Shiv Malik is a reporter for the Guardian, co-author of Jilted Generation: How Britain has Bankrupted its Youth, and co-founder of Intergenerational Foundation.
Follow Shiv on Twitter: @shivmalik1
Listen to Bright Blue blog editor Jonathan Algar in conversation with Shiv & Borja Bergareche (London Correspondent, ABC Newspaper) at the Royal Institute of International Affairs:
Growth. That all elusive beast whose lack of presence has haunted the chancellor since taking office in 2010. For all Mr Osborne's plans, he's had as much luck finding growth as Essex police have in searching for one (so called) lion.
I'm of course making light of our most pressing economic problem because the only other response to the fact the UK has entered a prolonged double dip recession is to weep. Here's why (and it is worth going back to basics on this).
Simply put, a country like the UK isn't supposed to have good years and bad years of economic growth in equal measure. The norm is supposed to be growth – which has by and large been the case over for well over 100 years. Leaving aside economic efficiencies derived from investment into productivity, the simple fact that our country has increased its population, is meant to increase our output accordingly.
So, the fact that we have a larger population now than we did in 2010, and yet have had zero overall growth is a terrible disaster. The equivalent would be running a factory, adding a few dozen employees and (forgetting the extra expenditure on that new machine in the corner) seeing no improvement in output.
This is a mystery which has been answered by two – increasingly stale – responses. Those on the liberal side of the debate say our previous output was only maintained by mis-allocated credit. In essence we printed money to pay for goods (produced domestically or from abroad) which we could never really afford. The subsequent depression is the inevitable response to the boom, but it will bring us back to a more naturally 'affordable' standard of living. Government should not intervene in the process of deflation.
Those on the Keynesian side of the debate say that what we have is a problem of confidence. People have become unsure of the future and have changed their consumption patterns to fit with an increased lack of security. The government, they argue, should step in and provide security and that this should take the form of printed money handed to where most insecurity lies, the banking sector. Once the banks are secure, they will lend again and demand will once again come on stream and people will start spending and consuming like they once did.
Both arguments have some merit but something pretty central is being missed - an understanding of consumption through the life cycle.
Our population is growing, it is true. But the greatest growth has come from people living longer. Or to put it another way, people aren't dying like they used to. This shift in demography, which has been dramatic over the last 20 years and affected every single western European economy, is little studied.
As my co-author, Ed Howker and I argued in Jilted Generation, an ageing population has not just effected the distribution of wealth by age, but that this re-distribution of wealth, which has occurred through the welfare state (in the form of health expenditure and state pensions) but also through private markets (housing and wages), is having a huge effect on consumption patterns and the realisation of economic demand.
As a recent detailed analysis by the FT has helped further demonstrate this generation of young adults are the very first in 75 years not to have higher living standards than those born ten years previously. This is a trend which has had long term roots.
Added to this, is the fact that much of the squeeze of austerity has been visited upon young adults – whether it is through cuts in the state spending in education and housing benefit, increased rents, deflationary wages, or just plain unemployment.
But it is not just disposable income that is being squeezed today. Government debt, PFI payments, student fees, and increased health and pension expenditure because of an ageing population are all expected to heap a far higher effective tax rates on young adults through their working life.
Worse than that (yes it gets worse), young adults are also insecure. Savings rates for pensions amongst the young are miserably low (largely I'd argue because they don't feel they have the disposable income to pay out). 'Flexible' employment contracts turn out to be plain unstable and ever more young Britons are being forced into the over priced and insecure private rented sector.
With this deadly mixture of insecurity and lack of income comes an inability to take long term decisions including calculated and economically beneficial risks.
What is the effect on young ability to buy long term durable goods, without a secure home in which to put them in? How can they possibly start businesses without a modicum of capital to their name? Where will they find the money and stability to raise families or will this, as we can seen, continued to be delayed?
How, in other words, how will young adults, who in a modern capitalist society are the group with the largest set of potential economic demand - the very sorts of demands that will return us to growth - come to realise these demands – otherwise known as hopes and dreams - over the coming decades?
The answers are there, but unlike the Essex lion, ignoring the problem won't make it disappear.
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