Unprecedented inequality between generations: Millennials have been the victims of a “30-year economic betrayal”

The Guardian finds that adults aged 20 to 24 in the United States have 31 percent less disposable income when adjusted for inflation relative to the same age group back in 1979. At the same time, the disposable incomes of adults aged 50 to 54 have actually increased by more than 32 percent. Put another way, the 20 to 24 age group has seen its disposable income fall by $3,389 in real terms while the 50 to 54 age group has seen theirs increase by $5,176 relative to 1979

Comment by  | on an article, new data analysis and report in The Guardian

Older generations love to disparage Millennials, calling them lazy and self-absorbed, while Millennials shoot back saying that older generations don’t realize how good they had it when the economy worked for them (and we do so with memes because we’re more tech-savvy). These feuding stereotypes and generalizations will continue, but a recent analysis puts the generation gap in more concrete terms.

According to a new report from the Guardian, Millennials have been the victims of a “30-year economic betrayal.”
Using exclusive data from the Luxembourg Income Study, the Guardian found that across many developed countries, the Millennial generation has been at a distinct disadvantage relative to past generations. In its analysis sponsored by the Joseph Roundtree Reform Trust, the Guardian looked at income data for eight of the largest developed countries in the world–the United States, the United Kingdom, Canada, Germany, France, Spain, Italy, and Australia.
The report’s striking conclusions illustrate the extent to which a range of factors have deeply hurt Millennials’ economic prospects, the report finds:

A combination of debt, joblessness, globalization, demographics and rising house prices is depressing the incomes and prospects of millions of young people across the developed world, resulting in unprecedented inequality between generations.

Using a massive dataset, the Guardian puts the economic disadvantages of the Millennial generation in context. The consequences of decades-long economic trends, Millennials are at a unique disadvantage relative to previous generations.

So how are all of these trends manifesting themselves? Well, if you’re a Millennial you probably already know. We’re more likely to rent than own our own home, and a much higher percentage of Millennials live at home relative to past generations. Among the countries that the Guardian looked at, just over 25 percent of Millennials currently live at home, including 10 percent of men aged 30 to 34. In 1999, less than 20 percent of those aged 20 to 34 in Generation X lived at home. And important life milestones like homeownership, marriage, and childbearing are put off by Millennials for economic reasons.

Findings from a New York Fed report further explain the way economic circumstances have shaped the lives of Millennials. The researchers note how the relationship between housing prices, student debt, and local economic growth helps explain why more Millennials are living together. And they found a strong connection between the cost of education and its related debt to the likelihood that young adults will live with their parents.

Looking at relative incomes paints an even starker picture. For example, the Guardian finds that adults aged 20 to 24 in the United States have 31 percent less disposable income when adjusted for inflation relative to the same age group back in 1979. At the same time, the disposable incomes of adults aged 50 to 54 have actually increased by more than 32 percent. Put another way, the 20 to 24 age group has seen its disposable income fall by $3,389 in real terms while the 50 to 54 age group has seen theirs increase by $5,176 relative to 1979. The disadvantages of Millennials hold true relative to other age groups and to the national average.  For more details check out the Guardian’s visualization.

So what exactly is to blame for the new burden placed on the younger generation? Based on the available evidence, there seem to be several different factors that contributed to the current situation. As globalization increases, so too does competition for jobs. Real estate prices have also made it particularly difficult for Millennials to buy homes or even move out of their parents’ house. The growing importance of a college degree has landed many Millennials in a significant amount of debt before they even begin their careers. While getting a degree may pay off in the form of higher income later in life, debt burdens early on can delay economic independence. While Baby Boomers like to lament the fact that their kids still live at home, the underlying cause is likely economic and not a lack of motivation.

Past generations may not have intentionally made life difficult for Millennials, but it’s also becoming clear that they could have done more to help, particularly as their wellbeing increased. As Jim Tankersly at the Washington Post points out, Baby Boomers were born into a period of sustained economic growth and have benefitted tremendously from it. But at the same time they did little to reduce the burden for future generations. As the ratio of national debt to GDP reaches unprecedented levels, inaction on climate change continues, and the cost of the social safety net rises, Millennials will need to foot the bill.

This is particularly stark in certain countries–as the Guardian finds, “for the first time in France, recent pensioners generated more disposable income than families headed by a person under 50. In Italy the average under-35 became poorer than average pensioners under 80.”

Taken together, decades-long economic trends have made life difficult for many people in the developed world, but the burden has also disproportionately hit Millennials as other generations benefit. While it may be difficult to look to past generations and lay blame, it’s also fair to question whether they could have done more to prevent their children from paying such a high price.

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By Joseph Stigletz, in The Guardian

Young people are right to be angry over financial insecurity

Something interesting has emerged in voting patterns on both sides of the Atlantic: young people are voting in ways that are markedly different from their elders. A great divide appears to have opened up, based not so much on income, education or gender, as on the voters’ generation.

There are good reasons for this divide. The lives of both old and young, as they are now lived, are different. Their pasts are different, and so are their prospects. The cold war, for example, was over even before some were born and while others were still children. Words such as socialism do not convey the meaning they once did. If socialism means creating a society where shared concerns are not given short shrift – where people care about other people and the environment in which they live – so be it. Yes, there may have been failed experiments under that rubric a quarter- or half-century ago; but today’s experiments bear no resemblance to those of the past. So the failure of those past experiments says nothing about the new ones.

Older upper-middle-class Americans and Europeans have had a good life. When they entered the labour force, well-compensated jobs were waiting for them. The question they asked was what they wanted to do, not how long they would have to live with their parents before they got a job that enabled them to move out.

That generation expected to have job security, to marry young, to buy a house – perhaps a summer house too – and finally retire with reasonable security. Overall, they expected to be better off than their parents.

While today’s older generation encountered bumps along the way, for the most part, their expectations were met. They may have made more on capital gains on their homes than from working. They almost surely found that strange, but they willingly accepted the gift of our speculative markets, and often gave themselves credit for buying in the right place at the right time.

Today, the expectations of young people, wherever they are in the income distribution, are the opposite. They face job insecurity throughout their lives. On average, many college graduates will search for months before they find a job – often only after having taken one or two unpaid internships. And they count themselves lucky, because they know that their poorer counterparts, some of whom did better in school, cannot afford to spend a year or two without income, and do not have the connections to get an internship in the first place.

Today’s young university graduates are burdened with debt – the poorer they are, the more they owe. So they do not ask what job they would like; they simply ask what job will enable them to pay their college loans, which often will burden them for 20 years or more. Likewise, buying a home is a distant dream.

These struggles mean that young people are not thinking much about retirement. If they did, they would only be frightened by how much they will need to accumulate to live a decent life (beyond bare social security), given the likely persistence of rock-bottom interest rates.

In short, today’s young people view the world through the lens of intergenerational fairness. The children of the upper-middle class may do well in the end, because they will inherit wealth from their parents. While they may not like this kind of dependence, they dislike even more the alternative: a “fresh start” in which the cards are stacked against their attainment of anything approaching what was once viewed as a basic middle-class lifestyle.

These inequities cannot easily be explained away. It isn’t as if these young people didn’t work hard: these hardships affect those who spent long hours studying, excelled in school and did everything “right”. The sense of social injustice – that the economic game is rigged – is enhanced as they see the bankers who brought on the financial crisis, the cause of the economy’s continuing malaise, walk away with mega-bonuses, with almost no one being held accountable for their wrongdoing. Massive fraud was committed, but somehow, no one actually perpetrated it. Political elites promised that “reforms” would bring unprecedented prosperity. And they did, but only for the top 1%. Everyone else, including the young, got unprecedented insecurity.

These three realities – social injustice on an unprecedented scale, massive inequities, and a loss of trust in elites – define our political moment, and rightly so.

More of the same is not an answer. That is why the centre-left and centre-right parties in Europe are losing. America is in a strange position: while the Republican presidential candidates compete on demagoguery, with ill-thought-through proposals that would make matters worse, both of the Democratic candidates are proposing changes which – if they could only get them through Congress – would make a real difference.

Were the reforms put forward by Hillary Clinton or Bernie Sanders adopted, the financial system’s ability to prey on those already leading a precarious life would be curbed. And both have proposals for deep reforms that would change how America finances higher education.

But more needs to be done to make home ownership possible not just for those with parents who can give them a down payment. The same applies to making retirement security possible, given the vagaries of the stock market and the near-zero-interest world we have entered. Most importantly, the young will not find a smooth path into the job market unless the economy is performing much better. The “official” unemployment rate in the US, at 4.9%, masks much higher levels of disguised unemployment, which, at the very least, is holding down wages.

But we won’t be able to fix the problem if we don’t recognise it. Our young do. They perceive the absence of intergenerational justice, and they are right to be angry.

Joseph Stiglitz is university professor at Columbia University, co-chair of the high-level expert group on the measurement of economic performance and social progress at the OECD, and chief economist of the Roosevelt Institute.

https://www.theguardian.com/world/2016/mar/09/income-young-families-falls-pensioners-prosper

Just 30 years ago, pensioners were three times as likely to be poor as people in work. However, research published late last year by the Institute of Fiscal Studies (IFS) has shown that, after housing costs are factored in, retirees are now better off than those in work for the first time.

Paul Johnson, the IFS director, said: “If you don’t take account of housing costs the working-age population on average looks better off, but if you do they look worse off [than pensioners].”

He added that, on aggregate, “the generation of younger people now are having to pay a lot more in housing costs than generations before them”.

According to IFS research, pensioners’ incomes are likely to rise for at least the next decade, after which future generations will be unlikely to benefit. This is driven by a drop in home ownership, weaker private sector pension schemes and the expectation that state pensions will be less generous in the future.

Osborne’s previous budgets have seen young people lose out in comparison with the rest of the population. Measures have included cuts to youth services, the tripling of the upper limit on university tuition fees and limiting housing benefit for under-35s to those living in shared accommodation. The Future Jobs Fund, education maintenance allowance and, most recently, student grants have all been scrapped.

Field said his Commons committee was seeking voters’ views on whether it was “fair and affordable to divert a large and growing sum of public expenditure toward pensioners – regardless of their circumstances”, while mainly poor families with children were facing “year-on-year restrictions” on their income.

Danielle Nichols, 25, from Chigwell in Essex, is studying to be a dentist after a year working as a receptionist. Her retired grandmother Sylvina McMillan, 71, is helping with the cost of her studies.

Nichols says that when she finished her initial degree in human biology, many of her peers felt they needed to go straight to work. “The fees deterred people from pursuing other courses … and they just felt at our age they wanted to incur less debt. Obviously now I have double debt. But dentistry leads to a profession.”

“And it leaves me broke!” McMillan adds, laughing.

She is enjoying her retirement, which she began last year after 50 years of receptionist work. “I’m making the best of it. What choice have I got? I’ve got to enjoy it now.”

McMillan lives in Plaistow, east London, in a home that she finished paying the mortgage on when she was in her 50s.

“I have six grandchildren and one great granddaughter. You have to think what position are they going to be in? In even getting on the property ladder. If you get them to study … they still have to pay that £9,000 a year back.

“They are cutting down on a lot of things and they are telling them you can’t get a pension until you are in your 70s. That would really upset me because you need a bit of life after a certain age.”

Nichols says: “My Nan’s really concerned about us getting off the ground. I’d like to own my own place. Realistically I know that won’t come for a long time, until I’m in a job for a good number of years. When my mum was in her early 20s she already had her own house and had children. But for those my age, you know how expensive it is to live in and around London.”

In her year spent working, Nichols found that despite the jobs being well paid, she couldn’t save because of the taxes and student debt repayments. She and her partner are living at their family homes so they can save money.

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it is much harder to enlist support for grinding out change in the “broader social, systemic, legal, jurisdictional issues at play” – for which the most efficient route is still, for now, through a major party’s door.

Max Kaye and Nathan Spataro, from Sydney, are the founders of Flux, which aims to elect senators whose votes are controlled by Flux members.

Each member gets one vote per bill. They can give that vote to a party or another individual to wield, swap it for support on a pet issue or – by a mechanism to be decided – hoard votes so they accumulate in value.

Just as, in theory, a free market efficiently allocates resources, Flux aims to be a marketplace for policy, where ideas compete for popular support, and power is allocated in line with demonstrated expertise.

It’s a classical liberal ideal that Kaye and Spataro argue can be fully realised on the internet, which allows for “feedback loops” that hone policymaking each time a bill is raised, instead of every election cycle.