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Nostalgia and the challenge of ageing

Nostalgia is a beguiling, often sepia-toned wistfulness about a kinder, simpler past. It’s more prevalent the older we get. And advanced economies around the world are getting older.

Nostalgia is a wonderful marketing tool, whether remakes of old movies, thematic recreations of the Olde Worlde or retro-themed sports shoes. The past wasn’t better – lifespans typically were shorter, poverty greater, health more compromised, leisure time shorter – but we don’t remember it that way.

"The past wasn’t better – but we don’t remember it that way."
Andrew Cornell, BlueNotes managing editor

Does it matter? It does when ageing populations begin to skew social and economic policy towards the older generations and away from the younger ones who will inherit not just society but the legacy of previous generations.

This potential conflict was most starkly illustrated in the Brexit vote: while the leave decision was complex, one strand of behaviour was those voting to leave – thereby foregoing the economic benefits and employment opportunities of existing ties with Europe – tended to be older.

Those opportunities for future employment and mobility in Europe were less appealing to the older generation. Meanwhile, the ‘cost’ of Europe was perceived to be the loss of an older Britain.

There were too many immigrants, jobs were gone in traditional manufacturing centres and decisions were being made not in London (elitists but at least British ones) but Brussels (elitists and not British).

This is pernicious nostalgia. The thousand rational voices tracing through the reality of the positive effects of immigration and the inevitability of the decline of some manufacturing (and desirability when it allows British consumers and industry to buy cheaper, better foreign goods) were smothered by an irrational but powerful nostalgia.

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The young inherit the legacy of previous generations. PHOTO: Getty Images

NOSTALGIC MALAISE

We’ve seen this nostalgic malaise in the recent Australian election and of course in the US with the insidious populism of Trump.

Foreign Affairs magazine makes the case in its story on Europe’s Generation Gap: “The continent’s decision-making process is so heavily tilted in favour of the elderly pensioners have preserved their privileges even in the face of stagnating growth, crumbling public finances, and skyrocketing youth unemployment.

“But as the young are pushed to the margins of society, Europe’s gerontocracy is becoming not only financially unsustainable but morally unbearable. Striking a balance between the conflicting interests of the old and the young is therefore necessary to ward off explosive intergenerational tensions.”

Nostalgia is apolitical but it is also a political challenge because our assumption our governments will act in the long-term interests of the country – long term being multiple generations – in reality depends on the votes of individuals at three or four yearly elections.

One powerful debate in the recent Australian election was superannuation policy. Without commenting on the merits of the policies presented, it was clear there was a backlash against changes by those most likely to be impacted by change – the older and wealthier.

This is how democracies work: voters have their own self-interest – hopefully enlightened – and it is the role of political aspirants to present policy which satisfies both an individual’s self-interest but how that self-interest is actually enhanced by broader, longer-term policy which may come at an immediate cost.

Whether it is Australia or Japan or Italy or the United Kingdom, this challenge becomes more difficult as more of the voting population ages and they have both more pressing and shorter term demands on society.

STEER A COURSE

Japan too has faced the political challenge of an ageing population demanding the government steer a course which is more favourable to older people but less favourable to future generations – and the budget.

It’s the political equivalent of the ‘SKIN’ investment model – Spend Kids’ Inheritance Now. Far be it from me to attempt the answer the implicit question the older generation is asking – “I’ve spent my working life paying taxes now I deserve something in return” – but as we know government spending is not an infinite resource.

Nor is policy straightforward. In Australia, the compulsory superannuation regime is designed to encourage self-funding of retirement, ideally removing from future generations the obligation of paying for the post-working lives of the elderly.

A key plank in that regime is a tax advantage for superannuation. However, as Professor Kevin Davis from Melbourne and Monash Universities and a committee member on the 2014 Financial System Inquiry has argued, such tax advantages are fiscally corrosive.

That is because as more of Australia’s investment funds are held by superannuants, less and less tax is paid on them over time as more are held in tax-advantaged structures. Good for superannuants, potentially very damaging for tax revenues.

There are contingent challenges in an ageing population for banks and the financial services industry. The standard life-cycle for an individual is to save in their early working life, borrow for a house, business or investment in middle working life, then pay down debt prior to retirement.

During retirement, accumulated funds are gradually consumed for living expenses, holidays and fixing dodgy hips (medical insurance of course being another challenge).

Historically, during the baby boom years, financial systems have evolved to cater very well for the early and middle stages, providing saving, transaction and lending productions. But the shift to post-retirement, particularly with longer life spans, poses an institutional challenge as well.

The “buyer’s remorse” now increasingly high profile in the UK after Brexit belongs to a younger demographic. This more globally focused generation recognises the probable limitations being imposed on their future opportunity.

There is far less recognition by older generations they have voted for something that actually won’t restore the coal mines and steel mills and spluttering Leyland Marinas (mine shed its water cooler on the freeway).

The benefits of modernity tend to be taken for granted - the amazing power of a smart phone, the cheapness and relative ease of international travel, the vast improvement in false teeth technology. But the ‘costs’ loom large.

Behavioural psychology and economics provides one frame of understanding around why people may act in their short term but not long term interests or why they might actually act in a way intrinsically contrary to how they believe they are behaving.

The field recognises, contrary to classical economics, humans are not rational agents but have social, cognitive and emotional biases. Three traits in particular standout, what behavioural economics calls heuristics – essentially simple rules of thumb, often too simple; frames – stereotypes, anecdotes, direct experience; and market inefficiencies – insufficient data, irrational decisions, information asymmetries.

The disappearance of traditional industries, the sense others are doing better out of a new society, changing neighbourhoods, exaggerations on social media, these all contribute to decisions based on narrow (or even false) self-interest.

But to lament societies were better informed, more enlightened or more considerate of future generations in the past is to fall victim to more nostalgia. They weren’t.

Elites may have been granted more direct power and may have used that power to make longer-term policy decisions better informed by science or expert advice. But that is not an argument to give elites more power.

That’s the challenge of an ageing society in more open democracies: the demands of the ageing are no less legitimate and they are going to have greater and greater sway on the outcome of policy.

It is up to those charged with steering society and economies, whether politicians or business leaders or scientists - or even talking heads in the media - to recognise the old ways are no longer working.

Andrew Cornell is managing editor at BlueNotes

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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