The Intergenerational Ponzi Scheme

Our economy today operates like an intergenerational Ponzi scheme. It pays profits today to older generations who’ve invested in it, promising younger generations that (in exchange for their own work and investment) they too will benefit when their turn comes.

But because many of the systems generating those profits run unsustainably, when younger generations’ turns finally arrive, those systems will be worth less than they are today. Some may be extremely expensive to maintain by then (like auto-dependent exurban developments). Others may be all cost and no benefit (like inheriting a barrel of nuclear waste). There’s even a potential danger that the whole system will produce less wealth than it costs to maintain, leading to a spiral of entropy and impoverishment known as “catabolic collapse.” But even without such a crash, it’s not hard to see that a great many economic choices being made today by older generations offer fewer options, not more wealth, to those coming later.

Climate change looms as the epitome of an intergenerational Ponzi scheme: for a limited benefit in this generation, we are burning dirty fuels that will present great difficulties for (if not wreak disasters on) many generations to come. A climate-destabilizing economy is sometimes presented as a net good by certain economists (on the supposition that wealth today is worth more than wealth tomorrow, and that people in the future will have more wealth with which to deal with the problems we create). It takes very little true-cost thinking, though, to see that many of the possible (even predicted) impacts of climate change (which, as externalities, are rarely and poorly accounted for in economic models) can easily outweigh the short-term economic benefits. As Paul Hawken says, we’re stealing the future, selling it in the present and calling it GDP.

It’s probably worth noting that even those present profits are highly inequitably distributed. Whatever you think about the Occupy movement, it has succeeded in shining a light on the degree to which the rewards generated by the economy are distributed to a very small number of hyper-wealthy older people. Most of those insanely rich people are insanely rich because they own large chunks of the older industries currently trashing the future. Very often, when we hear of the need to be economically “practical” in thinking about climate action, what is actually meant is that we need to protect their investments.

The corollary is too little noted: many of the kinds of changes we need to see in our economy in order to safe-guard the future have at least the potential for far more equitable distribution. If every home in the world was better designed and insulated, if every city was better served by transit and more walkable, if products were designed to last longer and be less toxic — if we saw a shift towards an economy that treated the real impacts of our systems as something no longer “external” to our economy — most people would be quickly better off. Most of the dirtiest industries are like giant vacuum hoses, sucking money out of people’s lives and local communities. Bright green solutions, on the other hand, can not only create profitable businesses but save people money on energy and circulate more of those savings in the local economy.

2011-age-gap-011.pngThe public debate on sustainability and the economy is shifting. We are beginning to see the future put back in the room. In the meantime, it’s not at all inappropriate for young people, when presented with the claim that some future-trashing industry is creating needed wealth, to ask “Yeah? Who for?”

PS: I assume you’re well-educated enough not to need pointers to evidence that the rich are getting richer. If you want some hard evidence that profits from our current, unsustainable system accrue far more to old people than young, I have yet to find a better resource than the Pew study, The Rising Age Gap in Economic Well-Being. It’s a wealth of outrage-provoking data.

Among the findings are that while US households headed by people over 65 have grown wealthier, gained income and now see much less poverty compared to 1984, households headed by people under 35 have actually seen a median drop in the wealth of 68%, now having a median net worth of only $3,662 (37% either have no wealth or owe more than they own); 22% are in poverty. The economy, as currently structured, is a system where older people get wealthier while undermining the future, younger people get poorer and inherit planet in crisis. If that’s not a description of a generational scam, I don’t know what would be.