Is global fiscal splurge the answer?

If you’re wondering why there is so little desire anywhere in the developed world to tighten fiscal or monetary policy, take a look at a chart published this week by the International Monetary Fund (IMF).

- Jamie McGeever

IMF Managing Director Kristalina Georgieva delivering remarks ahead of the annual IMF-World Bank fall meetings in Washington, DC.

(REUTERS)

It is worth a thousand words. In a preview of the Fund’s upcoming World Economic Outlook, Managing Director Kristalina Georgieva presented a chart taken from a paper by Harvard-based researchers showing that the likelihood of young Americans growing up to earn more than their parents has never been lower.

Barely half of Americans aged 30 are earning more than their parents, compared with more than 90% half a century ago, the study finds.

It's a stark statistic that calls into question not only the “American Dream” but also a fundamental pillar of liberal capitalism, the idea that each generation will enjoy higher living standards than the last.

While the paper was published in 2017 and thus focused on “Millennials”, it is safe to assume the subsequent “Gen Z” and “Gen Alpha” cohorts are not faring much better. They are coming of age in a post-pandemic world marked by polarised politics, inequality, unaffordable housing, the AI disruption, dwindling pensions and rising retirement ages.