A recent article on the Economia website considers the subject of “generational accounting.”

Written by Paul Wallace, it introduces the topic as follows:

• Countries including the US, Spain and Britain have become increasingly defined by age rather than class. Polarization tends to come to the fore politically during elections, but the economic and social roots go back longer. Particularly since the financial crisis a decade ago, the young have had a tough time. Their real earnings took a knock, whereas pensioners prospered. Surging asset values have helped older age groups while making it harder for the young to get onto the housing ladder. There is widespread concern that millennials will fare worse than their parents.
• A sense of generational injustice is common across Europe, as a survey last year by ICAEW of 10,000 people in 10 European countries (including Britain) showed. Yet there was a twist in the tale: a majority among older as well as younger age groups believed their generation was not being treated fairly by their government when it decided on policies. The polling also revealed a similar lack of trust in governments taking into account the financial implications of policy decisions on future generations. ICAEW’s survey forms part of a broader effort to explore how the accountancy profession can contribute to a better understanding of generational equity as it becomes more salient to policymakers.

As the article recounts it, the original forms of generational accounting would estimate spending commitments and taxation revenues into the distant future, discounted to present values. It unsurprisingly comments: “Typically these calculations showed gaping holes, imposing in effect a massive burden on unborn taxpayers.” The article describes some of the evolution in the discipline since then, concluding as follows:

• What generational accounting can do is to put the current plight of the young in perspective. Despite the introduction of university tuition fees, millennials have benefited greatly from publicly financed education, not to mention all the unpaid time devoted to their upbringing. They can also expect to inherit a good portion of their parents’ wealth. The trouble is that such bequests will in practice be unevenly distributed. A quest for fairness between generations cannot duck the traditional concern about equity within generations.
• Generational accounting does not tackle the vexed question of who bears the burden of climate change. Another snag is complexity. The virtue of generational accounting – its comprehensiveness – is also a vice through its challenge to comprehension. And for some an approach that looks forward so many years and includes those as yet unborn smacks too much of the black box.
• Yet generational accounting does convey two important messages. First, generational equity should be considered in the round, including private as well as public transfers. Second, the most important way to help the young is by investing in their human capital. This has the virtue of being equitable both within and between generations. Above all, it will boost productivity growth, the surest way to dissipate generational tensions by raising the lifetime prosperity of today’s young.

The article is inherently optimistic, I think, in assuming that the “quest for fairness between generations,” could gather momentum and provide a basis for rigorous policy intervention, if a broad agreement could be reached on terms of reference, methodology and so forth. Unfortunately, it seems to me that people are more frequently concerned with the lack of equity between their current state and their semi-mythic notions of how things used to be, rendering them suckers for demagogic nostalgia-peddling politicians. Complexity and forward-looking extrapolation are more than just a “snag” – they’re an absolute killer. Consider for example the utter failure to muster any kind of appropriate reaction and response to the United Nations’ recent climate report.

No question, it’s fiendishly difficult even to identify all the dots of the problem, let alone to adequately join them up. For example, the extract above ends up on an apparent assumption that productivity growth is the ultimate good. But without meaningful action on the climate change front, productivity growth in its traditional energy-dependent form will likely only increase carbon use and so exacerbate our already dire environmental challenges. It should be severely in doubt whether this entire conversation should be conducted in terms of “boosting” and “raising” (as the last sentence of the extract does) versus those of a managed subtraction or lowering.

Of course, these observations are somewhat beyond the strict scope of an IFRS-focused blog. But surely the worst way of assuring the continuing relevance of IFRS over time is to focus narrowly on IFRS. I continue to hope that the IFRS Foundation will expand its mandate and vision, to lead conversations about joining the dots of integrated reporting and environmental reporting and generational reporting and all the other disconnected initiatives, and maybe to start, if only vaguely, to form a better basis for addressing the overriding question: What the hell should we do now?

The opinions expressed are solely those of the author