Capitalism’s ungrateful heirs

house‘If a man is not a socialist by the time he is 20, he has no heart. If he is not a conservative by the time he is 40, he has no brain’. This maxim is attributed to Winston Churchill, and though examining the numbers reveal that the so-called British ‘youth-quake’ did in fact not happen in the 2017 general election, this was simply because the young failed to turn up to vote. Opinion polls are clear: the under 40’s skew heavily to the left. This is the picture across the developed world and has been true for decades. But while previous generations were motivated by misplaced idealism and youthful protest, there is a feeling that today’s youth have legitimately lost faith in capitalism after finding themselves in debt, in low paying jobs and priced out of the housing market.

But as a generation, today’s young stand to inherit the wealthiest societies known to mankind. They will take over the largest capital stock in human history and inherit technology and intellectual capital their parents could not even imagine. They will live longer and healthier lives than any of their forefathers could dream of. It is indisputable that the grievance of the young cannot be based on dissatisfaction with their long-term prospects of health and prosperity.

But while as a generation their prospects may be rosy, distributional issues seem to be at the root of their disillusionment with capitalism. However, conventional income inequality has been dropping across the Western world for the last 50 years, with the biggest decline taking place during the 80’s and 90’s, decades characterized by what the left with derision label ‘neo-liberal’ policies. Measured by the Gini Coefficient, inequality has increased since the financial crisis, but since 2010 has resumed a downward trajectory. So while the young may perceive a generally more unequal society, they are wrong. Of course, the inequality at the forefront of young minds may be of the inter-generational variety. And here they are of course right. No matter how rich one stands to get in the future, one lives in the present and many millennials find themselves in unenviable financial circumstances. But blaming capitalism for this reveals a fundamental misunderstanding. It is largely the result of loose monetary policy pushed by non-market institutions, the central banks, which has inflated asset price, including housing, and discouraged capital re-allocation which could have boosted productivity and increased real incomes.

‘How sharper than a serpent’s tooth it is to have a thankless child!’, laments King Lear in Shakespeare’s play. Indeed, an heir should be appreciative not only of being in line for an inheritance, but of the attributes in his relative that allowed for the accumulation of such wealth. The disaffected young owe their future inheritance to the industriousness, hard work and aptitude of their elders, but more than that they can thank a societal structure that in recent decades has allowed for unprecedented accumulation of wealth. The social order that is about to bestow untold riches upon an ungrateful generation is free-market capitalism. The hope is that this dawns on the unappreciative beneficiaries as they grow older.

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