The Pinch: How the baby boomers took their children's future - and why they should give it back David Willetts - Atlantic Books 2010

I am not sure whether it is safe just now to quote the political journalist Andrew Rawnsley - given all the furore over his book about life at No.10! On the dust jacket of David Willetts's book "The Pinch" Rawnsley says (and it is the only quote on the dust jacket):

"Those aged over 50 now own four-fifths of the nation's wealth. Much of the media may be besotted with the Cult of Youth, but this is truly the Era of the Elder. The over-fifties are now Britain's biggest and richest consumer group. Their numbers are growing. By 2050, more than half of the British will be aged over 50. This will give that age group enormous political clout. Conversely, the proportion of young people in society is shrinking... We could call it the Age War. Or the Battle of the Birthdays. Or the Clash of the Generations. The latter tag is the description of David Willetts, the clever Tory frontbencher who is the only leading politician I've come across who has been thinking intelligently about what is becoming one of the defining features of our society."
(Andrew Rawnsley, The Observer)

Certainly, David "Two brains" Willetts is one of that rare group of front-line politicians genuinely interested in ideas and able to challenge conventional party political thinking. (I guess Frank Field would be another).

Willetts's central thesis is that to get an accurate picture of wealth in Britain today, you should add the pensions pot, savings and investments, and property together. By doing so, he argues UK wealth is split: P76
Under 45s £0.9 trillion
45-65 £3.5 trillion
65+ £2.3 trillion
Excluding pensions in calculating wealth, means it is easy to under-estimate shifts in inter-generational wealth (p75).

Unplanned, Willetts argues, the baby-boomers (those born 1945-1965 - putting him and me in the middle of the baby-boomers) have had a number of lucky breaks:
- High inflation when we were paying off mortgages which made it easier to do so
- Low inflation since, which protects the value of our growing assets
- An unprecedented property market boom
- Generous final salary pensions schemes - now largely closed to newcomers
- Increased longevity and medical advances meaning more active lives for longer too. (p250)
By contrast, Generation X (1966-1980) did not have the benefits that normally apply to a smaller population cohort of increased earning power - because globalisation meant hundreds of millions of Chinese workers kept salaries lower.
Willetts argues that inter-generational equity demands that baby-boomers accept a redistribution of their windfall: "we cannot," he argues, "simply leave to modern science the responsibility for discharging our obligations to the future." (p253)
As Peter Riddell - the distinguished political commentator for The Times, told a breakfast meeting on Feb 23rd, the Willetts book provides an excellent analysis - but it is missing the final chapter - how to achieve this redistribution. This side of a general election, even a free-thinking front-bencher only has so much licence to think!
For me, the other big gap is that Willetts does not explore the implications of increased incidence of dementia in an ageing population - and the fact that older people will need to pay a great deal more for eldercare (despite current politicking around eldercare financing).
As the Financial Times noted in a thoughtful editorial (Feb 22nd):
"Of course, care funding needs reform. But before any party can produce a coherent policy it must address this central question: are the savings that older people have accumulated primarily an inheritance for their family or a source of funding for their own care? The answer to that will set the terms for finding a fair way for those who need care to share with the taxpayer the costs of providing it."
How easy will it be to do this, given the increasing proportion of older voters amongst those choosing to vote: 71% of 54-64 year-olds vote; 75% of over 65s versus an overall turnout of 61% (p.250)
There are plenty of other interesting insights - after World War II, there was a government commission on making better use of older talent in the workforce. Just as in recent years, there was a wave of immigration from Eastern Europe just after World War II.
Unlike in previous recessions, this one has not seen the shedding of older workers - rather the percentage of over 50s in employment in the UK in summer 2009 was the highest percentage since records began "possibly because this is the first recession where the costs of pensions appear directly on corporate balance sheets." (p233) - but perhaps also, Willetts, speculates, because the skills and human capital of older workers may be higher than that of younger workers?
Whilst the ageing population is currently a developed world challenge, countries like China will face extreme challenges because of their One Child Policy - will China grow rich before it grows old? China faces a demographic timebomb: it will be "by 2050 one of the oldest countries the world has ever seen." (p128).
MEDIAN AGES
1950 1980 2009 2050
UK 34.6 34.4 39.7 42.5
USA 30.0 30.1 36.5 41.7
China 23.9 22.1 33.8 45.2
World 24.0 23.0 28.9 38.4

Because your son is your pension in China, with the one-child policy, abortion and infanticide have led to the major imbalance Male: female in the Chinese population. (P243)

David Grayson - Chairman Housing 21