‘Intergenerational conflict’ worsens, Deutsche Bank analysts warn
Young people and their elders don’t always agree, as evidenced by things like “OK Boomer” and Pimco founder Bill Gross. new investment outlook letter who reproaches his son for having had the audacity to get a tattoo.
The Gross vs. Gross feud is unfortunately just the tip of the iceberg that could pose a big problem for the economy at large, according to a new analysis from Deutsche Bank.
In a comprehensive report, the bank warned that the divide between “young” and their elders is a potential powder keg.
“The growing generational gap should be a major source of alarm for investors, financial markets and society as a whole,” wrote Henry Allen and two other DB analysts. “Young people see themselves as the losers on issues ranging from housing to climate change to student debt. “
This anger manifests itself in the election results and is an international phenomenon, with generations often voting en bloc. All of this has important political and investment implications, especially as analysts see the situation deteriorating further in the near term.
There are a lot of grievances. Housing prices remain high and prevent the youngest from having the best real estate opportunities to accumulate wealth as did the older generations. Education costs and student debt have exploded, unlike salaries. The climate crisis was also not addressed in a meaningful way. All of this was made worse by Covid-19, according to Deutsche Bank, which has hurt the younger generations more than the older ones, even though the virus has had the opposite effect.
Another aggravating factor is that people are living longer, which has tipped the scales more against young people, write analysts.
3 ways the problem could play out
Deutsche Bank has described three scenarios that could result from the conflict.
First, asset prices could fall, “closing the generational gap without outside intervention”. A drop in house prices or the stock market could result as older generations sell their homes to finance their retirement. This dynamic would also mean that the labor market would be smaller, which would increase the wages of young workers.
This, according to Deutsche Bank, would be a “natural resolution”, although it potentially has “serious consequences” for investors, as it involves impacts on asset prices. The resolution would calm the conflict because the younger ones could imagine how their generation would succeed.
“However, this relies on a still unknown force to stimulate the global economy,” the analysts wrote.
The second, also with similar “serious consequences”, would be to have elected leaders with redistributionist policies. This would result in upheavals in asset prices, tax systems, and climate policy.
“This scenario becomes more likely towards the end of this decade, as millennial and younger voters begin to overtake those of the older generations,” Deutsche Bank wrote. Analysts say that politicians like Senator Bernie Sanders have yet to win the presidency, but they are a growing force.
Deutsche Bank analysts’ third option, which he sees as Goldilocks, is not built on crisis or revolution, but rather on compromise.
“To avoid both of these scenarios and their serious consequences for asset markets, a gradual resolution scenario can be achieved if policymakers seek to restore balance over time,” the analysts wrote. “This could include policies such as higher taxes on wealth or unearned income.”
In the bank’s view, a society that does not meet the legitimate needs and demands of a large part of its population is heading for serious problems – which has been proven time and time again by countries that have experienced crisis. political revolution and those who have not by tackling the discontented head-on.