1. Research
September 16, 2020

Intergenerational Conflict: The Next Dividing Line

Research Strategist
Macro Strategist
Henry Allen
Deutsche Bank Research Management
Stefan Schneider

The widening generational divide should be a key source of alarm for investors, financial markets and society as a whole. Young people perceive themselves as the losers on issues ranging from housing to climate change to student debt. In turn, this anger is manifesting itself into political outcomes, with elections around the world increasingly fought along generational lines.

In this year's Long Term Return Study, we outlined how generational conflict will be one of the drivers pushing the world into a new 'Age of Disorder'. Here we explore the investment and political consequences of this imbalance while detailing the biggest issues at stake.
We believe this intergenerational conflict is actually in its early stages. Ageing populations are tilting the balance further against the young. Expensive house prices are continuing to create anger and resentment. And the Covid-19 pandemic - which has disproportionately hurt the young economically - risks inflaming this resentment further.
There are three paths down which this conflict may travel. The first is a natural resolution, where large falls in asset prices set against demographic change narrow the generational divide without external intervention.
The second scenario sees a political party elected with strongly redistributionist policies. Some countries have already seen strong performances from such parties, and if this becomes more widespread, investors can expect an abrupt and significant upheaval in housing and asset markets, tax systems, climate policy, and many other areas.
To avoid these two scenarios and their serious consequences for asset markets, a scenario of gradual resolution may be achieved if policymakers seek to redress the balance over time. This will including introducing mechanisms such as higher taxes on wealth or unearned income. In the absence of this type of resolution, one of the other two scenarios appears inevitable, with serious and abrupt consequences for asset markets.
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