Wealth and the Generations

There is a lot of froth in America right now about how tough the young have it: crushed by student loans, unable to buy houses, trapped in low-end jobs, etc. The counter-argument from economists is that, actually, the current generation of young people is accummulating wealth just as fast if not faster than the Baby Boomers did, and if they are buying fewer houses that is mainly because they are not getting married. (See the chart above.)

A commenter on Scot Siskind's substack wrote this:

Looking at some ‘wealth by generation over time’ graphs, I have an intuition that there’s a stable and repeating pattern in the US of the elderly accumulating all the wealth and power while the young are struggling and disenfranchised. And that this creates a legitimate and perpetual intergenerational conflict where the old people really are hurting the young by keeping wealth away from them and passing policies that benefit themselves and their preferences.

I think there is much wisdom here. I remember, back when I was young and struggling, reading something like, "of course the young feel deprived, they suffered a major fall in their standard of living when they moved out of their parents' houses." At the time this puzzled me, because I had never thought of things in quite that way. I saw living in crappy little apartments as part of being young and never considered it to be deprivation. But if what many people in their 20s want is what they had at 17, and that was their own room in a nice house in nice neighborhood with no worries about food or utility bills, then they probably do feel deprived. I am much better off, materially, than I was at 25 or 30 or 35.

I suspect the curves in that graph at the top were different in the pre-WW II era. If what mattered most was how hard you could work, your wealth peaked when you could work hardest, not as your body started its grim decline. But people still went through a cycle of struggle, comparative wealth, and then decline.

One of my favorite historical books is A Midwife's Tale by Laurel Thatcher Ulrich. This chronicle of a Maine woman in the late 1700s traces out the arc of her economic life, which peaked when she had teenage daughters in the house. She was then the mistress of an impressive economic machine, with willing hands to weave, spin, and do other economically productive tasks. She saved money and bought land. Once her daughters married, and her own health declined, this all dropped away one bit at a time until she sold her loom and slid into unproductive and impoverished old age.

We have a different arc, but it is just as powerful. For someone like me, my salary will probably (God willing) peak right before I retire at about 67. If all goes according to plan, my mortgage will be paid off and I will be able to live comfortably on Social Security and my substantial IRA. My wealth will then gradually decline, but if I am lucky it will be enough to keep me fed and warm until I die. The enormous increase in the value of my house will provide a cushion should I need to move into a retirement home. Unless the US economy suffers a major crash, I would probably have to live well into my 90s to be as poor as I was at 25. So far as I can tell, that is a common arc for college-educated people of my generation, and the data seems to show that younger generations are tracking pretty much the same. That is our pattern.

One of the problems with our economic trajectories as currently constructed is that under this system we are poor during our prime child-bearing years. People like me bite the bullet, have kids and struggle, hoping to come out the other end ok. But if you already feel economically stressed and don't have nearly the material circumstances you want, I suppose that having children seems like a huge burden. My wife and I wanted children so much that none of that mattered, but I do see the problem.

But this is all about expectations. At 25 I lived in crappy apartments and ate lots of macaroni and cheese, but I never went hungry or shoeless. By global standards I was never poor. When my wife and I had three small children our lives were frantic – for a while we worked opposite shifts and one some days only saw each other on the way in and out the door – but it was the life I chose, so I never complained, and I now think it was very much worth it.

I am sure that our sytem could be better constructed and more fair. But if the complaint of young Americans now is that they are oppressed and deprived in a way their parents were not, they are wrong. They are just living through a different part of their lives.