Many years ago I bought a copy of The Great Boom Ahead by Harry S. Dent Jr. It was published in 1993, and described his predictions for the stock market, inflation, economic growth, and innovation for the upcoming decades. For various reasons, I read only a little of it and put the book aside. I recently picked it up again. Though I have not yet finished it, it has brought to mind some of his ideas about demographics-driven economics that have become relevant in current social media discussion.
One current resentment, one that has the purpose of supporting the call for Federal student loan forgiveness, says that Baby Boomers had it easy. Although it's questionable whether a generation-wide ad hominem attack is a valid or non-rude debate tactic, it's worth analyzing the idea. In a recent Twitter post one pundit compared inflation-adjusted wages to non-adjusted tuition and housing prices, marking the comparison by saying "Boomer: But why can't the slackers pay for college & pay off their loans like we did?" The stark ratio was falsified by using non-comparable numbers.
If you look at wages, it is clear that current wages (for production and non-supervisory workers) are far higher than they have been for all prior generations (from FRED[1]):
Looked at this way, the current generation is doing extremely well. But this is not the data that was presented. Instead, the pundit used numbers from this FRED graph[2]:
These are inflation-adjusted ("real") wages. Notice the giant dip in the middle? The dip is centered on the Baby Boomer earnings life cycle. So, contrary to current rhetoric, because of their large numbers, when boomers entered into the labor market from 1967 to 1986 they depressed their own real wages. It was only after the labor market digested the new workers that real wages went back up.
This turns out to be highly aligned with Harry Dent's message in The Great Boom Ahead. He forecast a large drop in inflation because of competition in the labor market, which occurred. He forecast a booming economy in the 1990s, which occurred. His predictions don't align as well later on, but this post is not about a review of his book or predictions. I'm referring to the explanatory power of demographics.
Of course, that is not the whole story. The oil price shock of 1973 caused a long term decline in wages for all production workers. But it was made worse in the 1990s and after, when U.S. workers were forced to compete not only with each other, but with overseas workers in Asia. Though avoiding the macroeconomic mistake of mercantilism (protectionism), the U.S. imposed the cost of its free trade policies on its own production workers.
Of course, in the past 25 years permissive importing policies have come from the "elite", composed primarily of Baby Boomers in managerial, professional, and government positions. So we have a mixed message: though "leaders" are indeed responsible for forcing US workers to compete wage-wise with the Third World (causing low wages), it's not like they skated along in the 1970s and early 1980s. It was rough for them early on too.
Recent Real Wage Gains
It's clear from the rising slope of the CPI-adjusted wage graph that our "story" about labor competition from offshoring of production is questionable. If real wages are depressed because of imports, then why are they actually not depressed, but rising? Unlike the wage declines that Boomers experienced in their 20s and early 30s, new generations are seeing real wage gains after 2000, at least in production roles.
Once again, using the Dent clue, we should probably look at demographics. Recent generations are smaller and the product of much lower fertility rates in the U.S. There is less competition for jobs, fewer people to fill them. Labor is scarcer, so the price of labor has been rising to meet demand. This matches current news about unfilled jobs all across the U.S. economy. It also bodes well for future wages, as the labor supply will continue to be constrained by the low U.S. birth rate.
It's a Tuition Inflation Problem, Right?
So why all the consternation? Is it just a social media conflagration, the outrage machine spinning narratives that are divisive and stupid, for the sake of selling advertising? The rhetoric is, of course, centered on Federal loan forgiveness, and the political message is that tuition inflation has been too high. The populist rhetoric centers on specific categories of goods, especially university tuition and housing, that have increased much faster than the CPI.
What about non-production workers? Were they insulated from real wage declines? It is less clear, because that category is not available on FRED. The closest I could find is this non-CPI adjusted series[3] with a much more limited timescale starting in 2003:
My impression, which likely matches that of many, is that the "elite" did just fine in their professional, managerial, IT, academia, and Government jobs. This caused the "two-tier" economy we have now where the elite are bidding up prices of homes while factory workers struggle to find affordable housing of any sort.
One could think of a college education like a membrane separating the haves from the have-nots. Many high school students and their parents may think that, in which case college tuition has very low price elasticity--any price is worth paying to avoid dropping into the gutter. The moral question (not the kind I usually address here) is whether universities are behaving rationally by charging what the market will bear, or extorting the future earnings of their customers. An ethical university would raise tuition only at the rate of CPI, and keep it affordable. Or, turning the question around, the ethics of the university are revealed by what it chooses to do. If the mission of the university is learning, then it will emphasize student welfare and tuition that matches the CPI. If the mission is profit, it will charge what the market will bear.
Now we have a result worthy of Vorpal Trade: we have derived the internal goals of the market actor from their economic behavior.
References:
1. Average Hourly Earnings of Production and Nonsupervisory Employees, Total Private (AHETPI)
2. Average Weekly Earnings of Production and Nonsupervisory Employees, Total Private/(Consumer Price Index for All Urban Wage Earners and Clerical Workers: All Items in U.S. City Average/100)
3. Employment Cost Index: Wages and salaries for Private industry workers in Professional, scientific, and technical services (CIS2025400000000I)
No comments:
Post a Comment