Are Baby Boomers Putting Their Millennial Children At Financial Risk?

May 14, 2019
Originally published on May 14, 2019 2:53 pm

A new book by Wall Street Journal writer Joseph C. Sternberg argues the economic practices of the baby boomers are imperiling the economic security of their children.

The baby-boom generation was born between 1946 and 1964; Millennials are defined as being born between 1981 and 1997, according to Pew Research Center.

The decade Sternberg refers to in the book’s title, “The Theft of a Decade: How the Baby Boomers Stole the Millennials’ Economic Future,” is the one following the global financial crisis of 2008.

He tells Here & Now‘s Jeremy Hobson he chose to focus on that decade in particular because it was the period when the largest number of millennials were graduating from college and entering the early stages of their careers.

“We were doing that during a period when the economy was unusually bad. I mean, we were seeing a lot of economic conditions that America hadn’t experienced since the Depression in the 1930s,” Sternberg says. “That has had a really profound implication for millennials’ prospects. If you lose that first decade when you are supposed to really be getting your economic feet, it becomes very difficult for you to try to claw your way back from it.”

Interview Highlights

On how job creation in the U.S. is failing millennials

“I had started out thinking that this was only going to be a book about the past decade, and what I realized is that the story needed to start a little earlier than that in order to make sense of what has really happened to the millennials. Really the way that America was doing job creation has been misfiring in some ways for decades. There were a lot of things that were going wrong in terms of the way we were incentivizing various investments, so the way we were thinking about productivity, the way we were thinking about what the job market should look like in the future, and the policy choices that the boomers were making about that.

“And an example of that is that a lot of the natural incentives that existed in the economy in the ’50s and ’60s when the boomers were children for companies to really invest in productivity enhancements that would drive wage creation. A lot of that had started to dry up and you had this drought of new investment in a lot of corners of the American economy in that decade after 2008 that I think had the effect of cutting off a lot of job opportunities for millennials who otherwise might have been able to move into some of those areas.”

On the housing crash as an example of how the boomers stole the millennials’ economic future 

“The housing is such an interesting example of all of this. The dominant story for much of the boomers’ early adulthood in the ’70s and ’80s were these big efforts in Washington to try to encourage more home ownership. And by the ’90s, that was really working in terms of the percentage of people who owned the homes that they lived in, but it had come at the expense of a lot of policies from Washington that were really encouraging a lot of irresponsible home lending and irresponsible home borrowing. And as we know, that created a lot of problems in the financial system that resulted in this 2008 crash.

“And yet after that, the boomers’ solution was again to try to focus on propping up property prices to try to keep as many boomers in their homes as possible without really thinking about what some of the generational consequences of that would mean. I mean, what would it mean to millennials who were entering into early adulthood, starting to reach the point in their lives where they should have been jumping onto the property ladder, and yet they couldn’t because the boomers — for the purpose of trying to recover from this financial crisis — were really trying to do a lot of policies to prop up the property market to keep prices high to solve this problem that the previous round of housing policies had created.

“The whole way that America came to think about housing and housing wealth under the boomers’ watch, I think, is a real problem from a generational perspective because I think that there really is the sense that people should try to hang on in their homes as long as possible. That there shouldn’t be this natural life cycle of downsizing once the kids are out of the house. And that of course opens up inventory that growing families can buy. Boomers also have been very successful tamping down on new home construction in parts of the country that have been economically vibrant — where the millennials should be looking for jobs — and yet once they find that job, they can’t afford to buy a house with it.”

On the idea the boomers have accumulated wealth they can pass onto millennials

“This is often presented as an example of how the millennials actually don’t have it so bad. This argument that, you know sure, the boomers accumulated all of his housing wealth, the boomers have enjoyed all of these other benefits that accrue from career stability earlier in their working lives that millennials have enjoyed, but it will work out in the end because the boomers will end up passing that onto their children.

“Yet, I actually think that it’s kind of the opposite. That’s not a good news story for millennials because you are going to then run into this issue where the boomers will live a lot longer than previous generations. They’ll do it in worse health. So you have this first-order question of how much of an inheritance boom will actually be available for millennials? And then you also have this issue that do we want to live in an economy where your economic security is based on whether or not your parents have managed to accumulate enough wealth that they can pass it onto you? America used to think of itself as a society where actually, I mean inheritance did play a role in some families, but there was also the sense that there would be opportunities for people for whom inheritance was not an option.

“We should be worried about why it is that suddenly that might not be the case for the younger generation. That there are a lot of reasons to worry that millennials are being cut off from some of the opportunities, especially in terms of the job market and the ability to develop stable careers over time. That used to be the pathway to economic stability for earlier generations.”

On the argument against the boomers being a selfish generation

“Well, I’m not saying that they are evil people. I think that the theft of a decade that I’m talking about in my book is less to do with malevolence and just more to do with failure to really understand what was going on around them and to respond appropriately to that. A tendency to stick to a bunch of assumptions that might have worked for the boomers when they were younger and it did help to deliver a period of remarkable prosperity for America.

“I mean, if you look at the technological advances that we benefit right down to the smartphones we’re all walking around with, if you look at the diversity of job openings for certain millennials that are out there, you know if you look at that kind of millennial, you can think, ‘You guys don’t really have anything to complain about.’ Actually we do because it is true that the boomers created a very secure and comfortable today for their millennial children, but where I think they really ran into trouble was thinking about long-term security for millennials, and that’s the discussion that we need to have now.”

On the millennial-boomer divide across the world

“Well, one of the things that I find interesting but also very troubling, if you stop to think about it, is these problems surface all over the world. And you can look at generational issues in developing economies like China, India, you know, a lot of generational issues are really going to come to the fore in places like Africa over the next 20 to 30 years because you do have very large, young generations of millennials there who are going to need to find their way in a rapidly changing developing economy.

“But in more mature countries like the U.S., like the U.K. where I live right now, across Europe and Japan, what you discover is a lot of societies that have these economic problems for young adults haven’t been able to come up with a good solution. That suggests that really there is something that we need to be thinking about in general. That it isn’t a matter that some countries are getting it right or some countries are getting it wrong. I think the whole system seems to be set up in ways that these problems are emerging, and we need to be really curious about why that is.”

Emiko Tamagawa produced and edited this interview for broadcast with Todd Mundt. Samantha Raphelson adapted it for the web. 

Book Excerpt: ‘The Theft Of A Decade’

by Joseph C. Sternberg

Since 2008, Millennials have fallen victim to two separate but closely related economic problems. The first is a longer-term transformation in the American economy, and it isn’t quite the transformation most people usually have in mind when this subject comes up.

We’re used to thinking about America’s economic evolution from a manufacturing powerhouse into a services titan. That change has preoccupied the Boomers for most of their own working lives. Going back to the 1970s, American factories already were starting to close, while those that remained had invested ever more heavily in automation. The “death of American manufacturing” is mired in controversy—by some measures manufacturing has declined steadily as a proportion of total GDP since the 1950s; by other measures it’s holding more or less steady—but America still is very much an economy that produces physical things in addition to all those services. And it’s clear that the nature of American manufacturing has changed significantly, as has the nature of employment within manufacturing industries. This work has become progressively higher skilled and more productive, while many workers who couldn’t keep up with the transformation (or, far more often, whose employers couldn’t keep up) have struggled to navigate the new economy. Manufacturing’s share of employment has fallen from above 30 percent in the 1950s to less than 10 percent now.

Countless economists going back forty years or more have tried to dig into what’s driving this transformation. Commonly cited culprits include technological advances, especially the computing revolution; foreign trade, especially with super-efficient industrial powerhouses such as Germany or Japan or low-wage behemoths such as China; US domestic tax policies and economic regulations; other policy failures such as deteriorating public education—you name it, someone has probably thought of it as an explanation for this switch. Yet it’s important to note that while this particular transformation has been painful for many Americans, it’s been good for many others. The broadening of the US economy to encompass more and more creative service industries has created unprecedented new career opportunities for Americans. It’s safe to say that in twenty-first-century America, it is easier than it has been at any earlier time in human history for people to find their niches in the economy no matter what their precise mix of individual skills and interests.

But this book will argue that debates about the evolution of manufacturing and services have distracted from a much deeper transformation, which has also become especially problematic for Millennials. The way America thinks about investment—how we stimulate it, how we direct it, how we tax it, how we regulate it— has changed in important ways over the past thirty to forty years. We’ve developed a taste for quick but large returns at the expense of slower and steadier growth rooted in broad-based investment to make large numbers of workers and industries more productive. We’ve focused more and more on the financial mechanics of the economy to create an appearance of economic growth, while missing the true significance of the fact that the American economy was becoming less well balanced—less productive than it could or should be in many areas, while new investment of both money and human energy was devoted to a relatively small number of industries, such as finance or tech.

This sounds like a theme that some economists and authors on the political Left have started to run with in recent years, so I should be clear from the start that this is not an indictment of Wall Street, or “the finance industry,” or “short-termism” among corporate managers, or excessive executive pay. The success of the American economy relies on our world-leading financial system, which does a better job than any of its competitors anywhere at funding innovation. One thing I’ve found striking as a journalist in Asia and Europe is how jealous foreign business leaders and politicians are—whether or not they admit it—of America’s dense network of pension funds and institutional investors, investment banks, hedge funds, private equity, and venture capital. They recognize that these innovations have fueled what growth America has experienced over the past decade, and for many decades before that. Foreigners are in awe of the financial prowess we Americans so often disdain.

Rather, I’m going to argue that too often our political leaders have gotten in the way of the best parts of our financial web, and that this has gotten worse as Boomers of both political parties have progressively gained control of Washington.

“Financialization,” as critics describe the outsize role Wall Street plays in the American economy, didn’t happen because cynical finance whizzes manipulated naïve politicians into letting the bankers get away with economic murder. Rather, Boomer politicians themselves understood the need to stimulate more investment on Main Street but chose problematic ways to do so. America’s failure, which has become Millennials’ acute crisis, is that politicians have steadily narrowed the range of investments that can be profitable for investors. The Boomers managed, mostly accidentally, to create an economy that rewards certain kinds of investment and punishes others. As we’ll see, too often this has meant rewarding the kinds of financial activity that contributed to the 2007–2008 crisis and could yet cause another one and punishing financial activity that would invest in job creation and real economic growth on Main Street. Millennials as a cohort are paying the heaviest price yet for these decisions.

Our changing approach to investment has had a wide range of effects on the Millennials who emerged into this new economic universe. For example, the American economy has witnessed a growing wariness on the part of many companies to invest in industries or technologies that require substantial labor, and instead have shifted toward investments in labor replacement. This isn’t new in economic history, but the scale and effects of these trends in the United States right now also aren’t obviously inevitable and are leading our economy in new and often troubling directions. One consequence Millennials grapple with is a hollowing out of the job market, which can provide some work for very highly skilled individuals in the upper reaches of the economy and a lot of jobs in service industries at the bottom of the ladder, but which struggles to create jobs in the middle ranks in terms of skills and pay.

Another consequence of this transformation is that as companies invest less in their own workers, workers must invest in their own training and skills. Millennials have done so with sometimes reckless abandon. This is part of the explanation for our fetish for advanced education and the enormous debts we’ve taken on to go to school. And most spectacularly, especially in the 2004–2006 period, the American economy seemed to become a giant machine for diverting investment capital into housing—with dire consequences for Millennials that continue to this day, in the housing market and beyond.

This need not be a partisan issue. Many free-market conservative or classically liberal economists and commentators are wary of many of the turns our economy has taken over the past generation—because too often these distortions have happened thanks to misguided policy decisions made in Washington, DC. One problem Millennials face in the labor market now is that for many years, Washington has leaned on the scales by using regulation to inadvertently make hiring workers in many potentially highly productive industries too expensive, while making investment capital cheaper than it otherwise would have been. The argument here isn’t that the free market has failed, but that Washington has failed to let the free market work as it should. If there’s a challenge for political conservatives in this, it’s to recognize that for all the political successes Republicans have notched up since the 1980s, significant areas of the economy remained incompletely or improperly reformed. Importantly, those failures feed directly into the second economic problem that has afflicted Millennials since the Great Recession: the Boomers who by then controlled Washington got the response to the financial crisis and its aftermath mostly wrong.

One of the surprises lurking throughout this book is the realization of just how little changed in the American economy after 2008. That’s counterintuitive because the political battles that marked the aftermath of the crisis were so fierce—and continue to this day. President Barack Obama, elected by frightened and frustrated voters in the depth of the financial crisis, came into office with a left-wing, progressive vision of American governance that sparked passionate controversy. The fiscal-stimulus bill he and Democratic allies on Capitol Hill passed broke records for one-off spending legislation. The Affordable Care Act, also known as Obamacare, sought to remake a health care system that accounted for around one-sixth of annual economic output. He signed a sweeping overhaul of Wall Street regulations. Other policymakers took unprecedented steps—especially the Federal Reserve, which cut interest rates to levels they’d never been before and rolled out policies such as quantitative easing that most people have heard of but few fully understand. And then, eight years after the crisis, in 2016 Americans embarked on yet another big experiment—some might call it a huge gamble—with Donald J. Trump. We’ve never had a president like him, for better or for worse, and his administration alongside a Republican-controlled Congress for his first two years refashioned America’s tax code and overhauled economic regulations to an extent most Americans don’t realize.

So in one sense it often feels like the decade since the crisis and Great Recession has been a period of nearly unprecedented experimentation in Washington, as politicians and policymakers have struggled to recover from an enormous financial panic and then put the economy back on track to generate growth and jobs. Yet as we’ll see again and again throughout this book, the standard response from both political parties—now firmly under Boomer management—has been to double down on economic theories and policies leftover from when they were younger. This was clear in many of the Obama administration’s labor policies, and it’s apparent in a Trump trade policy that’s straight out of the 1970s and ’80s. It’s true in some surprising ways of the Affordable Care Act† and also in some of Trump’s ill-considered pronouncements on what he wishes the independent Federal Reserve would do with interest rates. The response to the crisis has been more of what didn’t work before—more, in fact, of what created the conditions that led to the crisis in the first place. This fact is at the heart of much of what has gone wrong for Millennials entering the economy for the first time during that crucial decade.

And yes, it’s all the Boomers’ fault—even going back to the 1980s.

From THE THEFT OF A DECADE: How the Baby Boomers Stole the Millennials’ Economic Future, by Joseph C. Sternberg. Reprinted with permission from PublicAffairs, a division of the Hachette Book Group.

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