What Happens When Economies Are Unbalanced?

By: M. Gilchrist

A growing conflict all around the world, and specially in the USA, has started to be addressed. This conflict is between the young and the elder in an economic perspective. The elder have become increasingly wealthier than the young. Although this is something that has happened along many centuries, this generation of young adults have been receiving less than their parents when they were young.

This is shown when observing the percentage of 30-year-olds earning more than their parents did at 30. While in 1940 this was about 90% of the 30-year-olds, in the year 2023 it has almost reached lower than 50%. As a result, only 18% of 18–34-year-olds have stated they feel proud to be an American citizen of the USA, while 50% of 55-year-olds and above are proud and happy to be an American citizen. This leads to the growth of young citizens participating in protests and resulting in unhappy and angry behavior.

However, is it just young people who have been suffering these economic indifferences in the USA? While the median home price skyrocketed through the past few years, the median household income does not seem to change as much. From 1985 to 2020 the median home price has increased by almost 80% while the median household income only by 20%. On the other hand, in 1989 the share of household wealth by age was 19% 70+ and 12% 40-year-olds under. In 2023 30% are 70+ and 7% are 40-year-olds and under. Concluding, in less than 40 years there has been a huge transfer.

Why is this happening? People 65+, called baby boomers, are demographically huge. They represent a disproportional share of the voting base, which in a democracy means that their interests will hold more weight amongst politicians. So, politicians will favor their opinion. Furthermore, people over 65 normally have a higher disposable income, which means within the neoliberal economy the market will provide more services towards the elder. Another point is that the capital gains tax has been continuously decreasing, while income tax has been increasing. As older people own more assets they must pay less tax than people who earn a high income. This shift was further exaggerated by the COVID-19 relief program, as the shutting down of the economy prevented young entrepreneurs to thrive and the governments flooded the markets with free money, causing stock prices and house prices to skyrocket. All this while plugging governments into debt, which makes it impossible for them to provide quality public services such as health and education. For example, if the government saves a restaurant from going out of business during the pandemic, it is simultaneously preventing a young, qualified chef from opening a new restaurant.

Joseph Schumpeter’s creative destructivism theory argues that for capitalism to function it is necessary for unprofitable businesses to go bankrupt, so the new innovative businesses can grow. Essentially, what we have created is a socialist economy for asset owners, where the government protects and regulates asset values, while at the same time there is a cutthroat capitalist economy for young people who have yet not been able to purchase assets. This imbalance in the economy has led to a 10-year stagnation in world economic growth.

Finally, for the economy to function we must have balance between the value of labor and the value of assets. Young people must feel they have a chance of becoming the next Steve Jobs or Bill Gates. There is no doubt that this feeling of disfranchisement is a leading cause of teen suicide rates, self-harm and ultimately social disorder. For our democracies to survive we must treat people of all ages according to need.