18 February 2020

Older people reject socialism for a good reason – and it’s not selfishness

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A recent op-ed from the Observer’s Philip Inman makes the point that older voters, including those who are by no means rich, are liable to reject the leftwing radicalism of Bernie Sanders or Jeremy Corbyn. That certainly matters for the prospects of tubthumping socialist types to win national elections – a prospect we have thankfully seen off in this country (at least for the time being).

But there is a deeper point here about the way these politicians frame inequality, with shrieks of how unequally wealth is parcelled out. The top 1% have 50% of everything, the bottom 50% nearly nothing – we must therefore overturn society to rectify that abhorrent injustice.

That analysis falls badly short because it ignores that generational aspect of wealth distribution. Or, to put it more simply, it’s quite natural that older people have a great deal more wealth. People who have paid off their mortgage, topped up their pension fund, are going to have more wealth that those who have not done those things. Another name for this process is, well, life.

Imagine a world in which there is no economic inheritance at all. The same pattern would exist – the young have nothing very much to their names, the old have it all. Because that all is something which is purchased over the course of a life. It’s possible to get a little more technical and talk of the lifetime income hypothesis, of income smoothing – savings are made while working so as to have a crust to eat in retirement – but the basic concept is obvious. Born naked into the world, a couple of decades before earnings start, perhaps 40 years before peak earning capacity. The young simply will have less wealth than those whose savings are at a peak before they start consuming them in their dotage.

And if you look at the statistics, pensions and housing are the major components of household wealth. Of the near £15 trillion the Office for National Statistics records, some £5 trillion is housing (calculated net of mortgage debt, of course) and £6 trillion in pensions. Granny’s antique nest of tables is only £1 trillion-ish and financial wealth – billionaires paying for their yachts by owning all the companies – is £2 trillion or so.

That means the vast majority of wealth is subject to those lifetime effects. The old paying off their mortgages and saving for their pensions. Wealth inequality simply isn’t what the likes of Corbyn or Sanders would have you think it is.

Of course, it gets worse. The student newly graduated has negative wealth, those loans to be paid back. Yet the value of the degrees they have been awarded is not counted, despite the obvious point that it’ll be an asset rented out for decades yet. In fact, human capital – vastly greater than physical in an advanced economy and very much more equally distributed – isn’t counted at all.

And worse – no counting at all is done of any of the things government already does to reduce inequalities. Pensions wealth is only those fully funded private pensions – the fact everyone who’s paid national insurance gets a state pension isn’t factored in. Nor is the value of any other part of the welfare state. Likewise, private housing equity is counted, the value of a secure tenancy at a below market rent is not.

All of this means current estimates of the wealth distribution are using a very partial and distorted measure of wealth, while entirely ignoring lifetime effects The only reason this system is used appears to be that it’s politically convenient to measure this way – convenient for those who wish to have more redistribution.

Which comes back to the older being less amenable to the idea than the younger. True, it could just be that us ancients have worked for it and so think we should be able to keep it. There’s also the possibility that with age comes wisdom – or at least experience.

Those in their golden years now will have been around for the fall of the Berlin Wall in 1989. Will have seen those panoramas of gross poverty enforced by economic stupidity. That is, it’s not just logical for those with assets to be against the redistributions of socialism, it’s rational for anyone who remembers what socialism really means to be against it.

So remember, whatever the millennial Corbynites and the Bernie Bros might tell you, there’s nothing selfish about opposing something that clearly doesn’t work.

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Tim Worstall works for the Continental Telegraph and the Adam Smith Institute