Deflation - Inflation - Hyper Inflation & Interest Rates Questions?

zagfles

Another_Saver said:

zagfles said:

Another_Saver said:

This is so interesting, a proper good old debate.
I want to say something controversial just to keep it going.

Well go on then! Here's a few options:

1) There is no intrinsic human right to be better off than your parents

2) Nor to be better off than your kids

3) Everyone alive in the UK today is better off than 99.9% of all humans who ever existed.

4) It's pretty pathetic to be jealous of the 0.1% of people better off than you. Even if they are your parents.

Nothing I have said has expressed envy, entitlement or a lack of gratitude. My point is that when boomers say they've worked for what they have - it has been easier for Boomers to do that in relative terms than any generation before or since. It is a moot point, a nonsense please, itself an expression of entitlement, itself ignorant of the facts and history.

Much economic and social policy is based on a growing economy.

The idea of growth, progress, that things get better - if that isn't what capitalism is for then what is there? It is the promise from one generation to its children, it is the hope and optimism that makes people save and buy houses and join trade unions and vote in elections and care about the world they're in because they believe it can get better, and take away the least bad way we have of measuring that - real earnings growth - and it's easy to see how and why more extreme politics that offers alternatives to the neo-liberal status quo is/was/has been on the rise.

Generational equity in developed economies is still relevant - my life as a Millennial is affected by the world Boomers have created in their self-interest, which my generation will not have the economic or voting power to do until Boomers start dying off in the 2040s and 50s.
Boomers have taken the economy from activity supported by 3 times as my much wealth to activity supported by 7 times as much wealth, yet the taxes coming from wealrh are the same and there are no apparent plans to raise them. The peak birth years for the 60s Boomers were the early-middle of the decade, so by 2030 ish a majority will be claiming the state pension,

and a life expectancy of 85 puts the peak death year at 2050 ish (also the age when helathcare costs spiral),  2030-2050 is when we're going to have to figure out how to make all this work - how to support the biggest retiring generation ever. 

Well you wanted controversy so I gave you some!

Economic progress - of course that's generally what happens, but it's always happened in fits and starts. There is no intrinsic right to be better off than your parents, and the increase between the boomers and their parents it's what's unusual. Not the relative flattening since.

Political power is interesting. You say there been a rise in extreme politics. Has there? The 2017 election may seem to have showed it. But did that suddenly disappear in the 2019 election? And now the purging of the extremists in the Labour party would suggest, as usual, the extremists are just a loony fringe. In Europe, the rise of extremism seems to be mainly a rise in support of far right, anti-immigrant parties, and I would guess that support comes predominantly from boomers, not millenials!

But the 2017 election was interesting and feeds into the political power Willetts was talking about. The main issue it seems that cost Theresa May her majority wasn't the momentum fake news campaign riling young people up for revolution, it was the so-called "dementia tax" proposal. Treating at-home care costs in the same way as care home care costs. It was a threat to boomers' wealth. It was a perfectly fair and reasonable policy, why should people have a charge put against their house if in a care home but not at home? Nobody would lose their home if they were still in it, but the left wing media portrayed it that way.

So it was, ironically, a progressive, redistributive, almost left-wing policy that would have increased intergenerational fairness that cost the Tories their majority. So Willetts seems to be right about political power.

The point about economic activity being supported much more by wealth rather than earnings is definitely a massive issue and really is the thing that screws the young particularly those who get no support from parents or grandparents. Willetts says 20% of boomers own a second home. I'm now going to be even more controversial.

Remember those people at the start of the pandemic who were stripping supermarket shelves of hand sanitiser and then flogging them on ebay for 10 times the price? Buying up something in short supply, something that other people need, and then selling it to them to make a profit? People who do that sort of thing are condemned, aren't they?

What about people who do it with houses? Houses are in short supply. People need houses. Second home ownership pushes up prices and results in young people not being able to afford to buy, so they have to rent off those who bought up the houses and make them a profit. You may say all is fair in capitalism, but then if you complain about the hand sanitiser shelf strippers you're a hypocrite.

Political power of the boomers is stopping the government doing anything about this. People shouldn't be profiteering from buying stuff in short supply, more than they need, in order to profit from it by either renting it to people who do need it or selling it on at a profit. Or even worse, "waste" it by having it as a holiday home which is empty 90% of the time. Willetts says young people are less mobile and are likely to be guilt tripped into living close to their parents in return for that house deposit. But in places like Devon and Cornwall, the opposite happens. Wages are very low in relation to house prices, because of all the houses being bought up by people with wealth, not earnings, moving from places like London, so young people simply can't afford to live in the area they grew up in.

Capital taxes on housing profits are clearly needed. But likely to be an election loser, unless the political parties work together and don't give the electorate a choice...something that won't happen because like with the dementia tax, the left will attack a left wing policy proposed by a right wing party even if they agree with it, if it's in their political interest to do so.

Linton

Another_Saver said:

zagfles said:

Another_Saver said:

This is so interesting, a proper good old debate.
I want to say something controversial just to keep it going.

Well go on then! Here's a few options:

1) There is no intrinsic human right to be better off than your parents

2) Nor to be better off than your kids

3) Everyone alive in the UK today is better off than 99.9% of all humans who ever existed.

4) It's pretty pathetic to be jealous of the 0.1% of people better off than you. Even if they are your parents.

,,,,,,,

Generational equity in developed economies is still relevant - my life as a Millennial is affected by the world Boomers have created in their self-interest, which my generation will not have the economic or voting power to do until Boomers start dying off in the 2040s and 50s.

Let's get some dates right.  The society we live in now was not created by the boomers but rather by the Thatcher revolution of the 1980s and the collapse of much of the industry that formed the basis of the country's economy.  Assuming we take the boomer generation as those born between 1945 and 1970, the first boomer PM was Tony Blair. The last could be Boris. 

But it is always the case that the world the young live in was created by previous generations of people acting in their self interest in the situation they find themselves, with the occasional politician taking a longer term and broader view.  One wonders what future generations will say about the Millenials.

itwasntme001

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

Pensions - you think it's irrelavant that some could leave a job with 20 years service, and a deferred pension of 20/60th of their final salary, and then see inflation reduce that to a third or quarter or less of its real value. OK....

Student loans - they are not real debt. They are a graduate tax, with total taxation including them less than they were in the mid 80's. That is relevant. Decent degrees still get you decent jobs, you don't need a degree for a minimum wage job paying £18k a year today. In the 80's there was no minimum wage, my first job was £1.15 an hour.

Houses - yes this is the main issue. But there is no benefit to people like me whose house has gone up in value. Housing is a cost of living, so that's increased the same as my asset. I'd prefer it if housing was the same real value as when I bought in the late 90s. There was also negative equity people in the 90's had to contend with, the first house I bought in the early 90's had gone down in value when I sold it in the late 90's, I sold for less than I bought. For people with high LTV mortgages, this was a big problem.

There's also a lot of non financial benefits now too. Life expectancy has increased. Diseases like AIDS are no longer a death sentence. You are allowed to be gay, or trans now, with far more rights and far less bigotry. You weren't living with the constant threat of nuclear war that lots of people were convinced was imminent in the 70's and 80s. Technology is now way better, the idea that everyone has a mobile phone was a fantasy in the 80's, also the www, the idea that you can research just about anything from home rather than have to go to a library, even be able to have the debate, in the 80's it would have been letters to a magazine with a 2 month delay between replies! The idea of stuff like video calls, satnavs etc. Safety is much improved in nearly everything, cars didn't even have seat belts in the back seats in the 70's and 80's.

So in terms of quality of life overall, it's far better for kids these days IMO.

Pensions - I am sure there were some people disadvantaged by pension schemes back then.  But the point is that a significant portion of the working population in the 80s were on, what is now seen to be, very generous pensions.  You do not get DB pension schemes or GARs in the private sector any more.  You only get DB schemes in the public sector, as you did back then.  Even now they are making it more expensive (as they should) for each unit of DB pension benefit "earned".  Now in the private sector you pretty much only get DC schemes - massive difference between DC scheme RISKY wealth vs DB scheme RISK-FREE wealth.

Student loans - the point is there is still debt and if you make it easy for the student to "pay it off" by structuring it as a "graduate tax", you make it harder for the taxpayer to reduce its liability (because if the student does not pay it off in its entirety, the degree would have essentially been, at least partly, funded by the taxpayer).  You seem to have ignored my very important point about starting work earlier in the 70/80s compared to now and how much of a benefit that is to the person.  Starting pay is not predictive of future earnings power.  You start a job with no skills but you rapidly gain skills as you work.  Going to do a 3-4 year course at university for the average student does not get you any skills but only debt for the student/taxpayer.  It is only a transfer of wealth from the taxpayer to the university and HMO landlords, nothing else.

Houses - We seem to agree on this but you still point out examples of how things were for your generation but they do not really compare for the younger generation.  Plus it remains to be seen what happens to the younger generation in terms of house prices, interest rates, negative equity etc.

I agree with the rest of your post.  What I say is nothing to do with envy or out of anger.  I personally will set to benefit through gifts and inheritances.  The point I am making is simply this: That there is a significant generational wealth inequality (more specifically the ABILITY to generate it by themselves) between the boomers and millennials.  That is it.

I should add a very significant point that further worsens this inequality.  It is debt.  Debt has been accumulated by a massive amount over the decades.  Both funded and unfunded.  The baby boomers are retiring now so will be in full on consumption mode.  The tax they pay will reduce over time.  More of the tax will therefore have to paid by the younger generation.  The debt picture does not look like it will reverse anytime soon.  It will have to be paid back at some point.  It can only be the young that will pay this back.

itwasntme001

There are some really serious problems in the western world and the UK looks to have dug itself a massive crap hole which it is now in.  We have not invested wisely into productive investments.  We have piled debt on top of debt with nothing to show for it.  We seem to only be relying on a rentier based system where housing and banking are the only areas one can extract anything from.  Meanwhile it is all just backstopped by the taxpayer.  Nothing is ever done as it should because of politics.  It is a great shame.

We have a lot to learn from the East.  Even Japan, despite its "lost decades" has had, since the "bust", pretty good productivity of 2% a year (1% GDP growth / 0.98 [-2% decline in working population] ).  We've gone nowhere since the GFC.

AlanP_2

"But the 2017 election was interesting and feeds into the political power Willetts was talking about. The main issue it seems that cost Theresa May her majority wasn't the momentum fake news campaign riling young people up for revolution, it was the so-called "dementia tax" proposal. Treating at-home care costs in the same way as care home care costs. It was a threat to boomers' wealth. It was a perfectly fair and reasonable policy, why should people have a charge put against their house if in a care home but not at home? Nobody would lose their home if they were still in it, but the left wing media portrayed it that way."

Don't know about the left wing media but I do recall the outcry in my in-laws Daily Mail, so it may have been more about the media pandering to their audience rather than focusing on a sensible discussion of the issue and a point of view based on facts (I can dream on with that one I know).

zagfles

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

Pensions - you think it's irrelavant that some could leave a job with 20 years service, and a deferred pension of 20/60th of their final salary, and then see inflation reduce that to a third or quarter or less of its real value. OK....

Student loans - they are not real debt. They are a graduate tax, with total taxation including them less than they were in the mid 80's. That is relevant. Decent degrees still get you decent jobs, you don't need a degree for a minimum wage job paying £18k a year today. In the 80's there was no minimum wage, my first job was £1.15 an hour.

Houses - yes this is the main issue. But there is no benefit to people like me whose house has gone up in value. Housing is a cost of living, so that's increased the same as my asset. I'd prefer it if housing was the same real value as when I bought in the late 90s. There was also negative equity people in the 90's had to contend with, the first house I bought in the early 90's had gone down in value when I sold it in the late 90's, I sold for less than I bought. For people with high LTV mortgages, this was a big problem.

There's also a lot of non financial benefits now too. Life expectancy has increased. Diseases like AIDS are no longer a death sentence. You are allowed to be gay, or trans now, with far more rights and far less bigotry. You weren't living with the constant threat of nuclear war that lots of people were convinced was imminent in the 70's and 80s. Technology is now way better, the idea that everyone has a mobile phone was a fantasy in the 80's, also the www, the idea that you can research just about anything from home rather than have to go to a library, even be able to have the debate, in the 80's it would have been letters to a magazine with a 2 month delay between replies! The idea of stuff like video calls, satnavs etc. Safety is much improved in nearly everything, cars didn't even have seat belts in the back seats in the 70's and 80's.

So in terms of quality of life overall, it's far better for kids these days IMO.

Pensions - I am sure there were some people disadvantaged by pension schemes back then.  But the point is that a significant portion of the working population in the 80s were on, what is now seen to be, very generous pensions.  You do not get DB pension schemes or GARs in the private sector any more.  You only get DB schemes in the public sector, as you did back then.  Even now they are making it more expensive (as they should) for each unit of DB pension benefit "earned".  Now in the private sector you pretty much only get DC schemes - massive difference between DC scheme RISKY wealth vs DB scheme RISK-FREE wealth.

I'll take these one at a time to avoid long posts...

Pensions - the DB schemes in the 80's were not "RISK-FREE". When I started work in 1987, the company had a DB pension scheme which you were obliged to join. In 1988 the govt changed the rules, a sort of "pensions freedom", where companies weren't allowed to force you to join/stay in their scheme, you could go with a private one if you wanted (but no company contributions if you did).

Many people opted out of the company scheme. HR organised meetings we had to go to where they were desparate to persude us to STAY IN the DB scheme! So why would people opt out? Were they stupid? No.

Because for someone like me in their early 20's, if I were to leave the company, my pension would be the value I left (eg 3/60th final salary if I'd been there 3 years) and it would only go up by inflation capped at 3%. Anyone looking at the recent history of inflation at that time, and working out what would happen if the past decade's inflation carried on into the future, a pension deferred until retirement age, 40 years later would be practically worthless. So young people at the time, who didn't see a long term future in the company, were right to consider opting out. Particularly as investment returns they could earn in a private pension were 10%+ at the time.

There was also no PPF, so if the company went bust your pension was lost completely. Also companies could take the pension off you for stuff like gross misconduct. So they weren't "RISK-FREE" at all.

DB pensions at the time weren't expensive, otherwise HR would not have been persuading people to stay in the scheme. They did it because it was a low cost way of retaining staff, as people knew they'd take a hit in the value of their pension if they left.

Willetts does however have a good point about the subsequent changes, the improvement in inflation protection, the PPF, rules to stop companies misusing the scheme (Maxwell etc) which combined with lower inflation and lower investment returns, vastly improved the value and increased the cost of DB pensions. The end result being that people who did have decades in a DB scheme did very well, and also of course most private sector companies closing their DB scheme as it became too costly.

But if you take an example of two people, both aged 21 who get a job they only stay in for 3 years till they're 24. One of them got the job in 1987 with a 1/60th DB scheme, and the other in 2017 with an auto-enrollment DC scheme. It's far from certain who'd get the better pension outcome. The risks were/are massive for both of them.

zagfles

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

Pensions - you think it's irrelavant that some could leave a job with 20 years service, and a deferred pension of 20/60th of their final salary, and then see inflation reduce that to a third or quarter or less of its real value. OK....

Student loans - they are not real debt. They are a graduate tax, with total taxation including them less than they were in the mid 80's. That is relevant. Decent degrees still get you decent jobs, you don't need a degree for a minimum wage job paying £18k a year today. In the 80's there was no minimum wage, my first job was £1.15 an hour.

Houses - yes this is the main issue. But there is no benefit to people like me whose house has gone up in value. Housing is a cost of living, so that's increased the same as my asset. I'd prefer it if housing was the same real value as when I bought in the late 90s. There was also negative equity people in the 90's had to contend with, the first house I bought in the early 90's had gone down in value when I sold it in the late 90's, I sold for less than I bought. For people with high LTV mortgages, this was a big problem.

There's also a lot of non financial benefits now too. Life expectancy has increased. Diseases like AIDS are no longer a death sentence. You are allowed to be gay, or trans now, with far more rights and far less bigotry. You weren't living with the constant threat of nuclear war that lots of people were convinced was imminent in the 70's and 80s. Technology is now way better, the idea that everyone has a mobile phone was a fantasy in the 80's, also the www, the idea that you can research just about anything from home rather than have to go to a library, even be able to have the debate, in the 80's it would have been letters to a magazine with a 2 month delay between replies! The idea of stuff like video calls, satnavs etc. Safety is much improved in nearly everything, cars didn't even have seat belts in the back seats in the 70's and 80's.

So in terms of quality of life overall, it's far better for kids these days IMO.

Student loans - the point is there is still debt and if you make it easy for the student to "pay it off" by structuring it as a "graduate tax", you make it harder for the taxpayer to reduce its liability (because if the student does not pay it off in its entirety, the degree would have essentially been, at least partly, funded by the taxpayer).  You seem to have ignored my very important point about starting work earlier in the 70/80s compared to now and how much of a benefit that is to the person.  Starting pay is not predictive of future earnings power.  You start a job with no skills but you rapidly gain skills as you work.  Going to do a 3-4 year course at university for the average student does not get you any skills but only debt for the student/taxpayer.  It is only a transfer of wealth from the taxpayer to the university and HMO landlords, nothing else.

Part 2 - student loans. Yes, there's a point about pointless degrees, blame Blair and his obsession with getting 50% into uni, but not all degrees are pointless and a good degree can give you a better kick start in your working life than 3-4 years of work. Our company's starting salary for graduates is over £30k, they also take on school leavers (at 18, A-levels or BTECs etc) at not much over NMW. The graduates are better paid when they start than the school leavers after 3-4 years in the company.

But the point was really to bury the myth about "student debt". It's not student debt, it's basically taxpayer funded with a graduate tax, and the degrees subsidised most are the most useless ones (as the students are less likely to get a good job and hence pay back far less).

Linton

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

Pensions - you think it's irrelavant that some could leave a job with 20 years service, and a deferred pension of 20/60th of their final salary, and then see inflation reduce that to a third or quarter or less of its real value. OK....

Student loans - they are not real debt. They are a graduate tax, with total taxation including them less than they were in the mid 80's. That is relevant. Decent degrees still get you decent jobs, you don't need a degree for a minimum wage job paying £18k a year today. In the 80's there was no minimum wage, my first job was £1.15 an hour.

Houses - yes this is the main issue. But there is no benefit to people like me whose house has gone up in value. Housing is a cost of living, so that's increased the same as my asset. I'd prefer it if housing was the same real value as when I bought in the late 90s. There was also negative equity people in the 90's had to contend with, the first house I bought in the early 90's had gone down in value when I sold it in the late 90's, I sold for less than I bought. For people with high LTV mortgages, this was a big problem.

There's also a lot of non financial benefits now too. Life expectancy has increased. Diseases like AIDS are no longer a death sentence. You are allowed to be gay, or trans now, with far more rights and far less bigotry. You weren't living with the constant threat of nuclear war that lots of people were convinced was imminent in the 70's and 80s. Technology is now way better, the idea that everyone has a mobile phone was a fantasy in the 80's, also the www, the idea that you can research just about anything from home rather than have to go to a library, even be able to have the debate, in the 80's it would have been letters to a magazine with a 2 month delay between replies! The idea of stuff like video calls, satnavs etc. Safety is much improved in nearly everything, cars didn't even have seat belts in the back seats in the 70's and 80's.

So in terms of quality of life overall, it's far better for kids these days IMO.

Pensions - I am sure there were some people disadvantaged by pension schemes back then.  But the point is that a significant portion of the working population in the 80s were on, what is now seen to be, very generous pensions.  You do not get DB pension schemes or GARs in the private sector any more.  You only get DB schemes in the public sector, as you did back then.  Even now they are making it more expensive (as they should) for each unit of DB pension benefit "earned".  Now in the private sector you pretty much only get DC schemes - massive difference between DC scheme RISKY wealth vs DB scheme RISK-FREE wealth.

Some real data for you: from 2019 DWP report.....
Only 60% of current pensioners have any employer's pension.  Of that 60% the median amount is £9400/year.  So I dont see much evidence that there is a large % of people gaining high incomes from a lifetime of DB pensions, generous GARs etc at a level unattainable by today's workers.

Do you have any authoritative data?

zagfles

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

Pensions - you think it's irrelavant that some could leave a job with 20 years service, and a deferred pension of 20/60th of their final salary, and then see inflation reduce that to a third or quarter or less of its real value. OK....

Student loans - they are not real debt. They are a graduate tax, with total taxation including them less than they were in the mid 80's. That is relevant. Decent degrees still get you decent jobs, you don't need a degree for a minimum wage job paying £18k a year today. In the 80's there was no minimum wage, my first job was £1.15 an hour.

Houses - yes this is the main issue. But there is no benefit to people like me whose house has gone up in value. Housing is a cost of living, so that's increased the same as my asset. I'd prefer it if housing was the same real value as when I bought in the late 90s. There was also negative equity people in the 90's had to contend with, the first house I bought in the early 90's had gone down in value when I sold it in the late 90's, I sold for less than I bought. For people with high LTV mortgages, this was a big problem.

There's also a lot of non financial benefits now too. Life expectancy has increased. Diseases like AIDS are no longer a death sentence. You are allowed to be gay, or trans now, with far more rights and far less bigotry. You weren't living with the constant threat of nuclear war that lots of people were convinced was imminent in the 70's and 80s. Technology is now way better, the idea that everyone has a mobile phone was a fantasy in the 80's, also the www, the idea that you can research just about anything from home rather than have to go to a library, even be able to have the debate, in the 80's it would have been letters to a magazine with a 2 month delay between replies! The idea of stuff like video calls, satnavs etc. Safety is much improved in nearly everything, cars didn't even have seat belts in the back seats in the 70's and 80's.

So in terms of quality of life overall, it's far better for kids these days IMO.

Houses - We seem to agree on this but you still point out examples of how things were for your generation but they do not really compare for the younger generation.  Plus it remains to be seen what happens to the younger generation in terms of house prices, interest rates, negative equity etc.

I agree with the rest of your post.  What I say is nothing to do with envy or out of anger.  I personally will set to benefit through gifts and inheritances.  The point I am making is simply this: That there is a significant generational wealth inequality (more specifically the ABILITY to generate it by themselves) between the boomers and millennials.  That is it.

I should add a very significant point that further worsens this inequality.  It is debt.  Debt has been accumulated by a massive amount over the decades.  Both funded and unfunded.  The baby boomers are retiring now so will be in full on consumption mode.  The tax they pay will reduce over time.  More of the tax will therefore have to paid by the younger generation.  The debt picture does not look like it will reverse anytime soon.  It will have to be paid back at some point.  It can only be the young that will pay this back.

On the debt/taxes point. It depends what taxes are levied on, for instance consumption (VAT), capital (IHT, CGT), property (council tax, stamp duty etc). Remember than taxes on earned income are now at historically low levels, the personal allowance is now much higher in real terms than it was is the 80's, the basic rate of tax is 20%, much lower than in the 80's. NI is a bit higher, but overall taxes on earnings are at an all time low.

Taxes will probably have to rise, but they don't necessarily have to rise on earnings, there is serious talk about capital taxes rising instead (eg CGT). The last decade has shown us that politicians (and mainly Tory ones) are willing to raise capital taxes eg stamp duty on second homes, CGT, big cuts in the pension lifetime allowance, but have been reducing taxes on earnings (big increases in personal allowance).

zagfles

AlanP_2 said:

"But the 2017 election was interesting and feeds into the political power Willetts was talking about. The main issue it seems that cost Theresa May her majority wasn't the momentum fake news campaign riling young people up for revolution, it was the so-called "dementia tax" proposal. Treating at-home care costs in the same way as care home care costs. It was a threat to boomers' wealth. It was a perfectly fair and reasonable policy, why should people have a charge put against their house if in a care home but not at home? Nobody would lose their home if they were still in it, but the left wing media portrayed it that way."

Don't know about the left wing media but I do recall the outcry in my in-laws Daily Mail, so it may have been more about the media pandering to their audience rather than focusing on a sensible discussion of the issue and a point of view based on facts (I can dream on with that one I know).

But you'd expect the right wing media to up in arms about what is effectively a capital tax. You'd expect the left wing media to generally support it. But they saw a political advantage in disingenuously attacking it for political gain. That's the problem, that's why we have no proper care funding policy yet...