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Marcin Senderski

marcin@senderski.pl

INVITED DEPENDENCY: ON INSIDIOUS WELFARE STATES

DIFFERENT FACES OF GENERATIONAL CLASHES

Looking at the history of generational clashes in the twentieth century we see clashes of ideals, points of view,

intangible philosophical tidbits and moral complexities. This made it a nice study field for sociologists and even

social psychologists. Hippies, for instance, rejected the bestowed standards and lifestyles of his parents, but it was

more about drugs, yoga, sexual revolution, pacifism and extravagant exterior. Hippies did not care much about

possessions, were pretty indifferent about world’s wealth. A retired hippie Lebowski from “Big Lebowski” stays

smiling even when muggers rush into his shabby flat.

Romantic novels and cinematography are full of images (or is it now a cliché?) depicting youth’s backlash and

revolt against their rich and old-fashioned parents. James Dean starring in “Rebel Without a Cause” contested his

middle-class parents not on the grounds of money, but because of love and friendship he pursued. In “Into the

Wild” we saw an educated young man hitchhiking to Alaska, instead of embarking on a promising career that was

thought to be his destiny. Mentioning literary characters illustrating similar attitudes would triple the size of this

paper.

This time is different though.

Los Indignados, the Outraged, were the forerunners indicating the alteration of this regularity. Although the

cornerstone of the wave of protests that have swept across Europe in the recent years was the contestation of

democracy in its present form, the real premise was economic: rising unemployment among youth and welfare

cuts being the aftermath of the financial crisis. This later radiated to other movements elsewhere, particularly the

Occupy Wall Street protesting against income inequality in the United States. While the average age of the U.S.

outraged was above 30, this demonstration has also been initiated by youngsters. Although occupiers were

frequently embarrassed on the merits of its rally, e.g. by Peter Schiff (2011), and as it turned out, they were much

closer to the 1 percent than they initially claimed (consider “We are the 99%” slogan) with most of them being

college educated affluent white males (Milkman, Luce, & Lewis, 2013), the protest echoed all over the world.

The trick is that despite the enormous wealth of the small fraction of population, the world itself has never been

more egalitarian. The rush for greater consumption is on the increase and most of young people willingly play this

game. The money itself does not constitute a huge dilemma – most of developed economies, through their welfare

state institutions, can make us much better off as compared with our progenitors hundred years ago, even if we

are the laziest people under the sun. However, what is at stake now are not the basic needs, but the excess

money. The money that can be disposed generously on the above-average lifestyle, preferably with as little sweat

and tears as possible.

Our parents, whether living in prosperous postwar economic boom (1945-1971) or the “Great Moderation” (mid-

1980s to 2007), or taking full advantage of communist utopias (not a luxury, but the very rudimentary needs were

secured) before they finally collapsed, or participating in the great spurt of Asian tigers – probably were more

lightly-hearted and less neurotic about their future. Now, Millenials (or Peter Pan generation, as some use this

moniker) face tougher circumstances. Those unlucky graduates who enter the job market during recession must

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come to terms with a fact that it will be very implausible for their lifetime wage to catch up with the wage of their

counterparts who graduated in prosperity (Oreopoulos, von Wachter, & Heisz, 2012).

Thus, the generational clash today is a jealousy-driven harsh fight with very pecuniary interests at stake. Both the

elderly and the youth play high, driven by perfectly understandable egoism. The global community has to search

for modus vivendi that is capable of conciliating the disparate egoisms. The challenge is not to resolve the

everlasting puzzle of whether Appius Claudius was right in saying “every man is the architect of his own fortune”,

or the popular excuse that “it is all about the environment” is more accurate. Certainly, in between of these

extremes there is a multitude of individual cases that are not easy to classify.

Yet a hundred years ago the intergenerational relationships were more complex. With the absence of public

pension system the burden of elderly care rested upon the offspring. As an amateur genealogist, I happen to read

interesting evidence from the past. One of the prenuptial agreement I found, dated 1928, reads as follows:

[…] In return for the bequest, prospective spouses become obliged to provide their parents

[annuitants] annually, until their decease, with five meters of rye, one meter of wheat, 75 kg of

barley, 50 kg of peas, 75 kg of oats, 25 meters of potatoes, 10 meters of firewood, 100 kg of

livestock (pigs), 16 kg of salt, and monthly 1 kg of paraffin oil. Apart from the above-mentioned,

they should support annuitants with fodder and alimentation. They should also permanently

lodge in their facilities one cow and six hens that are owned by annuitants, accommodate

annuitants in their place, and provide them perpetually with properly fertilized and cultivated

farmland and three one furlong-long sections for vegetables and cabbage, and lastly lend

annuitants on demand a horse with a carriage in order for them to be able to visit the market

place or the church. […]

Anyone interested in putting back the clock of history and restore intergenerational selflessness, even if the

contract I partly quoted does not testify well to the intergenerational solidarity? Not very likely.

In the past, children were a form of pension fund. Even if a legal contract had to be written, it was a pretty sure

bet. While it was children’s responsibility to satisfy the needs of parents, Rapoport and Vidal (2007, p. 1243)

convince that now parents are more altruistic in their endowments to offspring. Isn’t it the U-turn in mentality?

Whereas a herd of social thinkers asserts that family ties have become looser, they might have actually tightened,

at least monetarily-wise. Perhaps, observing a financial distress of their offspring, parents are becoming more

empathic? No matter the answer, it would not be wise to rely on a single source of long-term financing.

Economic theories adopting the wrong assumption of families acting as infinite dynasties and exhibiting

intergenerational altruism must fail. Sadly, the Ricardian equivalence and neoclassical growth models have

considerable sunk costs in researching this phenomenon (see e.g. Michel, Thibault, & Vidal, 2004) and it will

probably still take some time before this assumption is forsaken once and for all. What can we put in the vacant

slot after the removal of intergeneration altruism, that may secure sustainable socio-economic development.

HOW MUCH TO WORRY?

All problems that humanity faces call for a clear, bipolar division. By experience we know that technology

advancement – totally unexpectedly and out-of-the-blue – resolves many grievous evils.

But technology advancement will surely not solve the pecuniary problem. It might have tackled the Malthusian

trap, dealt with horse pollution in urban areas and will surely solve transportation pollution one day. Medicine

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might also go forward to the point in which most common diseases will be curable at very low cost. Since medical

expenses consume the vital part of the elderly people’s budget, this may help. But most people exhibit unbounded

needs. A hundred years ago someone could possibly say: “Look, do not worry so much, the world goes in the right

direction and I am sure in several decades everyone will be equipped with enough food and a decent shelter”.

Ticked. And? We now have much more sophisticated wishes that we consider absolutely basic. And I do not really

see the technological component in providing pensions. Printing money? Overrated and, till recently, outdated.

Why is the present generational clash hard to tackle? There are three reasons why it will exacerbate in the

developed economies and why the reformatory enthusiasm to mitigate this process is crucial:

Political system: democracy promotes shortsightedness. Harmful and austere reforms, even

advantageous in the long-term, cause public dismay and fall through. Governments avoid courageous

steps. The vicious circle of democracy appears to excel in magnitude the virtuous circle that, we believe,

exists too.

Demographics and lifestyle: people live longer, but fertility is on decline.

Welfare state dependency: the weakest point of today’s societies are their vested interests in the

currently prevailing and overwhelming social safety net with numerous privileges.

Whose turn is it then? We definitely need a policy response to the problems above. Democracy is unshakable sine

qua non for our societies and there may be no serious discussion about its alternatives. But the impact of

demographic trends and welfare state dependency may be cushioned, gradually but successfully.

Still, the state-citizen relationships are always complex. Similar to the driver on the road, who has to follow the

rule of limited trust with regard to other road users, future pensioners should restrict the trust they repose on

government. When I was doing my ethical course for investment professionals, I was taught that long-term U.S.

Treasury bonds are the only financial instrument that may be defined as zero-risk asset. Today, I would not be so

decisive about it.

No matter how robust the national accounts seem to be, they may change dramatically in the twinkling of an eye.

What was once described as “economic miracle”, soon experienced a painful turnaround, only to mention

Argentina, Ireland, Japan, Spain or Four Asian Tigers at the end of 1990s. Moreover, the governments enjoy a well-

earned fame of tax-hungry pickpocket-style institutions which are activated in consequence of a major

macroeconomic turbulence. Countries like Poland or Hungary had nationalized the private pillars of their pension

systems in order to pay off the contemporary debts (Tatala & Roeder, 2013).

No solution is bulletproof. Therefore, the option not so much to circumvent, but surely to supplement fragile

governmental promises, is to get a grip on reality again and open individual savings or investment account.

Obviously, merely saying that individual savings are desired will prove futile. This is why the government is not

deprived of its driving role here. It should roll up its sleeves to promote the virtue of individual responsibility. It

should also reward individual pension savings, e.g. through tax reliefs.

While Stéphane Hessel wrote “Indignez-vous!” in 2010, I would rephrase this invocation to “travaillez-vous!” There

is no clear evidence that outrage helps in achieving welfare, and there is undoubtedly much to support the motion

that working hard pays. But hard work has recently suffered from quite unfavorable publicity. The anti-capitalist

movements try to leverage on the media news related to the death of German intern in Bank of America (Kennedy,

2013) or a young copywriter who died after tweeting: “30 hours of working” (Gorman, 2013). Naturally, it is a bad

investment if you die because of working long hours. But in Japan it happens every day, and – as I once learnt from

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my professor of Japanese economy – karōshi (death from overwork) may sometimes become a source of personal

pride (posthumous, though). This is extreme, but it also shows that some of us are quite far from work ethic.

Looking at the complexity of intergenerational accounting, one is tempted to resuscitate the classical liberal

American model, when do-it-yourself attitude prevailed in almost every aspect of life, including the financial life.

This pathway is closed, but in order to avoid the foreclosure of states, the philosophy of welfare state institutions

requires a major overhaul.

REFERENCES

Gorman, R. (2013, December 18). Copywriter dies after tweeting about working 30 hours and energy drinks blamed. Mail Online. Retrieved from http://www.dailymail.co.uk/news/article-2525584/Copywriter-dies-tweeting-working-30-hours-energy-drinks-blamed.html

Kennedy, M. (2013, November 22). Bank of America intern died from epileptic seizure in shower, inquest told. The Guardian. Retrieved from http://www.theguardian.com/business/2013/nov/22/bank-intern-moritz-erhardt-died-epileptic-seizure-shower

Michel, P., Thibault, E., & Vidal, J.-P. (2004). Intergenerational altruism and neoclassical growth models. Frankfurt am Main.

Milkman, R., Luce, S., & Lewis, P. (2013). Changing the subject: A bottom-up account of Occupy Wall Street in New York City. New York.

Oreopoulos, P., von Wachter, T., & Heisz, A. (2012). The Short- and Long-Term Career Effects of Graduating in a Recession. American Economic Journal: Applied Economics, 4(1), 1–29. doi:http://dx.doi.org/10.1257/app.4.1.1

Rapoport, H., & Vidal, J.-P. (2007). Economic growth and endogenous intergenerational altruism. Journal of Public Economics, 91(7-8), 1231–1246. doi:10.1016/j.jpubeco.2007.01.001

Schiff, P. (2011). Peter Schiff at Occupy Wall Street. USA: ReasonTV. Retrieved from http://www.youtube.com/watch?v=kGdH7iGNqlY

Tatala, M., & Roeder, F. (2013, December 11). How The Hungarian Disease Is Spreading Across Central Europe. Forbes. Retrieved from http://www.forbes.com/sites/realspin/2013/11/12/how-the-hungarian-disease-is-spreading-across-central-europe/