CULLING THE CONTINENT’S ECONOMIC CHILDREN?

The historian Mark Mazower’s excellent book The Dark Continent: Europe’s Twentieth Century chronicles how the objective of building a better society from the ruins of the First World War was swept away by division and bloodshed on an unprecedented scale.  The twenty-first  century offered the hope that the dark continent may be better lit , as its socio-economic development offered the opportunity of progress for all  citizens.

On the eve of the G20 Summit following the EU Summit,  that supposedly will generate the means to end the present global economic crisis, perhaps the participants should be reminded of Mazower’s previous and brilliant book Salonika: City of Ghosts. This monograph charts the history of the city from 1450 to 1950 and in particular the decline and fall of the Ottoman Empire. This was a  tolerant empire in which Christians, Jews and Muslims co-existed in a relatively co-operative way.

The relative lack of wholesale bloodshed in the post Second World War period suggests some parallel between Europe and the Ottoman Empire. The degree of tolerance among Europe’s  citizens seems greater than the two decades before the War, during which the wholesale  culling of certain and significant parts of the populace occurred.  The recent absence of darkness in the world’s seventh largest continent should not disguise its dormant volcanic quality, the explosion of which would cast a pall over all of us.

One can strongly argue that the recent and significant rise in youth unemployment is an example of the inter-generational economic culling of  Europe’s young citizens. The table below (from EUROSTAT) displays a sample of EU economies’ unemployment rates for the 16 – 25  age group and the ratio to total unemployment.  Policy makers speak of a ‘lost generation’ but their prescriptions are hardly likely to dent this disgraceful and tragic situation.

The European Commission’s Europe2020 strategy contains two key priorities out of a  total of seven:

1. “An agenda for new skills and jobs: to modernise labour markets and empower people by developing their  skills throughout their  life cycle with a view to increasing  labour participation and a better match between labour supply and demand, including through labour mobility”, and;
2. “Youth on the Move: to enhance the performance of education systems and to facilitate the entry of young people into the labour market.”

However worthy, these priorities are supply-side responses to a crisis of deficient aggregate demand in one of the world’s richest regions. Moreover, they do little to fulfill the President of the European Commission’s statement that we can’t go back to “business as usual”, following the financial crisis of 2007.  Moreover, Youth on the Move sounds like some dodgy 1970s band whose fondness for a certain Latin American white powder is the only thing that moves them.

There are more fundamental and structural forces at play here. Fiscal conservatives point approvingly to the concept of Ricardian Equivalence that states that existing generations should not incur debt burdens for future ones that cannot be paid for by an equivalent amount of taxation. Yet, there is a serious structural inter-generational deficit in which access to wealth and income are unequally distributed.  This is an often and overlooked component of the rising inequality between rich and poor in the advanced economies.

In the UK, the owner-occupied housing sector is seen as the main root of inter-generational inequity, but there are contingent factors.  The UK has been a traditionally low wage economy, so the wealth effect of increased house prices have been an important part increased income and consumption flows in the future  for those able to exploit this economic rent. Access to higher education with no fees and full student grants are no longer available to the younger generation (see The Sceptical Economist Feeing Up Higher Education for the impact of the new arrangements). The ending of final pension schemes on spurious demographic grounds is another blow for younger generations, who like us all will wither with age.  Limited access to important social and positional goods as well as  to housing-generated economic rents close down a range of opportunities to a large part of the population due to the accident of the year of birth.

The  current British Minister of State for Universities and Science, David Willetts published his book The Pinch: How the Baby Boomers Took Their Children’s Future – And Why They Should Give It Back in 2010,  in which he accuses the generation of  baby boomers  of stealing their children’s inheritance through their dominance of the socio-economic and cultural landscape.

As Willetts was part of the Thatcher administration’s policy unit that oversaw the increased privatisation of self in accessing social goods and the decline in public housing, it is left to the reader to decide about the degree of irony in this book. Furthermore, this is the man who claimed that feminism restricted male access to the labour market.  Moreover, Willets carries the nickname “two brains” for his intellectual prowess in a political party not renowned its intellectual credentials.

There is a solution to inter-generational inequity and it is called the taxation system. Schedule A, the tax on housing capital gains in the UK, was scrapped in 1962. But, presumably Willetts’ other brain would object to reviving this form of taxation on grounds of interfering with the market,  which is presumably why the thresholds on inheritance tax still remain high for large parts of the country.

There are  more dramatic solutions like hunting down everyone over a certain age as in the novel and 1976 film Logan’s Run.  In this perfect world of hedonism of  the 23^rd century everyone over thirty is hunted down and killed in order to maintain equilibrium in resources and prevent over-population. It seems the perfect rational expectations universe that  could be applied today to everyone in Europe over forty-five (the equivalent age below which proposed   reductions in pension entitlements are being set).

Metaphorically, as the European political classes slither from one slippery slope of crisis to more dangerous and steeper ones, this may have a certain appeal. But the socio-economic culling of younger generations does not seem to register with them.  In spite of the EU Summit and the upcoming G20 one, it may seem unfortunate  to those of a biblical persuasion that the global occupation protest outside St Pauls Cathedral is having no Road to Damascus conversion impact on  these policy makers.

At the end of Dark Continent, Mark Mazower writes:

If Europeans can give up their desperate desire to find a single workable definition of themselves and if they can accept  a more modest place in the world, they may come to terms more easily with the diversity and dissension which will be as much their future as their past.

Well  not culling the continent’s economic children is a starting point in embracing  diversity and dissension , otherwise we may start to inhabit a Region of Ghosts as history’s dance around tragedy and farce begins to haunt us again.