Shane Oliver on the rise of the Millennial left

Via Shane Oliver comes a nice piece on the rise of the Millennial left:

When I was in my early 20s I thought socialism might be the way to go. Two things happened. One I studied economics which led me to the conclusion that socialism/heavy state intervention doesn’t lead to the best outcome in terms of living standards for most. Second, I had the benefit of a trip to the USSR before it and the eastern bloc disintegrated. It must have been Paul McCartney’s faux Beach Boys’, “Back in the USSR” that got me interested!

Sure the history and scenery were fantastic and I like the fact that I saw it before the wall came down – but economically it was a mess. And trying to spend excess roubles before we left the USSR was a struggle (nothing but off chocolate to spend them on). “Socialism” seemed to work a bit better in the Deutsche Democratic Republic – but not really and it was a relief to come through Checkpoint Charlie knowing decent food (McDonald’s) was waiting.

So I ended up gravitating to the centre with the view that the best approach is to allow a market economy with the government providing a good safety net, education and intervening where there are market failures. But a wise man told me when I was young that it’s best to start off on the left when you are young otherwise you will end being like Attila the Hun, as you move to the right as you age. Given the tendency for the young to start off on the left its no surprise to see younger generations favour a bigger role for government in what The Economist magazine has dubbed “millennial socialism”.

Source: Pew Research Center

If the millennials and Gen Z follow the normal pattern they will shift to the right as they age like their forebears. So nothing new! Well maybe but there is a big difference now compared to the 1980s. Back in the 1980s the political pendulum (or technically the median voter) was moving to the right. So my ageing was in tune with a big picture political cycle. Now the pendulum is swinging left. We first looked at this three years ago (see “The political pendulum swings to the left”, Oliver’s Insights, June 2016). Since then it’s become more evident. This note looks at what’s driving it and what it means for investors.

Political cycles beyond elections

Just as the weather, economies and financial markets go in cycles so it is with politics, even beyond standard electoral cycles. This has been clearly evident over the last century:

1930s-1970s – the Great Depression gave rise to a fear of deflation and high unemployment and a scepticism of free markets. The political pendulum swung to the left and culminated in the economic disaster of the high tax, protectionism, growing state intervention and the welfare state of the late 1960s and 1970s that gave rise to stagflation.

1980s-2000s – stagflation and the failure of heavy government intervention gave rise to popular support for the economic rationalist/right of centre policies of the 1980s. Thatcher, Reagan and Hawke and Keating ushered in a period of deregulation, freer trade, privatisation, lower marginal tax rates, tougher restrictions on access to welfare, measures to reign in budget deficits and other supply side economic reforms designed to boost productivity. The middle class didn’t support higher taxes on the rich because they aspired to be rich. This was all helped along by the collapse of communism and the integration of the old USSR and China into global trade. The political pendulum swung to the right and there was talk of “The End of History” with general agreement that free market democracies were the way to go.

2010 – ? – but post the global financial crisis (GFC) it seems the pendulum is swinging to the left again and support for economic rationalist policies seems to be fading if not reversing.

What’s pushing the political pendulum to the left?

This reflects a range of factors, in particular:

  • the feeling that the GFC indicated financial de-regulation had gone too far;
  • constrained and fragile economic growth in recent years;
  • stagnant real wages and incomes for median households;
  • high household debt levels preventing individuals from taking on more debt as a way to boost living standards;
  • rising levels of inequality and perceptions that “it’s unfair”;
  • the perceived failure of the baby boomer generation of political leaders to do much about climate change;
  • examples of big business doing the wrong thing;
  • a backlash against immigration in some countries; and
  • a backlash against globalisation.

Of course, it’s being aided by a dimming of memories of stagflation of the 1970s and its causes and the failures of socialism as highlighted by the USSR (although Venezuela provides a current example). So government related solutions or socialism seem more attractive. Allied to this are economic theories like Modern Monetary Theory (or rather, Magic Mushroom Theory) that contends governments can borrow and spend freely in the current environment of spare capacity globally spurred along by the crazy argument that quantitative easing did not cause hyper inflation and higher interest rates so why should bigger budget deficits.

Of these rising inequality and perceptions of stagnant living standards are the big ones. The next chart shows the Gini coefficient, which is about the best measure of income inequality, calculated on incomes after taxes and transfers. It ranges from zero or perfect equality to one indicating perfect inequality with one household/individual, receiving all income.

Source: OECD, Standardised World Income Inequality Database, AMP Capital

The key point is that there has been a general trend higher in inequality during the past 30 years. This is particularly evident in the emerging world but also the US, UK and Australia. Rising levels of income inequality also appears to have come with increase in wealth inequality. Rising inequality may have been more bearable or “masked” in the 1990s and 2000s as nominal income was rising faster and households took on debt to boost their living standards. But in recent times this has become harder and so rising inequality is leading to a backlash.

The political response

In this environment (often populist) politicians have been able to easily tap into voter anger and argue the case for greater public sector involvement in the economy.

  • This was evident in support for self-declared socialist Bernie Sanders and Donald Trump in the US in 2016 (although Trump’s focus on deregulation and tax cuts look like a temporary deviation right). It’s now even more evident in the Democrats with the Green New Deal (that plans to rid the US of carbon emissions – and planes & cows – in a decade) and 2020 Democrat presidential aspirants adopting variations of Bernie Sanders’ policies, with proposals for wealth taxes and a 70% tax rate for income above $10 million (which is supported by 59% of Americans). It’s also evident in less US public concern about rising public debt.
  • It’s been evident in the Brexit vote in the UK which represented a backlash against globalisation and the left wing turn in the British Labour Party under Jeremy Corbin.
  • In Australia, we are seeing an intensification of the left right divide not seen since 1970s. The ALP is far from the economic rationalist policies of Hawke and Keating. Policies of higher taxes for the “big end of town” (bringing back the Budget Repair Levy and winding back various tax concessions), significantly increased spending on health and education, some reregulation of the labour market and talk of raising the minimum wage to become a “living wage” all suggest a populist focus reflecting a change in voter preferences. The same pressures are also evident in some ways in proposed intervention in the energy sector.


Of course, there are various qualifications to this leftward shift. First, it’s most evident in Anglo countries because it’s here that the swing to the right and economic rationalism was most pronounced in the 1980s and 90s and where inequality is more of an issue. Europe never fully bought into the supply side revolution of Thatcher and Reagan and inequality has not risen much. In fact, France under Macron looks to be embarking on its own version of Thatcherism (with the yellow jacket protests proving nothing more than that Macron is actually doing something) which should augur well for its long-term prospects if Macron stays the course. Second, it’s arguable that if the Democrats are to win the US presidential election next year they have to win the mid-west and a socialist presidential candidate may not cut it there. Third, even many on the left are sceptical of ever larger budget deficits – eg in Australia the ALP has been talking of a stronger budgetary position. Finally, there is an argument that a modest move left is necessary to curb the rise in inequality and so save capitalism – much as Keynesian economics “saved” it after the Great Depression.

But what does it all mean for investors?

The risk over time is that a more left leaning electorate will mean a tendency towards bigger government, bigger budget deficits, more regulation, higher effective top marginal tax rates, less globalisation and tougher rules on immigration in some countries. Or it may just mean a stalling in economic reforms. The risk is that it will act as another constraint on productivity and economic growth and eventually see higher inflation if the supply side of the economy suffers.

It’s worth putting this in context. The swing in the political pendulum to the right and the economic rationalist/supply side policies – of deregulation, privatisation, smaller government, tax cuts, low inflation, globalisation – that followed along with the peace dividend from the collapse of communism and attractively high starting point dividend yields and bond yields created a powerful tail wind that drove strong returns in shares and bonds starting in the early 1980s.

Now the environment is very different. Starting point investment yields are ultra-low for most assets and a reversal of economic rationalist policies in favour re-regulation, higher taxes and more government risk slowing productivity growth and eventually resulting in higher inflation.

The key point is that the powerful tailwind from the economic rationalist policies (deregulation, smaller government and globalisation) is now behind us and is contributing along with a range of other factors to a much more constrained return environment for investors. Our medium-term projection for the investment return from a balanced mix of assets have been steadily declining in recent years and is now running around 6.4% pa, which is down from over 10% a decade ago.

In this environment, there is a strong case to focus on investment strategies targeting the achievement over time of goals defined in terms of returns, investment income or whatever is required and using a flexible approach to do so as opposed to relying solely on set and forget strategies that depend heavily on market-based returns. There is also a case to look out for assets that may buck the trend of constrained returns as support for economic rationalist policies recede. French shares may be worth looking at!

Houses and Holes
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  1. Dear Theoretical People,

    If you don’t like the young moving the (economic) left, then stop crafting Crony policies and cultures that shaft them…whilst gaslighting/blaming them for their aggregate inability to “rise, like you did”…

    • So true.

      Live by the theoretical sword, die by the theoretical sword. Because the Boomers can shaft the younger generation all they like, but eventually they’ll come for the loot one way of the other and turn the tables. It isn’t going to be pretty when a grey army of ex-gaslighters get payback.

    • “Hawke and Keating ushered in a period of deregulation, freer trade, privatisation, lower marginal tax rates, tougher restrictions on access to welfare”

      There is no left. Only fake left.

  2. It appears Mr Oliver has had a lobotomy and grown a spine. Probably has a rather large parcel of AMP shares that need rescuing.
    I bailed him up 2 years ago in Woolies. Expressed my dismay at current levels of immigration. He disagreed. The old hip pocket will do that to you.

  3. Interesting that the list makes only a partial mention of the environment by referring to ‘climate change’. This massively understates what is going on here. Global plastic pollution is at catastrophic levels. Biodiversity is collapsing across nearly all ecosystems and some (such as shore birds, ocean birds, reef systems and ocean/land macro-fauna) is now critical.

    This is the true failing of the global economic system and we can expect some serious thrashing about as the current generation backlash against the mess they have been served up. It’s also interesting that the boomer economists are so obviously elite city bound urbanists that their view of the environment is locked in their experiences 50-60 years ago when they were kids.

    • “boomer economists are so obviously elite city bound urbanists”
      Yup! But isn’t everyone – Banks, Politicians, Lawyers, Government, RBA, Treasury and, most importantly, the media? As a result there is no connection between economics and real resource limits and allocation. Economics sits in its own bubble – like all big city environments. There are no limits to the resources big cities can allocate to themselves destroying rural and regional societies and environments in the process

      • Absolutely. Our current economics does not value nature at all, and as you often point out, leaves the regions high and dry.

      • Diogenes the CynicMEMBER

        No one is interested in economic history Flawse, especially not Economists!

    • Yes. Although, he is having a few bugs with some of his tech his approach is great. Ultimately this is technology issue. A group of us from North Queensland started some clean-ups a few years back and the social commitment to the process was incredible. People want the plastic pollution fixed, small businesses and communities were taking on all sorts of risks to try new technology and to source better products. Big business and the big beverage companies… not so much. Euphemistically, you could say they have a lot of cultural change to embrace.

      • NB. This comment was in response to a post regarding Boyan Slat by someone, that now seems to have been deleted.

    • There seems to be no recognition by these economists that humanity is engaged in a full-on assault on our planetary life support systems, as documented by the Stockholm Resilience Centre

      This is partly due to over-the-top consumption in the rich countries, but mostly because of our sheer numbers. China is now responsible for greenhouse gas emissions that are twice as high as for the US, and it is still the highest emitter even if you exclude production for export. This is not because the average Chinese person is living it up. Population denial is rife, among young people as well.

      Here in Australia, our fertility rate has been slightly below replacement level since 1976, but we don’t need to overpopulate ourselves when we have the environmental vandals in our government to do it for us, and that is far from their only assault on our environment and quality of life. Our loss of biodiversity and mismanagement of water resources are shocking.

      • As a society we have made our choice on growth levels and it is a sustainable to slightly falling population. Yet, we have the vested interests undermining this choice with high growth economics that really benefits only a few.

      • Money creation through the issuing of debt by banks with attached interest payments requires continuous growth and expansion of the economy otherwise the ponzi scheme collapses. Unless the money system changes there will be little change in the destruction of the environment

  4. kiwikarynMEMBER

    What else should one expect from a generation that has grown up never having to work for anything (everybody gets a participation award, there are no winners), with parents who have given them everything they wanted and needed, including using their own homes so their 30 year old kids don’t actually have to do anything as onerous as saving. Socialism is simply replacing their parents with the Government, so chances are they won’t age out of it. They’ve been conditioned to think that there will always be someone to take care of them, give them free stuff, and that actually working hard for something so you can do better than the next guy is an affront to their delicate sensitivities.

      • I hope so, else there is a lot of straw-manning of the Millenials (and younger) going on…

        Don’t want to fail to recognise that the Millenials have “done what they were told” and, shock!, it’s not working the way their Boomer parents said it would…..aha, some digging into how things work….aha! a stacked system….aha, the system should change to NOT shaft us so hard!

        Boomers responses – basically: deny what Millenials say they have realised, and just gaslight them instead.

        That’s a far more accurate narrative.

      • I’ve got no problem with our “generous aged pension”

        But those twats that have millions and are still getting subsidised by working tax payers, that’s a different story.

      • That generous aged pension is 63% of the minimum wage, and the married rate is even less on a per person basis, with some extra benefits from the concession card. Admittedly, Newstart is even worse. The selfish Baby Boomer and feckless Millennial memes have been spread by the politicians and the media at the behest of the very rich and powerful people who really run this country, to divide and rule, and to deflect blame from themselves. These people come in all ages, and their class interests trump any generational issues that they might have. Go for the matador and not the cape.

    • FiftiesFibroShack

      It seems harsh to right off a whole generation as entitled after the previous generations have gifted them expensive education, healthcare, housing and increasingly insecure employment to cope with these imposts. The list goes on.

  5. decent food (McDonald’s)

    Whatever floats your unhealthy boat, Shane.

    USA lacks universal healthcare while Britain has had it since 5 July 1948.

    US millennials are so evil for wanting healthcare!

    Theresa May’s conservative government has announced plans to provide free sanitary pads and tampons to high-school girls in England, following a major social campaign to end the so-called “period poverty”

    Oh no! How terrible is that!

    The New York mansion tax was originally imposed in 1989, and it has never been adjusted for inflation.

  6. The policies of sanders and cortez are hardly socialist policies. You can say they are more left leaning but not socialist which is hard left. One must be careful with throwing around these political terms. Some of these policies dont even go as far left as Germany or Denmark which are center at best.

    • Exactly – what so many people think is “Left” is simply not hard right Crony Capitalism, bordering on Fascism (and increasingly so)…people need to get a clue.

      The truth is that many of the “Lefties” are actually, economically, no further left than Centre, and most are still Centre-Right…

      The ignorance is breath-taking 🙁

    • you think socialist policies are hard-left LOL

      US is now somewhere between far-right (republicans) and centre right (democrats)
      there is no political fraction in US that is more to the right (in economic sense) than republicans

      • I agree with your second point which highlights my argument that people like sanders which is running for the democrats are probably centre right and as a result you can hardly call socialist. Just curious, where on the political spectrum do you place socialism if not far left?

  7. Good analysis of a successful *regulated* capitalist economy, and boom/bust cycles after transition to unregulated free market economy is the documentary ‘Princess of the Yen’ (based on the book of the same name and, amazingly, published before the GFC) –

    It analyses post war Japanese economy with unbelievable growth under heavy regulation of credit and control of cartel like competition by Japan’s Ministry of Finance. Interesting comment by corporation involved in this regulated competition – “If we didn’t have these competition guidelines, we would compete each other to – harakiri”. No economy compares in growth and very soon becomes the 2nd biggest world economy with very good wealth distribution across its society.

    Then by the 80s there is a push for less state control, and the US style free market economy is thought to be the better model. Explosion of credit happens and, late 80s… BUST. Wipe out of the middle class and wealth inequality on the rise in the 90s.

  8. Increasing inequality will push people to the fringes.

    Inequality in housing, wages, or mating.

    Either you go left wing and go full Communist Venezuala on one extreme or you go full right wing Christchurch on the other extreme.

    Give people a sensible labour, housing and dating market (ie. very slightly more young women than men) and you will have people sticking to the centre without any surprises.

  9. DefinitelyNotTheHorribleScottMorrisonPM

    The problem with leaners (and with this site) is that they confuse theft with opportunity.

    “It is figures like these that have some property forecasters predicting home owners can expect to see more value wiped from their investments over the coming months and possibly years.

    Others see an opportunity.

    “I’ve been waiting seven years for this market to return. This is my pay day,” says Nathan Birch, 33, who owns 187 properties across Sydney, Melbourne and elsewhere.

    “Everyone is going to get scared. It’s like there is a fire in a big building and everyone runs to the exit door,” he says. “If you can hide in the stairwell while they’re running, you can go and pick up all the phones and watches and come out holding them.”

  10. Jumping jack flash

    Simply social attitudes towards debt.

    In good times debt flows freely and is used for all manner of nonproductive exploits. Interest rates fall and everyone gorges on debt. They use the debt to speculate on markets, houses, tulips, anything. These things are inherently not productive. But debt is free, or as close to being free as you’ll get, and debt is the same as real money, and you can get rich from debt like you can from real money, but much, much faster.

    Then it suddenly becomes apparent that debt is not real money, it isn’t free, and banks are not friends. There is a period where the debt and the interest is repaid, removing capacity from the economy and everyone becomes suspicious of banks and debt. They educate people not to trust banks and stay away from debt. Usually in these times interest rates rise.
    This is the period when we get the effects from depressions and recessions and all that stuff, and this lasts until some time afterwards as well.

    Then after the debt is cleared everything starts going good again. After a while everyone forgets about the problems caused by too much debt. They rationalise them away. Interest rates fall usually naturally. This time the unprecedented move of them being forced down due to some minor shock was performed.

    In any case, the economy is performing better and banks successfully convince everyone that they are friendly, debt is real money, and debt is good and nothing to be afraid of. Then of course everyone takes on as much as they possibly can. Everyone likes to be rich, and debt is quick and easy to get rich from. The quickest and easiest in fact.

    Then, of course it swings back again…

  11. Wino Shinyface

    I used to care about how badly the boomers were screwing the young’uns, but then i met some of them….

  12. Regardless of anything she says or does, that Occasional-Cortex woman looks like a lunatic. Crazy eyes.

  13. Without going into much detail (no time), I’d suggest that what we’re seeing is the standard balkanisation of society that follows economic decline. Economic inequality (neofeudalism) triggering identity politics, amplified by social media. History shows that this path eventually leads to war.

    Jonathan Haidt’s research suggests that complex society will fracture not just along the usual racial and cultural boundaries, but also along the boundaries between our moral foundations (which helps explain the OP).

    It seems so obvious that this is exactly what’s happening, just as it happened in the twilight of past societies.

  14. Ahhh …. generational memes developed originally as a PR “marketing tool” is now comported to social sciences … chortle … insert ideology after term is invoked and flesh out frame work of ideologically defective sorts.

    Don’t think the boomers [tm] et al made out so well after the GFC, something about the largest wealth transfer upwards in modernity.