed pri­vate fac­to­ries of credit and lever­age for pub­lic ones. We swapped an over­lever­aged bank­ing sys­tem for ex­per­i­men­tal liq­uid­ity in­jec­tions by hy­per­ac­tive mon­e­tary au­thor­i­ties. In the process, we over­bur­dened cen­tral banks, risk­ing their cred­i­bil­ity and po­lit­i­cal au­ton­omy, as well as fu­ture fi­nan­cial sta­bil­ity.

Emerg­ing from the cri­sis, we shifted pri­vate li­a­bil­i­ties from banks’ bal­ance sheets to tax­pay­ers, in­clud­ing fu­ture ones, yet we failed to fix fully the bailed-out fi­nan­cial sec­tor. We let in­equal­ity worsen, and stood by as too many young peo­ple in Europe lan­guished in job­less­ness, risk­ing a scary tran­si­tion from un­em­ploy­ment to un­em­ploy­a­bil­ity.

In short, we didn’t do nearly enough to rein­vig­o­rate the en­gines of sus­tain­able in­clu­sive growth, thereby also weak­en­ing po­ten­tial output and threat­en­ing fu­ture eco­nomic per­for­mance. And we are com­pound­ing these se­rial mis­car­riages with a grand fail­ure to act on longer-term sus­tain­abil­ity, par­tic­u­larly when it comes to the planet and so­cial co­he­sion.

Poor eco­nom­ics has nat­u­rally spilled over into messy pol­i­tics, as grow­ing seg­ments of the pop­u­la­tion have lost trust in the po­lit­i­cal es­tab­lish­ment, busi­ness elites, and ex­pert opin­ion. The re­sult­ing po­lit­i­cal frag­men­ta­tion, in­clud­ing the rise of fringe and anti-es­tab­lish­ment move­ments, has made it even harder to de­vise more ap­pro­pri­ate eco­nomic-pol­icy re­sponses.

To add in­sult to in­jury, we are now per­mit­ting a reg­u­la­tory back­lash against tech­no­log­i­cal in­no­va­tions that dis­rupt en­trenched and in­ef­fi­cient in­dus­tries, and that pro­vide peo­ple with greater con­trol over their lives and well­be­ing. Grow­ing re­stric­tions on com­pa­nies such as Airbnb and Uber hit the young par­tic­u­larly hard, both as pro­duc­ers and as con­sumers.

If we do not change course soon, sub­se­quent gen­er­a­tions will con­front sel­f­re­in­forc­ing eco­nomic, fi­nan­cial, and po­lit­i­cal ten­den­cies that bur­den them with too lit­tle growth, too much debt, ar­ti­fi­cially in­flated as­set prices, and alarm­ing lev­els of in­equal­ity and par­ti­san po­lit­i­cal po­lar­i­sa­tion. For­tu­nately, we are aware of the mount­ing prob­lem, wor­ried about its con­se­quences, and have a good sense of how to bring about the much-needed pivot.

Given the role of tech­no­log­i­cal in­no­va­tion, much of which is youth-led, even a small re­ori­en­ta­tion of poli­cies could have a mean­ing­ful and rapid im­pact on the econ­omy. Through a more com­pre­hen­sive pol­icy ap­proach, we could turn a vi­cious cy­cle of eco­nomic stag­na­tion, so­cial im­mo­bil­ity, and mar­ket volatil­ity into a vir­tu­ous cy­cle of in­clu­sive growth, gen­uine fi­nan­cial sta­bil­ity, and greater po­lit­i­cal co­her­ence. What is needed, in par­tic­u­lar, is si­mul­ta­ne­ous progress on pro-growth struc­tural re­forms, bet­ter de­mand man­age­ment, ad­dress­ing pock­ets of ex­ces­sive in­debt­ed­ness, and im­prov­ing re­gional and global pol­icy frame­works.

While highly de­sir­able, such changes will ma­te­ri­alise only if greater con­struc­tive pres­sure is placed on politi­cians. Sim­ply put, few politi­cians will cham­pion changes that prom­ise longer-term ben­e­fits but often come with short-term dis­rup­tions. And the older vot­ers who back them will re­sist any mean­ing­ful ero­sion of their en­ti­tle­ments – even turn­ing, when they per­ceive a threat to their in­ter­ests, to pop­ulist politi­cians and dan­ger­ously sim­plis­tic so­lu­tions such as Brexit.

Sadly, young peo­ple have been overly com­pla­cent when it comes to po­lit­i­cal par­tic­i­pa­tion, no­tably on mat­ters that di­rectly af­fect their well­be­ing and that of their chil­dren. Yes, al­most three-quar­ters of young vot­ers backed the UK’s “Re­main” cam­paign. But only a third of them turned out. In con­trast, the par­tic­i­pa­tion rate for those over 65 was more than 80%. Un­doubt­edly, the ab­sence of young peo­ple at the polls left the de­ci­sion in the hands of older peo­ple, whose pref­er­ences and mo­ti­va­tions dif­fer, even if in­no­cently.

Mil­len­ni­als have im­pres­sively gained a greater say in how they com­mu­ni­cate, travel, source and dis­sem­i­nate in­for­ma­tion, pool their re­sources, in­ter­act with busi­nesses, and much else. Now they must seek a greater say in elect­ing their po­lit­i­cal rep­re­sen­ta­tives and in hold­ing them ac­count­able. If they don’t, my gen­er­a­tion will – mostly in­ad­ver­tently – con­tinue to bor­row ex­ces­sively from their fu­ture.

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