A Monetary Remedy for the Mid Life Crisis
Written for and first published in the Financial Times on 30 March 2018.
“The time has come when we boomers are going to have to reach into our own pockets.” That was the view of David Willetts — formerly UK minister for higher education — a few weeks ago.
It sounds as though Mr Willetts was calling for a tax on the over-55s, but he was in fact drawing attention to the more mainstream idea of raising taxes on wealth. But perhaps we should be bolder. Why not raise taxes on the over-55s? It seems like a terrific policy to me, at least until I grow a little older.
We do have age-related subsidies, such as Medicare in the US and state pensions in many countries. The UK government even waives its quasi-income tax, national insurance, when working people pass pension age. But these explicitly aged-based measures are rare.
It is more common to see policies that redistribute between the generations as a side effect of something else. The introduction of higher university tuition fees in the UK — thanks in part to Mr Willetts himself — was designed to fund the expansion of universities at the expense of those who benefited from them. Alas, it also spared anyone who already has a degree while burdening the young with debt.
Then there is housing: tight planning restrictions from San Francisco to London help to squeeze house prices higher. That benefits people who already have houses, and they tend to be older than those who rent.
Low interest rates cut both ways, pushing the price of assets higher, but making it harder for retirees to live off their accumulated savings. Each policy has a differential effect on different generations that is largely accidental.
Perhaps we should be more deliberate about this. But trying to figure out which generation, if any, is more deserving is not straightforward. Should we look at a snapshot, or a life cycle?
The snapshot view is that at any given moment, young people have low-wage jobs and debts, while older people have higher-wage jobs and assets, so we should tend to redistribute from old to young.
The life-cycle view is that at any given age, each cohort tends to be richer than its forerunners, so we should tend to redistribute from young to old. Recently, the young have been worse off either way, which does at least resolve the dilemma.
Another question is whether we should focus on money. That seems natural; money is easy to redistribute. But money is not necessarily what matters most.
Young people have little cash, but they are fitter than the rest of us. They are taut and pert where we are flabby and saggy. And they have yet to have their dreams dashed.
All this becomes abundantly clear when we ask people about how they feel their lives are going. Gallup uses the following question: “Please imagine a ladder, with steps numbered from zero at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally stand at this time?”
Without exception across the continents, people in their late teens and early twenties tend to give the most positive responses to this question. According to young people, young people are doing just fine.
In Africa and ex-communist nations, life just gets worse as you get older. In anglophone countries, the story is more of a midlife crisis then recovery. There is a dip in people’s life evaluations between the mid-twenties and mid-fifties, followed by a marked improvement; I am 44, which puts me right in the middle of the Slough of Despond.
There may be something quite deep behind this. A team including primatologists, psychologists and the economist Andrew Oswald has even found evidence of a midlife crisis in great apes.
A new research paper from Angus Deaton, Nobel laureate in economics, also finds that we are all persistently disappointed by life. Around the world, people tend to feel that in five years’ time they will have climbed a rung or two on life’s ladder, but most of us fail to do so. It is not quite clear why: did we not get as much money, status and sex as we were hoping for? Or did we get the money, sex and status, but found that it left us wanting?
Prof Deaton explicitly takes on the question of redistributing between the generations, more as a thought experiment than a firm policy proposal. Yet even the thought experiment is intriguing. In the US, he finds that the people who would have their wellbeing most improved by a cash injection are the middle-aged, people between their forties and their sixties. Yes, we have money, but we could really use some more.
The young and the aged do not really need money anyway: they are enjoying themselves regardless. Perhaps they could be prevailed upon to give a bit more to us? I will have a word with my father and my children. I am sure a dose of economic analysis will cure them of any doubts.