Optimism bias

The number of over 65s working has topped a million for the first time. They’re needed because – apparently – the UK is running out of workers. 13.5m vacancies will be created in the next two years and only 7m young people are set to come into the labour market. So can we expect a reversal of the recent trend, and wages to rise, as labour demand starts to exceed supply? After all that would be in accordance with classic economic theory.

I don’t expect for a moment that young people, in particular, will be so optimistic. So far as I can tell this is a generation with a better perception than their elders of the mega-change in economic and social organisation that is now underway in the aftermath of the crisis. They seem to have a better grasp of the reality that we are not going back to the pre-crisis days – and if we do it will be bad news in foreshadowing an even nastier crash.

Not that myopia is universal amongst the older insiders. Stephen King, formerly a senior banker at Barclays, says we are all suffering from optimism bias. Long-term growth, he believes, will be much lower than over the last century – an argument also made by Tyler Cowen and Robert Gordon. If this does turn out to be true, the rise in inequality between old/young, rich/poor and creditors/debtors is only just starting, since – the conventional argument goes – it can only be alleviated by growth.

The loss of faith in mainstream politics is because governments are not admitting to the outlook being so uncertain. Understandably – to make that admission would hardly be in their best interests. Do people expect the problem to be fixed and are disillusioned when it isn’t? My guess is that people are actually ahead of the curve on this – they strongly suspect that this time it’s different and that a return to previous levels of growth cannot be engineered by the political elite. See previous post on the sizable proportion of people who don’t expect a recovery in the next ten years – or, indeed, ever.  King has a great phrase:  “We have no idea how to steer economies without the lubricant of growth”. But if people have  cottoned on to the scale of the crisis, maybe that’s a positive? It makes it more likely we will look to ourselves and within our own communities for the way out of the mess. This, essentially, is the case made by Castells in his work about the rise of  alternative economic cultures in Barcelona.

Signs of this can be found in snippets of news. So a story about Europe’s auto market ‘gloom’ reveals the bright news that of a shift away from driving among older Europeans, and falling ownership among the younger. Apparently mass market car manufacturers can expect no growth until 2019. Shame.

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