A New Lost Generation?

            If you think your life is hard, think about what life is like for the “Millenial Generation” born between 1980 and 2000.  New data out from the Census Bureau this week showed that this generation is experiencing a world of hurt.

            Steven Rattner, writing for the New York Times pointed out that in constant dollars, compared median income for this generation has fallen by almost $3,500 compared to people in the same age groups in 2000 and 1990.  This has happened despite the fact that the Millenials have the highest level of educational attainment in the country’s history.

            Even worse, the Pew Research Center, drawing on the same Census Bureau data, finds that the percentage of Millennials living independently of their parents in their own homes has actually fallen since the worst years of the Great Recession.  That means that Millennials are not starting their own families at the same rate as previous generations.  Part of the reason the economy hasn’t experienced a robust recovery since the Great Recession is that Millennials simply aren’t demanding more housing and all of the ancillary products for which new housing creates a demand.

            Rattner worries that “The most educated generation in history is on track to becoming less prosperous, at least financially, than its predecessors.”

            Part of the reason is that all of that education came with a steep price.  Tuition is up by over 230% since 1993, almost 4 times the rate of inflation over the same period.  That’s left this generation of college graduates with about twice as much debt as college grads had in the 1990s.  Interest rates on those loans are high, and without much property to use as collateral, they can’t easily be refinance at the lower interest rates available today.  Student loan debt can’t be discharged through bankruptcy the way credit card and most other kinds of consumer debt can be, and so it’s often impossible for a recent grad to get out from under the debt burden if his or her cash flow falters.

            Another part of the reason is that the weak economy hasn’t produced enough jobs to convert the buyer’s labor market we have to the seller’s labor market we need.  With slack in the labor market, businesses can be picky about who they hire and stingy when deciding how to pay the lucky few able to find full-time employment.  College graduates are doing better than their counterparts without college degrees, but compared to previous generations, the Millennials are doing much worse regardless of whether they went to college.

            Even if you don’t have kids who are members of this generation, this situation should trouble you.  Young people without good jobs often don’t earn enough money to create the levels of consumer demand an economy like ours requires to create and support innovation. And this is doubly true of college graduates who have to divert income from present consumption to debt service.  Some Millennial college grads may even have to take jobs in fields that can’t use their talents just to keep up with the debt service on their student loans.

            In addition to these economic concerns, there are political reasons to worry about the difficulties the Millennials face.  Americans don’t tend take to the streets over economic matters, but when we’re particularly upset about the economy, we riot at the ballot box.  The Reagan Revolution was the result of one such riot.

            Electoral rioters from the Millennial Generation may demand that policies now skewed to the old and the wealthy be reversed.  They may want to pay less in Social Security and Medicare taxes and insist on cuts in those programs to match the tax cuts they have demanded.  They may want even higher taxes imposed on the wealthy than the Elizabeth Warren wing of the Democrat party today says it wants to pay for programs that help Millennials buy homes and pay for child care.  Or, they may join with the libertarians in calling for an end to American government as we know it.

            While I don’t agree with Rattner that part of the solution is to restructure our entitlement programs, I do agree with him that to avoid what Laurence Kotlikoff and Scott Burns call the “Coming Generational Storm,” we need to “get the nation’s economy onto a stronger growth trajectory” pronto.

            But that’s going to take much more stimulus money than Republicans have been willing to allow the government to spend on the economy over the last five years. And, unless Republicans can be persuaded or forced to abandon their supply-side fantasies, there’s every indication that they’ll continue to insist that the economic path forward depends on smaller government, fewer regulations and lower taxes.  Thus does political gridlock stymy any capacity to help the Millennials. 

         World War I spawned the "lost generation," a generation that lost its innocence in the carnage of the European battlefield.  Our current economy and the Republican refusal to do anything about it may well be spawning another lost generation.