The Boomers and the Millenials Provide Clues About the Future of the US Economy
The Baseline Starting Point
Before looking into the future, it is instructive to understand where the US Economy is standing now.
US salaries have been in free-fall since the recession began in 2008. The recovery was widely reported to have begun between late 2009 and early 2010; but this certainly was not reflected in salaries. Salaries continued in their free-fall until late 2011; and have yet to establish a convincing pattern of consolidation that can lead to growth.
Don't Tell Me, Show Me
The American people are unlikely to make decisions based upon what their central bankers and political leaders tell them. They are more likely to base their decisions upon the real data inputs that they receive from the economy. These inputs tell them that their wages have fallen; and that unemployment is at an elevated structural level, which policy makers have been unable to address.
The current working population is deleveraging, so they cannot move the needle in terms of economic growth. In fact, this demographic group is having a negative impact on economic growth.
One must therefore look to the Baby Boomers and the Millenials for signals about the future.
The Baby Boomers are important because they have accumulated assets and savings; which they will presumably monetize in order to live in their retirement. This conventional wisdom and expectation of the Baby Boomer generation is however being challenged by the facts. The evidence suggests that the Baby Boomers have in fact decided to work longer and harder. The value of their homes and assets are therefore not high enough to sustain them through life in the future. The graphical evidence from the St. Louis Fed shows that the Baby Boomers reacted to the fall in the value of their wealth, during the Credit Crunch, by going back to work. They were thus forced back to work; by the realization that they did not have enough wealth to meet their current and future liabilities. This may also have something to do with the soaring costs of healthcare and medicare, which have been amplified by the fact that life expectancy has risen. The Baby Boomers cannot be expected to be drivers of the economy; outside of the sectors of healthcare and medicare. Their ability to drive these sectors is also challenged by the fact that they must work to pay as they go, rather than cash in their savings policies and spend the proceeds.
Education and Employment Trends
Millenial Demographic Challenges
This then leaves the Millenials. So far policy makers and producers have struggled to understand this demographic and its economic potential. Thus far, it has been analysed and evaluated through the narrow prism of education. Empirical evidence suggests that employment opportunities improve for those who remain in tertiary education. Young people are more likely to get a job, if they at least have a college degree. Unemployment appears to be highest amongst young people with no college degree. It is therefore assumed that the Millenials will stay in school and migrate up the value and salary chain to get higher paid jobs.
This assumption is however challenged by the behaviour of the Millenials. It would seem that this demographic has been scarred by the experience of the recession; and has read the signals coming from the current salaries and employment data. Their belief in the utility of education is being challenged; not as a principle, but because it is too expensive. Many young people are doing their own math; and coming to the conclusion that it makes no economic sense to incur large debts to get an education, when the salary levels are falling. An education may improve the chances of employment; however the salary may not be attractive. Ironically, an education is now becoming an economic privilege of the wealthy; not those who aspire to be wealthy.
The Millenial generation looks for value for money in everything that they consume. Going forward, if their behaviour remains the same they will become a deflationary force; that does not create economic demand of any significance.
Policy Makers' Responses
The Obama Administration was viewed as a beacon of hope for the Millenials; that has become disillusion. The economic conditions necessitated a narrow focus on those in the immediate laborforce who had become unemployed. In addition, the Baby Boomers were supported by monetary policy designed to raise asset prices; so that they could subsist off their accumulated assets. Thus far the Millenials have been ignored; and unfortunately have also been given the fiscal bill to pay for the policies aimed at the unemployed and the Baby Boomers. Left to their own devices, the Millenials have found their own economic model for subsistence. In so doing they have become disengaged from the rest of the American economy. Future policy must be aimed at bringing them out of economic isolation back into the American family.
- Are Today's Millennials The 'Screwed Generation'? : NPR
U.S. student loan debt tops $1 trillion, and young people face disproportionately high unemployment. Writer Joel Kotkin points to these numbers when he claims the millennial generation is getting the short end of the stick. Kotkin speaks with host Mi
- Hit the road Barack
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- The Cheapest Generation - Derek Thompson and Jordan Weissmann - The Atlantic
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