Intergenerational equity

Updated on Nov 18, 2023

Edit

Comment

Intergenerational equity in economic, psychological, and sociological contexts, is the concept or idea of fairness or justice in relationships between children, youth, adults and seniors, particularly in terms of treatment and interactions. It has been studied in environmental and sociological settings.

History

Since the first recorded debt issuance in Sumaria in 1796 BC, one of the penalties for failure to repay a loan has been debt bondage. In some instances, this repayment of financial debt with labor included the debtor's children, essentially condemning the debtor family to perpetual slavery. About one millennium after written debt contracts were created, the concept of debt forgiveness appears in the Old Testament, called Jubilee (Leviticus 25), and in Greek law when Solon introduces Seisachtheia. Both of these historical examples of debt forgiveness involved freeing children from slavery caused by their parents' debt.

While slavery is illegal in all countries today, North Korea has a policy called, "Three Generations of Punishment" which has been documented by Shin Dong-hyuk and used as a moral paragon of punishing children for parents' mistakes. Stanley Druckenmiller and Geoffrey Canada have applied this concept (calling it "Generational Theft") to the large increase in government debt being left by the Baby Boomers to their children.

Investment management

In the context of institutional investment management, intergenerational equity is the principle that an endowed institution's spending rate must not exceed its after-inflation rate of compound return, so that investment gains are spent equally on current and future constituents of the endowed assets. This concept was originally set out in 1974 by economist James Tobin, who wrote that, "The trustees of endowed institutions are the guardians of the future against the claims of the present. Their task in managing the endowment is to preserve equity among generations." in terms of an economical context. Intergenerational equity refers to relationship that a particular family has on resources. An example is the forest-dwelling civilians in Papua New Guinea, who for generations have lived in a certain part of the forest and thus becomes their land. The adult population sell the trees for palm oil to make money. If they cannot make a sustainable development on managing their resources, their next or future generations will lose this resources.

U.S. national debt

One debate about the national debt relates to intergenerational equity. For example, if one generation is receiving the benefit of government programs or employment enabled by deficit spending and debt accumulation, to what extent does the resulting higher debt impose risks and costs on future generations? There are several factors to consider:

For every dollar of debt held by the public, there is a government obligation (generally marketable Treasury securities) counted as an asset by investors. Future generations benefit to the extent these assets are passed on to them, which by definition must correspond to the level of debt passed on.

As of 2010, approximately 72% of the financial assets were held by the wealthiest 5% of the population. This presents a wealth and income distribution question, as only a fraction of the people in future generations will receive principal or interest from investments related to the debt incurred today.

To the extent the U.S. debt is owed to foreign investors (approximately half the "debt held by the public" during 2012), principal and interest are not directly received by U.S. heirs.

Higher debt levels imply higher interest payments, which create costs for future taxpayers (e.g., higher taxes, lower government benefits, higher inflation, or increased risk of fiscal crisis).

To the extent the borrowed funds are invested today to improve the long-term productivity of the economy and its workers, such as via useful infrastructure projects, future generations may benefit.

For every dollar of intragovernmental debt, there is an obligation to specific program recipients, generally non-marketable securities such as those held in the Social Security Trust Fund. Adjustments that reduce future deficits in these programs may also apply costs to future generations, via higher taxes or lower program spending.

Economist Paul Krugman wrote in March 2013 that by neglecting public investment and failing to create jobs, we are doing far more harm to future generations than merely passing along debt: "Fiscal policy is, indeed, a moral issue, and we should be ashamed of what we’re doing to the next generation's economic prospects. But our sin involves investing too little, not borrowing too much." Young workers face high unemployment and studies have shown their income may lag throughout their careers as a result. Teacher jobs have been cut, which could affect the quality of education and competitiveness of younger Americans.

Australian politician Christine Milne made similar statements in the lead up to the 2014 Carbon Price Repeal Bill, naming the Liberal National Party (elected to parliament in 2013) and inherently its ministers, as intergenerational thieves; her statement was based on the party's attempts to roll back progressive carbon tax policy and the impact this would have on the intergenerational equity of future generations.

Environmentalism usage

Conversations about intergenerational equity occur across several fields. They include transition economics, social policy, and government budget-making. Intergenerational equity is also explored in environmental concerns, including sustainable development, global warming and climate change.

Conversations about intergenerational equity are also relevant to social justice arenas as well, where issues such as health care are equal in importance to youth rights and youth voice are pressing and urgent. There is a strong interest within the legal community towards the application of intergenerational equity in law.

Advocacy groups

Generation Squeeze is a Canadian not-for-profit organization that advocates for intergenerational equity.

References

Intergenerational equity Wikipedia

(Text) CC BY-SA

Contents