In parts one and two, we addressed the feeling that the American dream is unaffordable, while demonstrating the data doesn’t support that feeling. So what gives? Hidden in that data are some points which illuminate the challenge. First, everyone is better off over the last fifty years, but some groups are “mo-better” as they say than others. While the data are conflicted whether there are some more poor or lower income people, all data agree that the rise in the upper-income or rich tier is much greater than the rise in poor or lower income one. Both come at a cost to the size of the middle class.
Now take that data and compare it to the population and the economic environment. Younger people are blissfully unaware of the economic challenges other generations faced, just as they are unaware of history in general. When confronted with the inflation, unemployment, or Treasury rates I witnessed when I was their age, they simply stare: it doesn’t compute. Setting aside whose fault that is, the fact remains: they feel cheated, and also feel distinctly put upon by “the system.”
What younger cohorts are aware of is the life-styles of the rich & famous or at least the influencers. Consider this: Back when I was growing up, if anybody bought something expensive or showed-off with something ostentatious, my mother would refer to them as “wanna-be Rockefellers” or just “Rockefellers” after the famously rich and famous New York clan. She had no experience with the Rockefellers and probably couldn’t name one of them; she just knew “about them” and viewed them as the epitome of rich people who no longer needed to care about money. It was a useful, if envious, metaphor.
Today, every young person has social media providing a nonstop drip of addictive examples of the lifestyles of everyone who has more than they do. And social media only highlights the more and better. And given most young people are just starting out, while the largest generation of baby-boomers is atop the population pyramid (with more time, more resources, just more), that’s just about everyone. Everyone is doing better than you are, with the subtext of “what’s wrong with you?”
Which is not to say everything is rosy. Gas prices really are high . . . but just as high as they were four years ago. Rents are high, but only in the most sought-after neighborhoods. Mortgage rates are up above the last decade, but about where they were in 2008. There have been spikes in gas, dairy, meat, chicken, coffee, but there have always been such spikes, and nothing today is different about that. What accounts for the fatalism among the younger generations?
“I thought getting a college degree was the answer to everything,” said Lucy Kinyanjui, 22, a senior at North Carolina Agricultural and Technical State University. From a NY Times article on the bleak job prospects for college graduates.
One thing that is different is student loan debt. Nobody ever graduated with multiple decades of student loan debt payments back in the day, except doctors or lawyers; others were happy to finance them, and they were willing to pay. There weren’t too many defaults by those groups. Now it is common, and includes graduates with no useful skills. America rushed to push people into college, because college graduates earned more than non-college graduates, so if more people attended and graduated, everyone would be better off, right? No, because what made college graduates more financially successful was not the certificate, but the education. As universities competed to enroll this increasing stream of admissions, they (1) raised their tuition to astronomical rates (showing that even people with no formal economic education understand supply and demand), and (2) catered to their students with bespoke curricula that allowed them to avoid challenging knowledge in favor of comfortable pablum. The result was a sheepskin not worth the cost of a good wool sweater, and a ton of debt service.
But that’s only a small, if very vocal, part of the electorate. What about the vast majority who didn’t go to college, didn’t rack up debt, but still feels precarious? They feel precarious because they are. Part of the reason is the continued movement of blue-collar (and now white-collar) jobs out of the country to other places where they can be done just as well but at much less cost. It came for the auto workers first, but it’s after the paralegals now too. Add in advances in artificial intelligence (AI), and even more info-tech jobs are precarious! The trend is not necessarily fewer jobs, but different types of jobs. The introduction of the calculator didn’t do away with jobs requiring calculation, it made them more productive; the introduction of the car certainly spelled doom for buggy-whip manufacturers. This trend is obvious across multiple industries and professions: foreign competition and automation in general tend to create winners (who get very rich) and losers (who lose their jobs), and it’s rarely clear who will be who. That’s real uncertainty. But we’ve been through this before, with the sure-thing of a college degree, a Masters in Business, Law as a profession, coding, etc. And there are jobs and growth potential in health care, but that doesn’t interest younger generations. I don’t blame them: nursing the aging, entitled baby-boomers wouldn’t be my cup of tea, either.
This is why the AEI data in my last blog post was so revealing: there you see the growth in the rich and upper income groups, which grew faster than others, while the Treasury data shows they also accumulated more wealth (not just income) at the same time. Does the fact that Elon Musk exists, and controls a bazillion (technical term) dollars do anything to you? No. Perhaps it irritates you, or did once his politics changed. He didn’t inherit his wealth, didn’t extort it, didn’t win the lottery. He quit a PhD program to found an early internet company, making him rich when he sold that company for US $22 million at age 27 in 1999. His politics aside, he revolutionized how we launch satellites, took on and beat NASA, and is in the process of changing how we access the internet, anytime, anywhere. Maybe he is overvalued as they say in the stock market. But maybe he just did some remarkable things and monetized them. His wealth has no effect on you, though. Unless you want to compare yourself to him. Musk and others like him are that thin, light blue line on top of the AEI wealth chart. How much can they make? If they keep innovating, it is practically unlimited. How little can The Biggest Loser make? Zero. The difference only grows.
How does all this play out in the upcoming elections? Poorly for all sides. I contend President Trump won re-election because the electorate–especially low information people who vote infrequently–got fed up with the Biden administration’s wild economic policies (an Inflation Reduction Act that increases prices?) and decided to give Trump another try despite his well-known downsides. Team Harris did trot out some wild ideas to address the cost of living (remember the minority set-aside for black men to sell legal marijuana?), but there was no there, there. Trump and his team promised to reduce prices with no explanation. Promises beat incoherence.
Trump’s agenda-less approach to high prices has been ineffective and made those key swing voters very upset. If nothing changes in the next few months, they will swing once again in the mid-terms, giving the Democrats the House and perhaps the Senate. Promises beat incoherence again. Before liberals and progressives raise a cup of cheer, two cautions. First, whatever majorities they achieve will be small, and neither filibuster- nor veto-proof. Leaving them with the burden of addressing their promised fixes to affordability by either compromising with Trump (fat-chance) or simply performing legislative protest (my, how they do love chanting and singing). Neither is a good start to the 2028 Presidential campaign. But what if the Democrats put forward a progressive Abundance agenda? That’s the second caution. They don’t have one. Even after Abundance (the book) came out last year, it caused as much conflict as excitement on the left. The only thing that unites the left is hatred for Trump, which will be enough for the legislative elections, but bodes ill for presidential politics.
Which is a shame, as parts of the progressive abundance agenda could resolve some issues (like housing and energy production/distribution). I don’t see any quick or easy national solutions to “affordability.” More likely, the problem will ease over time. First, because younger generations realize the complaints aren’t having an effect. Second, people become inured to higher prices over time. I’ll always think a new car should cost US $2000 because I remember the VW Bug ads at $1999. I don’t like it, but I don’t expect to find new cars at that price anymore. Third, individuals will take matters into their own hands, by moving to less expensive areas, accepting longer commutes, taking less-exciting, more stable jobs. Fourth, believe it or not Millennials, the Boomers will die off, creating the largest wealth transfer in human history. Behave yourselves, and there might be a pot o’ gold at the end of their rainbows. Just don’t expect Uncle Sam to fix it in the next election cycle. Oh, and beware estate taxes. If you support them as a way to soak the rich, you just might find you taxed away your pot!