Winner of the New Statesman SPERI Prize in Political Economy 2016

Thursday, 9 June 2016

Those angry baby boomers who want to Leave

Flip Chart Rick looks at the generational divide in the EU referendum. Support for Brexit peaks in the 65-74 group, but is high in the 55-64 and 45-54 groups. [1] People in this ‘baby boom’ generation have on average seen rising prosperity, both in terms of private and public goods, over a period in which we have been part of the EU. If they own a house, they have seen its price rise substantially. They have pensions younger generations could only dream about. Rick asks why is this generation so angry, but you could equally ask why are they so ungrateful? As one former Prime Minister, who tried to join the EU [2] but was turned down, might have said: relative to their parents or children this generation never had it so good.

But is support for Brexit really such a puzzle? The last eight odd years have not been so good. Real wages have seen a record fall. Public services, and particularly the NHS on whom pensioners particularly depend, has seen sharp cut backs and in recent years clearly deteriorating services. So people who have known better might naturally ask what has gone wrong.

Now pretty well all of those reading this will think the answer to this question is obvious. It was the financial crisis and austerity. And pretty well all of those reading this will have a university degree, which means you are overwhelming likely to support Remain (source):


But supposing your only sources of information are the tabloid press and the broadcast media. You have been told by your government that funding for the NHS has been protected. The media hardly mention the financial crisis these days. Instead the newspapers you read tell you that the real problem at the moment is the large increase in immigration over the last decade, and this comes from freedom of movement in the EU. Politicians and the media seem to agree that this is a very important problem: immigration is hardly ever described in positive terms, and when it comes to refugees they are seen as a threat. You do not have that much contact with immigrants yourself, but some of the things you read about in the papers … Here is the breakdown of Brexit support by newspaper readership:

Newspaper readers tend to be old: 77% of those who read the Mail are 45+. The old are also the most concerned about immigration. And amidst all the claim and counter claim in the media about the economic effects of Brexit, one point seems blindingly obvious: you cannot control immigration from the EU when you are part of the EU.

[1] Among those 75+ support for Brexit is lower than in any of those groups. Could this be because they were around when Europe was not at peace?

[2] Then called the EEC

15 comments:

  1. SWL you are a great defender of the establishment. But surprise, surprise, you are a neo-classical economist. You believe in comparative advantage. That's what you were taught. Immigration increases GNP (per capita) which raises workers wages (in both the home and foreign country - right?) That is of course how the world works.

    Who do you think is going to be adversely affected by free movement of cheap labour - university educated or non-educated people? So who are going to not support free movement? Who is going to be more articulate in expressing their case? Who is really representing these people? You can bet that most non-university educated people are so marginal to the political process that they will not even register to vote even though they have the most at stake.

    A clever thing the establishment has also done is conflate EU immigration with Syrian refugees. (Brexit supporters are xenophobes against immigration.) Syrians are not from the EU. Syrians and other non-EU immigrants are actually discriminated against, very severely, because of EU free movement rules. (Thank goodness Germany is doing the right thing, because Britain most certainly isn't.)

    The people most affected by this vote are actually going to lose both ways. If they win they will continue to have to compete with relentless inflows of cheap labour from the East. If Brexit loses, they can look forward to EU protections being not replaced by a Tory government. JD Sports wins both ways.

    You can understand Corbyn's ambivalence.

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    1. «bet that most non-university educated people are so marginal to the political [ ... ] If they win they will continue to have to compete with relentless inflows of cheap labour from the East.»

      But that's all just as planned. The enlargement of the EU to countries like Romania (never mind Poland) with wages that are 1/10th those of the core countries was pushed forward energetically by the UK government (New Labour!) who also ensured that the UK was almost the only country without a waiting period for immigration from the new members, just to make sure everybody understood. The UK government even pushed UK consulates in those countries to advertise jobs in the UK and to help immigrants relocate to the UK, sometimes even with high targets being set as performance objectives for consular staff.

      The goal was openly declared and was to be against wage-inflation, keeping wage increases low or negative despite a hugely inflationary credit and money policy for most of the past 30 years, so that the inflationary effects would apply mostly to asset prices and not to wages or prices of goods and services.

      One major goal that was openly boasted about was to push down the cost of running the NHS while demand on it was increasing because of an ageing native population.

      The UK government policy was essentially one of replacing at least part of the native, "bolshie", northern, somewhat politically active, expensive working class with one that was much cheaper, and was intimidated by language and cultural barriers, and cannot vote.

      The joint New Labour/Conservative policy has succeeded spectacularly, except for a few of snags:

      * The native, "bolshie", northern, expensive, etc. working classes have whined a lot, but that matters little as they have become even less politically relevant.

      * Being EU citizens even Romanian immigrants are entitled to some protection of the law like a minimum wage and minimal benefits funded by the taxes and NI they pay. Every middle class southern englander knows instead that immigrants from ex-Commonwealth countries would be far more desperate, and would eagerly accept much lower wages, minimum rights, and worse working conditions, as they already do so in Dubai etc.

      * The polish etc. immigrants instead of keeping to monocultural ghettos out-of-sight of the native middle classes have tended instead to mix in and upset those middle classes with their cultural foreignness; plus their deference for their superiors is as not as deep as that of a wallah would be.

      Plus many are still angry that their parents were the top dogs of a vast empire, and resent being just the USA proxy in the EU.

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    2. I don't Professor Lewis' particular philosophical bent, but from what I have read it's not Neo-Classical. Neo-classical's generally don't complain about austerity hurting the economy, like he has done for quite some time. Austerity is everywhere and anywhere a good thing to a Neo-Classical.

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    3. You can understand Corbyn's ambivalence, and of colleagues who still wish to prevent parts of England going the way of Scotland. It is the weakest of arguments to say worker's rights woud not exst if not for the EU. Would Tony Blair not have legislated? And who was Barbara Castle? Why educated elites believe if the facts were known etc. London is very different to the East Midlands for example. The media have not created the difference?

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    4. «particular philosophical bent, but from what I have read it's not Neo-Classical.»

      Well, his philosophical bent is indeed unclear to me, but his position in Economics is apparently clearly declared: an "Old New Keynesian", that is a believer in Real Business Cycles (the purely neoclassical idea that all markets at every moment clear optimally so government taxation and spending reduces optimality) except that during periods of depression some kind of "frictions" reduce the self equilibrating properties of the markets by reducing the incentive of the rich to produce, and governments must act to counteract those "frictions", usually by giving large amounts of handouts to the most productive citizens, that is the rich, and then prosperity will trickle down.

      «Neo-classical's generally don't complain about austerity hurting the economy, like he has done for quite some time. Austerity is everywhere and anywhere a good thing to a Neo-Classical.»

      Not if it is austerity that reduces the income of the most productive citizens, that is the rich, as that reduces their incentive to produce.

      For example neoclassical Economists are fiercely against austerity caused by policies that cause the incomes of the rich to stop growing, or even worse by taxing the rich, as that punishes wealth creation. Indeed for neoclassicals any taxation on the rich is a permanent austerity policy that reduces production by reducing incentives to produce. Thus New Keynesian neoclassical regard taxes on the rich and wages that are too high as part of those "frictions" that keep depressions from ending spontaneously.

      So the favourite anti-austerity policies of typical New Keynesians are to boost the prices of assets owned by the richer half of the population and reduce the taxes paid by the richer half of the population, via a combination of monetary and fiscal policies that redistribute from the less productive, poorer half of the population to the more productive richer half. For example higher immigration from poor countries and actions against trade unions are often regarded as anti-austerity policies by New Keynesians because by helping to contain or reduce labour cost inflation they mean higher incentives for business proprietors to expand production.

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  2. Will this referendum result represent the "settled will" of the UK electorate when it does not allow expression of committed support of the idea of a united Europe? Those (perhaps baby boomers who have experienced good fortune and are frustrated that it is denied to their grandchildren) may not wish to support the status quo of kleptocratric corporate politics in both the EU and UK, which would result from a Remain majority.

    Once Article 50 is invoked - following a majority in favour of leaving the EU - there will be a 2 year period of deeper introspection and maybe the UK electorate will have a more mature reflection upon the relative values of co-operative risk sharing in the delivery of public benefits than provided by media macro & austerity politics.

    Whatever the outcome of the referendum, do you believe that the UK electorate will be committed to the outcome? If there was a mature debate then it might be possible for a grown up response on the part of the "losers" but I do not think the "settled will" of the UK electorate will emerge until after article 50 is invoked. At the end of the soul searching that this could entail - in the event of a leave majority - I do believe the settled will would not only be to remain but to play a full part without the carping from the sidelines that has characterized the UK 's relationship with the EU for the past 3 decades.

    So not all baby boomers who vote leave can be stereotyped in the manner that you have done. Although it is counter intuitive, perhaps some may vote leave in the hope - in the longer term - of a more committed membership and support for progressive politics in both the UK & EU in years to come precisely to ensure that their grandchildren can also share in their previous good fortune. Short of a revolution how else will the current "culture of contentment" (JK Galbraith) and "surplus repression" (Herbert Marcuse) that underpins our corporate kleptocracy be shaken up?

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  3. Maybe it is all about life experience.
    The more knowledge you have of the EU (measured in years lived in it) the more likely you are to want to leave.
    The more experience you have of life before EU membership, the more you want to leave.

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  4. For boomers, at least those of a conservative disposition, I don't think you can discount 'believe own rubbish about working hard and being self-made' as a reason

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  5. «Support for Brexit peaks in the 65-74 group, but is high in the 55-64 and 45-54 groups.»

    There are 2.2 million retired or nearly retired UK citizens scrounging off the other EU governments, and living mostly in Spain, France, Italy. That's a significant chunk of that age group, and maybe those who remain in the UK are the least enthusiastic about foreigners.

    There is a very funny situation about all those older UK expatriates:

    * They get completely free healthcare and other welfare benefits scrounging off their host governments, under a reciprocal arrangement embedded in the EU treaties; since they also earn lower-ish pensions they pay far less taxes and national insurance contributions to their host governments than workers.

    * The EU citizens living in the UK are almost entirely young workers, who make a much smaller use of the NHS and anyhow pay for it with work related taxes and NI contributions.

    * If the UK vote to Leave, those reciprocal arrangements will be cancelled, for sure.

    * That won't affect most of the existing EU immigrants to the UK as they pay in tax and NI contributions more than they cost, so it would be impossible to deny them the use of the NHS and other benefits, not being charges on public funds on a net basis.

    * But it will also mean that those large numbers of UK citizens who are older, and most health spending and benefits are for older residents, and live in the EU will have to pay either huge amounts for private healthcare and other benefits, or come back to the UK and raise costs on the NHS and the UK benefit budget.

    That many, many UK expatriates to the EU scrounge off their host governments and would have to start paying private healthcare costs and give up any other benefits is an angle that is not being discussed much...

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  6. «They have pensions younger generations could only dream about.»

    BTW I have discovered that few people understand this fully.

    The baseline for pensions is that if one wants to work for 40 years, like 25-65, and be retired for 20 years, like 65-85 (and women tend to many fewer years and be retired for several more years) one needs to save 50% of their total pay to live during retirement on career-average earnings (not final salary, and without survivor benefits).

    Investment income might help, but not much: counting on *risk-adjusted*, *after-inflation* investment income of 2% means that one might get with saving only 30-40% of total pay. And that assumes that income never stops, there are no periods of unemployment or illness during which income disappears.

    That arithmetic is inevitable.

    For another way of arriving at the same conclusion currently an annuity costs that pays inflation-proof income costs around 30 times yearly income. That is it takes 30 years of 100% saving to get a pension equal to income in work, or 15 times for a pension equal to 50% of work income, or around 30-40% of a 40 year working career.

    That means that if you live off say £30,000 taxed income, you need around £15-20,000 or tax-free saving *on top of that* (for a total "gross" pay of £45,000-50,000) every year for 40 years to buy a £900,000 annuity at 65 that pays a pension of £30,000 a year (around 60% of your "gross" pay).

    The arithmetic above is inescapable.

    But people at or near retirement age today never explicitly saved 30-40% of their "gross" pay, so how comes so many of them are living well in retirement? Two reasons:

    * Unions negotiated pensions that cost around 30-40% of "gross pay", that is a union worker on £30,000 apparent income did in fact get around £15,000-£20,000 in extra pay as "invisible" pension contributions, paid for by businesses by increasing product prices, or in higher stock market returns, both squeezing the standard of living of workers in non-union businesses.

    * People who bought property 30, 20 or even 10 years ago were effectively guaranteed by the government investment income of 100% per year (simple, not compound) on their cash savings, redistributing from poorer workers to richer proprietors. This has meant that for property speculators currently in or near retirement have had no need to save £15,0000-£20,000 a year because house price increases have "saved" that for them, savings "donated" by the poorer persons that would buy that house later.

    What the people who are getting the benefits of those 30-40% of pension savings mostly made by others for them want is something the EU cannot give them: much cheaper servants.

    A retired or nearly retired voter who has a nice old-style pension and owns a property in the South, and who needs a gardener to cut the grass and trim the hedges, or a carer to take them around, or a cleaner to tidy up and clean their 3-4 bedroom suburban property, are very resentful that the EU prevents them from importing and hiring desperate, obedient, senegalese or somali or paki or burmese servants paying them £2-3 pounds or less per hour, with no benefits or rights, something that their affluent friends who expatriated to Dubai or Bahrain can enjoy very much.

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  7. The most obvious effect of (UK) immigration would be on house prices (given very inelastic supply of housing in UK). You would think that old people, being net sellers of houses (in an OLG model), would be most likely to favour immigration.

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  8. Baby boomers who were 'hippies' when they were young tend to become 'yuppies' later in life. Those in the 45-54 age group were schooled in Thatcherism. They are all ungrateful. Ungrateful for the easy start in life and ungrateful for the lifestyle that unsustainable deregulation funded them for in the 1980s. Since the financial crisis (as a direct result of this) the chickens have come home to roost. They are frightened of loosing everything and the EU is seen as a clear and present danger. 'Polish plumbers' are not the issue; its their middle class children and grandchildren who are unpaid inturns or saddled with University debt but unable to get a decent/job. Those who advocate Brexit are not addressing the fact that education which is no longer 'free' is the issue which is crushing UK and individual prospects, personal debt is ingrained in our culture rather that being feared and looked down on as it used to be.

    If we stay in then we move toward an EU superstate. Merkel et al will use the vote as the opportunity. Immigration and pressure on public services and the environment will become more acute. Ironically, this will escalate if we leave as those who wish try to get to the UK as the window shrinks. The Right of the Tory party will be in further ascendancy (although the so called moderates have hacked away at the welfare state along with the Liberal Democrats) and draconian cuts to the Welfare State will become the norm.

    Yes, you've guessed it. Without a major change in the way we do things the UK is screwed whichever way it goes.

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  9. It's the immigration. They don't want to become an Islamic colony. They don't want Sharia law and women wearing hijabs. Europe is forcing Muslim asylum seekers down their throats; enough!

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  10. "Angry white voter" is typical of the clever typecasting by the Establishment. Clearly they are completely out of touch. This sort of condescending talk and hubris is what has always kept the English class system and inequality in place.

    Perhaps it is time you get into communities and talk to people about why they are concerned about migration instead of making all these assumptions. Perhaps your evidence is not really giving you the full picture? We have had millions unemployed in this country for years - well before austerity; they should be employed -even it it is in unskilled professions. There are reasons they are not - and it is not down to laziness or ineptitude.

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  11. I think that most of the immigration fuss is completely created by the print media - if they had not been carping on about it (presumably as part of their strategy to sell papers) then I am sure that the British public would not be too fussed about immigration - after all, whenever you hear someone who is anti immigration interviewed (or in my own conversations with people) about their views they typically admit that they do not have any negative experience of immigration themselves, but then refer to benefits claimant stories and creeping radical islam that they have had force fed to them by their daily paper. It's the print media, that's all. Unfortunately the most malignant and difficult to overcome force in Britain today.

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