Friday, 5 November 2010

X Marks The Spot

When we last wrote about Mr Osborne’s Gamble (that fiscal tightening and monetary loosening will bring us out of recession), we left the issue of politics on one side. If the Gamble fails to work in an adequate time frame, we are unlikely to be able to leave politics out of the equation because this will be the arena in which the consequences of failure will be felt, as President Obama found to his cost this week. It is interesting that the political arena in the UK has experienced a significant long term change this year through the generational rebalancing of British politics.

Over the course of this year, Mr Brown has been replaced by Mr Miliband as leader of the Labour Party and Mr Clegg has moved from obscurity to Deputy Prime Minister on behalf of the Liberal Democrats. There has been no change in the leadership of the Conservative Party. The one thing that all of the current party leaders have in common is that they belong to Generation X, and that they have replaced Baby Boomers as party leaders. We have already felt some of the consequences of this, but far more are to come.

To recap on generations, the Baby Boomers in the UK represent a generational cohort that has almost been a golden generation. They grew up in the rising prosperity in the 1950s, they provided the flower power generation of the 1960s, they benefitted from the great housing inflation of the 1970s and 1980s, and they are currently starting to retire on gold plated pension schemes. They are self-absorbed, self-indulgent, and spoilt.

The children of the Boomers – Generation X – have experienced a different life pattern. They grew up in a world of strikes and three day weeks, of stagflation, of youth unemployment in the Thatcher years, and of a struggle to get onto the housing ladder. They are the original punk generation who have lived a life of low paid and insecure jobs, and who have learned to get by through making the best of a bad job. This ability to muddle through is what the Xers are bringing to the leadership roles into which they are now moving.

One of the great attributes of the Xers is their pragmatism, and this is starting to show though in politics. For example, the Liberal Democrats gave a clear promise in their manifesto not to increase VAT (a UK sales tax). Within weeks of attaining power, that undertaking had been abandoned because of expediency as part of a more general fiscal tightening. Again, each Lib-Dem MP signed a written pledge not to increase Student Tuition Fees. Again, within weeks of attaining power that pledge was abandoned in the name of fiscal pragmatism. The Boomers accuse the Xers of not keeping their word, which they haven’t. However, this does not prick the Xer conscience because the situation warranted this change of heart.

When we take this thinking to Mr Osborne’s Gamble, we can speculate that if the gamble doesn’t pay off, then the policy will be changed – in short order – to a policy that does work. The most likely candidate would be that the fiscal tightening will not be tightened as hard as originally planned. There are lots of areas in which the policy can be reversed. Many of the spending cuts will adversely affect the Boomers, who are now flowing into the ranks of the retired.

As these parts of the public sector are cut back, the Boomers will howl with rage like children who have had their toys taken from them. For example, there was an absolute furore when it was suggested that free bus passes for all retirees – irrespective of their wealth or income – be removed. The Boomer sense of entitlement was outraged at this suggestion, which was made in the cause of saving public spending. There is likely to be more of this in the near future, particularly as local government works out which areas of the public sector to retreat from. Politically, it would be tempting for an Xer Chancellor of the Exchequer to buy Boomer votes by not pruning so hard if the gamble fails to work as planned.

To our view, this gives shape to Plan B. Renewed Quantitative Easing will provide an early warning signal of the gamble not paying off. If things continue to worsen, then the pragmatic aspect of the present government is likely to come into play to allow for some fiscal easing as well, possibly by spending a bit more on the ageing Boomers.

In this respect, we are fortunate to be surrounded by pragmatic Xers because the last thing we need right now are doctrinaire politicians.

© The European Futures Observatory 2010

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