A Millenial couple (no relation to me), about age 30, recently summarized their finances. They have about $100K saved for a down payment on a house. Unfortunately, they have $250K in student loans, so the way I see it they are $150K in the hole.
In 1983, when we were their age, my wife and I had about $25K in savings, but no debts. That was enough for a 20 percent down payment on a $125K house.
In the last 37 years, the price of our house went up by a factor of 4 or 5, while inflation only went up by a factor of about 3.3. As a result, our housing costs have effectively been zero–it’s like we lived rent-free all this time.
I think that this is true for a lot of Boomers. They bought houses that subsequently went up in price enough that the capital gains have exceeded what they paid in principal and interest. And they did no start out in the hole to the tune of $150K (or $45K in 1983 dollars).
Wesley Yang has emphasized the difference in circumstances between the Boomers and Millenials. The Boomers have a very high share of wealth, even adjusted for age. The Millenials have a very low share of wealth, even adjusted for age. The Boomers are also slow to exit the stage in politics, academia, and other fields.
So one way to think of the Woke movement is not as a racial fight but a generational one. For Millenials, the moral issues are a way to get back at the Boomers.
I’m a Boomer and since at least the 1980s have thought that my generation failed to seize the reins of government from what came to be called “The Greatest Generation.”
It is not surprising that my generation, too, is reluctant to leave the stage.
“Unfortunately, they have $250K in student loans”
Universities have a lot to answer for. For all of their Marxist rhetoric, the fact is no organization is more effective at separating a fool from his money. Universities are best descibed as “Greed Machines”.
You forgot the part where homeowners tend to support NIMBY policies thus ensuring that housing near job-centers stays expensive.
Not only are Millenials disadvantaged in housing, the same is true for retirement savings. The Fed’s deliberate efforts to boost stock and bond prices mean than Millenials will earn lower (much lower) returns on their investments than their parents did. The Fed is favoring old folks at young folks’ expense.
Millenial here. While I don’t share the “wrong think” zeal with many of my peers (Arnold really is of my favorite bloggers the last many years), I have definitely watched housing just always seem just out of sensible reach living in Boston the past 12 years.
No real money for a downpayment back when the housing crisis hit (could have been a great time!) and ever since its like the 20% down is just a stupid amount of money more year after year, that even having it now I wonder if it makes sense to pay $700k for a 2 bedroom condo now that I’m 34 (but also single, another topic for millenials I guess).
And I’m probably one of the more fortunate ones, making good money as an engineer able to pay off my student debts (and while late in starting), able to put money into index funds at least. I can’t imagine the feeling that many others have.
I’d like to imagine a world where we didn’t inflate the cost of education so much, or let a NIMBY apparatus transfer so much wealth from young to old, especially in the cities (nevermind the abuse of things like rent control in NY and SF)… but we definitely are nowhere close to that, and the policy preferences of my generation don’t seem to have any awareness of wanting to get there.
the USA pop has increased by about 50% since the 80s (~200M->~300M)
even if you assume all land reserves were exhausted by the 80’s a 3-4x increase in housing costs reeks of gov influence.
am I right and if so how?
also assuming the couple studied something similar to what you studied
why the debt?
We are our own devils; we drive ourselves out of our Edens.
-Johann Wolfgang von Goethe
We see the exact same dynamic in the crusade to destroy the real estate wealth created by homeowners associations and people working through their local government zoning to create safe and pleasant neighborhoods. Tim Worstall in this morning’s CAPX newsletter attacks the very idea of local government because it might limit population density. The denser the better regardless of impact on total wealth. No escaping Covid hotspots for you. https://capx.co/why-an-attack-on-local-democracy-is-no-bad-thing/
And no discussion of real estate is complete without a nod to Steve Sailer’s theory that all the rioting, crime, and hatred for whites is a means of allowing urban blacks from being displaced from prime inner city locations by gentrifiers. Recently the peaceful protesters have been going to gentrified neighborhoods and chanting “black people lived here, burn it down.” The attack on local zoning is thus a ploy to open up areas for the relocation of poor blacks so that rich whites can take over the better locations.
Personally I think evolution explains a lot and that Homo sapiens is evolving into distinct high-density and low-density sub-species. Various traits are advantageous in one environment not not in the other. It would be interesting to compare the genomes of say 6th generation residents of high density areas with individuals who have no ancestry in high density areas. One might find personality differences as well.
The big inter-generational conflicts that the government has created are the Social Security and Medicare poor-to-rich wealth transfers. That’s going to get nasty in a few years.
My guess is that the housing affordability issue dominates the student loans issue for the vast majority– but that the chattering classes are far more likely to have massive student loan debt so their (our) struggles with that debt get overreported.
If one is going to assign collective guilt, then, it must go to those who kept housing artificially scarce in order to prop up its value as an investment (which many other developed countries did not do) and to maintain residential segregation without explicit restrictions.
One of the great points Thomas Sowell has always made is that we shouldn’t focus on static inequality, but should be looking at changes in wealth over a lifetime. It’s hard to convince myself that we aren’t seeing a shift in the trajectory of millennials in this respect. The biggest culprits seem to be housing and education costs. There are some peculiarities with these markets that drive the relative increases in cost.
However, I don’t really think that there is much evidence that the Woke movement is based on these increasing costs. It seems much more to be a cultural phenomenon inspired primarily by what I would call “non-economic” motives.
I would split the difference. I think a decent portion of wokeness, and the general left-leaning ferment of younger people is in fact due to the fact that they feel like they’re not riding the elevator up the same way their parents and grandparents did.
I’m a millennial, and I hear all the time about the excesses of american capitalism, and how we live in a shameful, backwards country that doesn’t take care of its own, etc. The myth of american meritocracy, Amerikkka, euphemisms that mock the idea of freedom & liberty…..almost any traditional bromide about American exceptionalism is turned into a punching bag. I think the idea that these feelings would persist with their same level of intensity if your median millennial graduated from college with no debt is crazy. It’s a way to express grievances about your vulnerable position in life without losing social standing. It’s no surprise to me the young flock to it.
I agree that it doesn’t explain everything though. The specific ideologies we see breeding in the left-most corners of society have additional causes. Particularly, I think modernity allows for the flourishing of some distinct psychological traits within people who have a natural tendency to traffic in status and are pre-disposed to feelings of negativity and anxiety.
It’s a way to express grievances about your vulnerable position in life without losing social standing. It’s no surprise to me the young flock to it.
This makes a lot of sense.
I’ve long thought that wokeness is a millennial adaptation to lower generational mobility. The traditional aspirational goods are more difficult to obtain, and like you said the financial positions of most millennials doesn’t compare well to their peers, although we might catch up in time.
For people who are sensitive to feelings of bitterness and who got their careers off on the wrong foot, wokeness is an attainable form of psychological compensation that offsets unmet expectations in other areas of life.
In country after country, students are being sent to universities under the assumption that building human capital will increase economic growth and raise living standards. But either because the nation’s economy is controlled or the degrees are worthless, jobs are not available for the graduates. Some emigrate – typically those with marketable skills – but those who stay become sources of political unrest.
+1
The millennial generation may have attended college, but has the college experience been degraded? It has been a decade since Academically Adrift and its finding that 45 percent of students didn’t learn anything in their first two years of college. There doesn’t seem to be any success in attempting to provide college education that is valuable to employers: https://www.jamesgmartin.center/2017/03/college-graduates-still-cant-think/
And it is only getting worse now with colleges adopting mandatory courses in anti-racism.
I’ll go with the latter. Human capital is as important as ever, which is why the values of degrees have been declining. I teach at a tech accelerator, and I get lots of students who are highly educated…….some of them with advanced degrees from prestigious institutions, but they have a hard time getting ahead in their jobs because they lack the necessary hard analytical skills a lot of their positions are increasingly calling for.
It’s not that human capital is in less demand than before, it’s the opposite. The issue was that the universities were never *that* great at supplying it in the first place, and they contribute to the skills gap as often as they close it.
Peter Turchin’s ideas about elite overproduction at this stage of the historical cycle are worth considering. College used to be the path to elite status, but now it’s for lots of people. Most people can’t be elite, pretty much by definition. This leads to disappointment and, sometimes, revolution.
https://nationalpost.com/opinion/peter-turchin-how-elite-overproduction-and-lawyer-glut-could-ruin-the-u-s
Eric Weinstein has talked a lot about this issue on his podcast.
I am a boomer. I stayed I’m my position five years later than my retirement plan required because I was efficient and not exhausted, being an economist obviously not as hard as pike and shovel coal miner. The only reason I impeded social mobility for millennials is that the policy of limiting growth by sending income and wealth upward had to an inevitable resurgence of the lump-of-labor (now non) fallacy.
I think you are overlooking the fact that a college education is no longer a guaranteed ticket to a better job. So you pick up the debt and the schools have been loath to shift to try to teach what is now valued in the job market.
Consider this by Ed Leamer in a July 2020 Econtalk podcast
Also, I think you missed part of the value of your early home purchase. Whether the capital gains occurred, your “rent” has been insulated from housing cost increases in the locality thus decreasing in percentage of your income over the years.
1) when you are told ad nauseam from birth that you are unique and special.
2) when you are told that the sure key to success is a college degree (in whatever major you decide).
3) when you are told that self-fulfillment is the key to happiness (vs. creating mutual value).
Then, sometime in your 20s, reality starts to bite when you realize that these truisms were nothing more than noble lies. That’s when the bitterness and violent outrage start to enter the equation.
I’m 37, which i think is the tale end of millennial but if not I’ve known a lot of millennials.
I graduated with no debt. In theory I took out 20k in loans but earned enough in college to pay off at graduation. I went to at the time a very expensive private school but paid basically for room and board only. Rest was scholarship due to good SAT and grades.
I did paid interenships in college and got a good job on graduation though quit it in the first year for reasons. I went to a temp agency on a Friday, got a job on a Monday, and was offered full time position with benefits within one month. Within a year of that I had passed two actuarial exams studying at night and got offered an actuarial job.
I’ve never been in debt. I’ve always earned above average for my age and education. I only have a BA. My dad did hard labor for a living and we were poor when he was sick. I have spent a lot of money on medical bills and yet I’ve never balanced a checkbook because i was never close to broke.
Who are these people in massive debt with no down payment? I know one person with six figure student loans and he also earns 170k a year and is several years my junior. He’s broke for a lot of reasons but also he drives leased cars and spends too much on his woman.
I don’t deny some of these things are hard to get, but I don’t think giving into leftist millennial who’s spent money worthless degrees is the answer. They will blow it some other way. Zoning? You can get real estate downtown minutes from lucrative jobs in Baltimore. Unfortunately blacks are squaring on it. You want to make housing cheaper? Bring law and order and “good schools” to the trillions in untapped real estate near cities. More zoning, not less.
The age ranges should be clearly defined:
boomers born 1946-1964; millennials born 1980-1994 (after gen-X)
https://www.kasasa.com/articles/generations/gen-x-gen-y-gen-z (gen naming primarily for marketing purposes)
Thx, Jonathan:
I’m a millennial, and I hear all the time about the excesses of american capitalism, and how we live in a shameful, backwards country that doesn’t take care of its own, etc. The myth of american meritocracy, Amerikkka, euphemisms that mock the idea of freedom & liberty…..almost any traditional bromide about American exceptionalism is turned into a punching bag.
I’m pretty sure this is mostly from college educated, and especially student debt-loaded folk. A large minority of folk expecting to be “elite” but being disappointed.
Poor Americans live better, in absolute terms (about $10,000/yr for bottom 10% level before gov’t benefits), than about 85% of the world.
https://politicalcalculations.blogspot.com/2016/10/what-is-your-world-income-percentile.html
But to make money you have to work — for somebody else. Even “being your own boss” means you’re working for customers who pay for the work. [Peacefully and voluntarily, with each purchase a win-win transaction that increases the total wealth in the world, as measured by (impossible to measure) personal utility units. Hooray for markets!]
Any couple with $250k in student debt who are not doctors or lawyers or STEM engineers is somewhat silly dumb, or at least pretty financially naïve.
Market economies are not zero-sum, and all can get richer. In absolute terms. It used to be that going to college got you richer but, more importantly, got you an increase in status. Status is zero-sum. To go up somebody else has to go down; it’s always win-lose. Like a sport. When only 5-10% of the HS grads went to college, going to college really was an almost guarantee to increase your status, along with your pay-check. With 66% of HS graduates going to college, many will NOT be above median afterward, and very very few will be in the top 10%.
https://www.bls.gov/news.release/hsgec.nr0.htm
College used to be special good. It’s not special, and increasingly it’s not good. Millennials who believed it was the easy path to a gravy train have often found out they were wrong, or very wrong.
I wish they would sue the colleges for false advertising. And win.
Glad Nicholas Sandmann won a lot of money for suing media after their smear job on him wearing a MAGA hat a couple years ago. Money talks. Lawsuit victories change history.
I’m Gen-X, which means I’m caught in the crossfire of these two spoiled generations.
I wonder how common Arnold’s housing experience is across the rest of the country. In the southeast where I grew up my oldest of the boomer parents bought a modest house at a modest price. They never moved. Thanks to school zoning and the social engineering of HUD, their home’s value did not keep up with inflation. Financially they’re ok because the house was affordable and they did not depend on its value for retirement. On the other hand, they live in a dumpy neighborhood in their retirement.
In the southeast, it’s hard to tell if your neighborhood is going to still be nice 20 or 30 years down the road. Trying to split the difference between either a cheap house in a cheap part of town or an expensive house in the expensive part of town, my wife and I bought an affordable house surrounded by neighborhoods we could never have been able to afford. So far it’s working out. Downside is houses like mine become rentals and property taxes are higher than I’d like. Upside is that I paid it off in 17 years and the area demands a slightly higher quality renter.
I still can’t help but think that Millennials shouldn’t be having it this bad. They have a wealth of free information at their fingertips showing what careers have plentiful job opportunities and where. They can explore the job and housing market all over the country. They can readily find which colleges are affordable or if college is needed at all.
I think they’ve not been taught how to make choices. I blame their parents for this. Unless you’re super successful or lucky you can’t go to an expensive college AND major in something that has no job opportunities or doesn’t pay highly AND live in an expensive city AND afford an expensive house AND have a family AND go on vacations AND buy organice AND protest injustice on the weekends with your friends.
It wasn’t that the boomers were so smart, it’s just that they didn’t have the government helping subsidize bad decisions and driving up costs quite so much.
While the prices for college and housing are stupid these days, there are still options. Your college may not be prestigious or have a football team that plays on TV. Your house may not be in an enviable zip code. You may live hundreds of miles from the nearest IKEA. When you tell people where you live they may not be familiar with it. But, you could still live in a nice area with decent people and a growing economy and not be in massive debt.