28/10/17: Income Inequality: Millennials vs Baby Boomers

OECD's recent report, "Preventing Ageing Unequally", has a wealth of data and analysis relating to old-age poverty and demographic dynamics in terms of poverty evolution. One striking chart from the report shows changes in income inequality across two key demographic cohorts: the Baby Boomers (born at the start of the second half of the 20th Century) and the Millennials (born in the last two decades of the 20th Century):

Source: http://www.oecd.org/employment/preventing-ageing-unequally-9789264279087-en.htm.

The differences between two generations, controlling for age, are striking. In my opinion, the dramatic increase in income inequality across two generations in the majority of OECD economies (caveats to Ireland and Greece dynamics, and a major outliers of Switzerland, France and the Netherlands aside) is one of the core drivers for changing perceptions of the legitimacy of the democratic ethics and values when it comes to public perceptions of democracy. 

You can read more on the latter set of issues in our recent paper, here: http://trueeconomics.blogspot.com/2017/09/7917-millennials-support-for-liberal.html.

The dynamics of income inequality for the Millennials do not appear to relate to unemployment, but rather to the job markets outcomes (which seemingly are becoming more polarized between high quality jobs/careers and low quality ones):

In other words, where as in the 1950s it was sufficient to have a job to gain a place on a social progression ladder, today younger workers need to have the job (at Google, or Goldman Sachs, or other 'star' employers) to achieve the same.

Thus, as low unemployment swept across the advanced economies in the post-Global Financial Crisis recovery, there has not been a symmetric amelioration of the youth poverty rates in a number of countries:

In 25 OECD countries out of 35, poverty rates for those aged 18-25 are today higher than for those of age 65-75. Across the OECD, statistically, poverty rates for the 18-25 year olds cohort are on par with those for of 76+ year olds cohort, and both are above 12 percent. 

There is a lot that is still missing in the above comparatives. For example, the above numbers do not adjust for differences between different age groups in terms of quality of health and education. Younger workers are also healthier, as a cohort, than older population groups. This means that their incomes should be expected to be higher than older workers, simply by virtue of better health.  Younger workers are also better educated than their older counterparts, especially if we consider the same age cohorts for current Millennials and the Baby Boomers. Which also implies that their incomes should be higher and their income inequality should be lower than that for the Baby Boomers.

In other words, simple comparatives under-estimate the extent of income inequality and poverty incidence and depth for the Millennials by excluding adjustments for health and education differences.

20/7/17: U.S. Institutions: the Less Liberal, the More Trusted

In my recent working paper (see http://trueeconomics.blogspot.com/2017/06/27617-millennials-support-for-liberal.html) I presented some evidence of a glacial demographically-aligned shift in the Western (and U.S.) public views of liberal democratic values. Now, another small brick of evidence to add to the roster:

The latest public opinion poll in the U.S. suggests that out of four 'net positively-viewed' institutions of the society, American's prefer coercive and non-democratic (in terms of internal governance - hierarchical and command-based) institutions most: the U.S. Military and the FBI. as well as the U.S. Federal Reserve. Note: the four are U.S. military, the FBI and the Supreme Court and the Fed are all institutions that are not open to influence from external debates and are driven by command-enforcement systems of decision making and/or implementation. Whilst they serve democratic system of the U.S. institutions, they are  subject to severely restricted extent of liberal checks and balances.

Beyond this, considering net-disfavoured institutions, executive powers (less liberty-based) of the White House are less intensively disliked compared to more liberty-based Congress.

27/6/17: Millennials’ Support for Liberal Democracy is Failing

New paper is now available at SSRN: "Millennials’ Support for Liberal Democracy is Failing. An Investor Perspective" (June 27, 2017): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2993535.


Recent evidence shows a worrying trend of declining popular support for the traditional liberal democracy across a range of Western societies. This decline is more pronounced for the younger cohorts of voters. The prevalent theories in political science link this phenomena to a rise in volatility of political and electoral outcomes either induced by the challenges from outside (e.g. Russia and China) or as the result of the aftermath of the recent crises. These views miss a major point: the key drivers for the younger generations’ skepticism toward the liberal democratic values are domestic intergenerational political and socio-economic imbalances that engender the environment of deep (Knightian-like) uncertainty. This distinction – between volatility/risk framework and the deep uncertainty is non-trivial for two reasons: (1) policy and institutional responses to volatility/risk are inconsistent with those necessary to address rising deep uncertainty and may even exacerbate the negative fallout from the ongoing pressures on liberal democratic institutions; and (2) investors cannot rely on traditional risk management approaches to mitigate the effects of deep uncertainty. The risk/volatility framework view of the current political trends can result in amplification of the potential systemic shocks to the markets and to investors through both of these factors simultaneously. Despite touching on a much broader set of issues, this note concludes with a focus on investment strategy that can mitigate the rise of deep political uncertainty for investors.

18/1/16: Forget Conventional Geopolitics, Demographics is the New Global Conflict Ground Zero

While analysts are worried about geopolitical tensions relating to *hot*, *cold* and *frozen* conflicts of traditional nature, the real Global Conflict is unfolding, slowly-paced, in the realm of demographics.

Here are two key themes underlying it:

Firstly, the ongoing widening of the generational gap, highlighted in my recent talks including here: http://trueeconomics.blogspot.ie/2015/07/29715-retailgoogle-key-trends-on.html. The Generational gap that can be described as the difference between economic power and aspirations of two distinct generations: the post-millenials and baby-boomers.

To see this we can take two examples of views from the baby-boom generation:

• The view of Jeremy Paxman: http://www.dailymail.co.uk/news/article-2055497/JEREMY-PAXMAN-Baby-Boomers-selfish-generation-history.html
• And the view of Edwina Currie: http://www.telegraph.co.uk/finance/personalfinance/pensions/12102364/Hey-youngsters-No-pension-No-home-No-wonder.-Look-at-you.html

The second manifestation is that of the disappearing middle classes, best highlighted by the following series of links covering Pew Research analysis of the U.S. data:

• The shrinking of the U.S. middle class: http://www.pewresearch.org/fact-tank/2015/12/14/americas-middle-class-is-shrinking-so-whos-leaving-it/
• And income impact of the above: http://www.pewsocialtrends.org/2015/12/09/4-middle-class-incomes-fall-further-behind-upper-tier-incomes/
• Including changing nature of demand: http://www.pewresearch.org/fact-tank/2015/12/30/its-no-longer-a-leave-it-to-beaver-world-for-american-families-but-it-wasnt-back-then-either/?utm_content=buffere1c76&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer
• As well as changing social preferences: http://www.zerohedge.com/news/2015-12-24/faltering-faith-losing-hope-rising-charity-15-striking-findings-2015
• Leading to the growing gap between baby-boomers and the millennials:  http://www.bloombergview.com/interactives/2015-millennials/

All of the above concluding with the twin trend of vanishing core generational driver for the global economy: http://www.pewsocialtrends.org/2015/12/09/the-american-middle-class-is-losing-ground/

If you still think conventional weapons and geopolitical power plays are the biggest disruptors of status quo ante, think again.