Economic Growth

Another Generation Becomes First Generation to Live Worse than Parents, sez Robert Samuelson

Inflation historian describes how the Age of Abundance has ended.


The Gilded Age was just like today, but with big bags of money.

"The middle class can't regain its self-confidence and financial health without a strong economic recovery," writes Washington Post economics columnist Robert Samuelson. "But the economy can't recover strongly without a financially healthy middle class, which provides most consumer spending. Not surprisingly, the economic expansion is glacial. Household debt is reduced gradually. Wealth is slowly rebuilt through higher saving and stock prices — and the hope that home values will follow." 

Those last two sentences need clarification. Household debt is barely being reduced at all. The Department of Commerce's monthly personal savings rate [pdf], which had topped $600 billion in every month during the second half of 2010 and the first quarter of 2011, has not gone above $600 billion in any month since June 2011. The percentage of personal savings (disposable personal income less expenditures) has not been above 5 percent since June 2011. (Our colonial ancestors in the 1980s saved more than 10 percent per month.) A trio of professors says half of retirees die with less than $10,000 worth of personal assets. 

And hope does not rebuild wealth any more than faith generates net sales. We can debate whether higher saving or stock prices rebuild wealth: Savings accounts are paying less than one percent interest while inflation has robbed your dollar of ten cents since 2007; and although imaginatively valued stock prices rebuild paper wealth, they vanish like the gambler's lucky streak. But there's no debate on hope: It doesn't rebuild anything. 

This gloomy column continues Samuelson's welcome streak of out-of-the-park jeremiads. The historian of the great inflation described the "Withering of the Affluent Society" in a recent Wilson Quarterly thinker: 

For millions of younger Americans—say, those 40 and under—living better than their parents is a pipe dream. They won't. The threat to their hopes does not arise from an impending collapse of technological gains of the sort epitomized by the creations of Fulton, Ford, and Gates. These advances will almost certainly continue, and per capita income—the average for all Americans and a conventional indicator of living standards—will climb. Statistically, American progress will resume. The Great Recession will be a bump, not a dead end.

The trouble is that many of these gains will bypass the young. The increases that might have fattened their paychecks will be siphoned off to satisfy other groups and other needs. Today's young workers will have to finance Social Security and Medicare for a rapidly growing cohort of older Americans. Through higher premiums for employer-provided health insurance, they will subsidize care for others. Through higher taxes and fees, they will pay to repair aging infrastructure (roads, bridges, water systems) and to support squeezed public services, from schools to police.

I distinctly remember the mellow of my own generation's youth being harshed by numerous think pieces pronouncing that we would be the first generation in U.S. history not to live as well as our parents. I suspect if I had a time machine I could find newspapers in the 1960s saying the same of the baby boom generation. The first popular use of the term Lost Generation was to describe the World War I-era cohort. 

Still, Samuelson's fire and brimstone is needed medicine for so many of my media colleagues who find it hard to put away their belief that a Long Boom created by a Post-Scarcity Economy has ushered in an Age of Abundance that is sustained by debt-driven Purchasing Power. 

You'll have to wait for my Reason print column "Rise of the Five-Dollar Pizza" to find out just how well the deep-discount retail sector (stores with "Dollar" in the name) has been doing since the Keynesian death throes began in the early aughts. Much of that growth is coming as Americans from higher income quintiles resort to 99-cent shopping, and not just to pick up the occasional Jesus candle but to purchase the food and supplies they need to survive. A Family Dollar representative told me: 

We've certainly benefitted from the economic backdrop, as sales growth has been very strong, among the best in retail. Our value proposition has really resonated in this environment. The primary strength has been in our consumables areas, i.e., food, health, beauty, personal care, and household products and chemicals. Things you need to buy every day to run a household. We've been aggressively increasing our assortment in these areas over the last few years to provide a broader and more complete assortment…

We are working hard to drive consumables sales higher through an increased assortment. We have significantly increased our SKU counts in food and healthy, beauty, and personal care over the last 5 years. 

Samuelson concludes his Post column with the good news that Americans remain tougher than they were believed to be: 

For now, what's telling is the resilience of middle-class norms. About 11 million homes are "underwater," reports CoreLogic: Their mortgages exceed their values. Still, most owners make monthly payments even though defaulting might be advantageous. Similarly, long-term unemployed workers send out hundreds of resumes despite repeated disappointment.

Elsewhere, celebrated investor Jim Rogers supports public bankruptcy as the way forward: "The solution to too much debt is not more debt… What would make me very excited is if a few people [in the government] went bankrupt…"

Meanwhile, back at The New York Times, Floyd Norris does his part to boost house prices. But Reason commenter John notices that Fannie Mae has less than a quarter of its REO inventory on the market and is unable to sell nearly half of it.

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  1. Anecdotally, I’m about a billion times better off than my parents were at my age (in terms of finances and projected income. They were married and had my older sister on the way, so if you want you can include that as factor in their favor)

    1. Anecdotally, I’m about a billion times better off than my parents were at my age

      As near as I can figure, I’m about even, maybe a little behind, where my parents were at my age.

      1. I became about even with my parents when I inherited their estate. Maybe slightly behind.

    2. there is a lot of truth in that, your being better off I mean. At my eldest’s age, I had two kids, not a bad income (inflation adjusted), but in real terms it was about a third of what he’s making now.

      Better can be a relative thing. It’s not like he wanted for things. But he is likely more comfortable that I was at the same age.

    3. I’m definitely better off than my parents, but +20% of my income goes to deferred savings, either for retirement or the futile effort in saving for the spawns’ college bill. Thanks profligate and wasteful gubmint.

      After that and living expenses, taxes, we don’t have enough left over to do much of anything. Note that our debt is down to just a reasonable 15-year mortgage. The cars are paid off (well, 2 more payments on the wife-unit’s) and I pay cash for almost everything else.

      Still, it’s fucking frustrating to just tread water when your house needs some serious work.

      1. I am paying off my student loans about $750 extra a month and putting 10% into my Roth. I seriously don’t even know what I would do with that money if I wasn’t spending it on those.

  2. Wealth is slowly rebuilt through higher saving…

    People who save are just racists who want to see the president fail.

    1. Shit, FoE, you just wrote a couple weeks’ worth of MSNBC script in just one sentence. I am impress.

      1. Needs moar spittle.

    2. But paradox of thrift and deflationary sprial! Krugman proved it with that babysitting co-op analogy!

  3. I want my economy back, you son of a bitch!

    1. You keep using that word, ‘recovery’, I do not think it means what you think it means.

      1. Get used to disappointment.

        1. I learned long ago to just always expect a poor outcome. It works well for hedging against disappointment. I’m rarely disappointed. And if something turns out less terribly than I had expected, then it’s like a win.

  4. In other news, the puppeteers have arrived in Tampa…..05008.html

    1. How many vacation days do the SEIU minions get a year?

      1. Vacation days? These are paid “training” days.

        1. I know their getting paid. Vacation/Training whatever you want to call it, I guess it beats working for a living.

    2. I love it when left-wing idiots where Guy Fawkes masks when Guy Fawkes the historical figure wanted to restore a Catholic monarchy to England while V the comic book character was an anarchist that wouldn’t approve of “let’s rob wealthy/successful people to give free shit to lazy college students” mentality.

      1. If they were smart, they wouldn’t be idiots.

        1. That’s really the crux of the problem.

          1. I’m quite sure that V would approve of throwing bricks through the windows of coffee shops that offer a product for which people are willing to voluntarily exchange part of their wealth.

            If that isn’t slavery, I don’t know what is.

        2. Y R U so mean?

      2. At least the Code Pink gals are consistent.…..05013.html

        Back in ’04 they protested the war in Iraq, and now they protest the Republican War on Women. You don’t get to pick the wars of the time you live in, but you can let people know how you feel about them. Code Pink, setting the bar for consistency and integrity.

      3. Not only that, but every GF mask sold has a royalty paid to, as I recall, Warner Brothers, a rapacious kkkorporate pirate!

      4. I love it when left-wing idiots where Guy Fawkes masks when Guy Fawkes the historical figure wanted to restore a Catholic monarchy

        If you’re referring to that pro-government pep rally sometimes called The Occupy Movement, then they’re not as dumb as you think. An all powerful monarchy would be right up their alley. Especially one that demanded continuous tithing to the state.

    3. Instead of drums, they should beat dead horse. I’m sick of these shitstacks already.

      1. isn’t dead horse beating among their specialties? Along with straw grasping and a few other things.

      2. And giant vaginas.


        1. They have pussy costumes on, too!

    4. Thank god the paper m?ch? subsidies are starting to work.

    5. Are you sure you don’t mean “puppetistas”?

  5. Here’s why Samuelson may be right:

    Total debt in our society is not going down, and its rate of increase is pretty much unchanged. Whatever reductions may have occurred in household debt have been (more than) made up for by increases in public debt.

    The “debt overhang” that our society has built up will all be paid for by somebody. The various mechanisms for retiring debt, whether via payment, bankruptcy, or inflationary devaluation, are merely different ways of saying who will bear the burden. Banruptcy means the creditors take the hit, inflationary devaluation means just about everybody takes the hit.

    Debt is a mechanism for shifting demand/economic activity from the future to the present. When you buy that TV this year on credit, rather than next year after saving up for it, you have shifted demand from next year to this. This year will look (artificially?) good, at the cost of next year looking that much worse.

    Accumulated debt shows how much demand/economic activity has been shifted. And we have shifted vast amounts of economic activity out of our future. That’s why the young ‘uns don’t have much chance of doing better than their parents: their parents have effectively consumed much of their future already.

      1. It’s cool. All we have to do is buy a bunch of gold. And then (expensively) certify that we didn’t get it from a kill mine in the Sudan.

        1. You know, I could see a really huge push to grab an asteroid or two. Without mentioning publicly that we’re going for the gold.

          1. Space gold rush. Now there’s a concept I could get behind.


              Spoiler: Horribly bad movie. No redeeming qualities whatsoever.

              I’ve watched it a solid dozen times, at last count.

              1. I love that the IMDB summary was written by a guy with a email address. I wonder what he does all day at work?

                1. love that the IMDB summary was written by a guy with a email address. I wonder what he does all day at work?

                  Same thing we do.

            2. Here comes the Asteroid Wars series (but I’m in anyway).

              1. I totally missed that, Brett. Good call.

      2. I have little doubt that much of our current debt will be retired via inflationary devaluation.

        That doesn’t equate to a growing economy, though. If the economy produces X number of widgets, and you double the amount of currency in the economy, you haven’t increased production, you have only increased the number of dollars chasing each widget.

        Here’s what we’re up against: the demand destruction of paying down debt can be masked, for awhile, if the overall amount of leverage is going up. Sure, demand is being destroyed to pay off last year’s debt, but if you can borrow more than you are paying off, then you can shift enough demand out of the future and to the present to hide it. That’s the game we’ve been playing.

        That requires ever-increasing amounts of leverage, though, and at some point you just can’t play that game anymore. Printing lots of dollars to pay off last year’s debt doesn’t stop it, it just increases the cost of borrowing until you can no longer borrow more than you pay off, and can no longer hide the demand destruction that is inherent in deleveraging.

        1. Paying off debt doesn’t destroy demand. What do you think the people you are paying the debt are going to do with the money?

          1. I think it does. If you are paying down debt you don’t have that cash to satisfy – demand for other goods and services.

            If you are collecting on the debt – there is no guarantee that it will be loaned to us again, especially if we inflate our way out of this mess.

            1. But you are not paying off the debt to aliens. That money is going to someone who then will use it for something.

              If paying off debt lowered demand, then government borrowing would increase demand and Keynesian stimulus programs would work. The problem is the debt has to come from somewhere, so they don’t work. The same is true here only in reverse.

              1. The question is whether or not the gubmint debt will ever be paid off. Unless we manage to hyperinflate our way out of it, the only other solution I see happening is defaulting on the debt by sovereign act.

          2. Paying off debt doesn’t destroy demand. What do you think the people you are paying the debt are going to do with the money?

            I don’t think there’s any question that debt shifts demand from the future to the present. I think that necessarily implies that demand is destroyed when the future arrives.

            I’m going to buy one TV over the next few years. I borrow to buy it this year. The seller books a sale this year, at the cost of booking that sale next year. The demand for that TV was created this year, and destroyed next year.

            Say the seller loaned me the money. When I pay him off the loan, that doesn’t mean another TV is going to be sold. I don’t have the money to buy it, after all, since I just gave that money back to him.

            What if I borrowed from a third party? They had the cash, so they could have bought the TV themselves instead of loaning the money to me. One TV sale still gets booked this year.

            I save my money, and buy a TV next year, so another TV sale gets booked next year. Is this the magic multiplier effect? No, because by saving my money I was shifting my demand for a TV to next year, by destroying demand this year for whatever else I was going to spend that money on.

            1. It shifts your demand to the future. But the it doesn’t the guy who loaned you the money. When you pay him, he will have more money. You are confusing the micro with the macro. Start paying off bond holders and watch how much more money is available in the private equity markets.

          3. Here’s the rub, John:

            Say there’s demand in our little economy for two TVs over a two year period. If I buy one this year, and so does the lender, then next year no TVs get sold, and the TV store goes out of business due to a deflationary/deleveraging contraction of our economy.

            If I save for the TV, then the lender buys one this year instead of loaning me the money, and I buy one next year with my savings. The TV store stays in business.

            Leverage breeds volatility. The TV store had a great first year, but then crashes and burns because of that volatility.

        2. Uh, whole lotta inflation? Wars of conquest with plunder?

    1. That is mostly true. But it is not the whole story. You assume that everything that is purchased on debt is wasted or doesn’t produce wealth. Someone borrows money to say start a business or do research on some great product, the debt is then not so bad.

      For example, if you are a developing country with no infrastructure, maybe borrowing money to build some isn’t so bad. Or if you are England and the fascists are at the door steps, borrowing money to fight them off is a pretty good investment.

      Lots of countries have gone into huge debt. For example England had a public debt of over 200% of GDP in 1815 at the end of the Napoleonic wars. Yet, it managed to do okay in the rest of the 19th Century.

      The debt is only relevant in comparison to how much money you have. So you can always solve any debt problem by getting richer and stopping borrowing. I think we can do the first part. The second is the problem.

      1. If we were still mostly a free market economy, maybe we could get away with lots of spending. But the spending coupled with the massive regulatory state makes a recover-by-boom option very difficult.

        1. That is just it. I think it was Cato who put out some study that said that the regulatory state costs the country something like a trillion dollars a year.

          Once in a while I hear some liberal talking head lamenting how absent a productivity miracle there will be no way to pay for these beloved social welfare programs in the future. I don’t know if it is a miracle, but getting rid of the regulatory state would go a hell of a long way to doing that.

          If liberals actually cared about anything but power and had not gone insane, they would understand they are going to have to give up one or the other.

      2. Someone borrows money to say start a business or do research on some great product, the debt is then not so bad.

        Sure, sure. Strip out all the debt owed by business, so you only are looking at government and household debt.

        Its still a very ugly picture, that promises lots of demand destruction.

        That demand destruction can be mitigated if you have real economic growth that exceeds the rate of demand destruction. That’s still possible in the US, I suppose. We haven’t managed it in quite some time, as the amount of debt we have accumulated each year for the past 10 years (at least) has exceeded the amount of growth.

        England paid off its debt in the 19th century by hosting the industrial revolution and colonizing India. I’m not sure what we have on the horizon to match that.

        1. Paying off debt does not cause demand destruction RC. If it did, government borrowing would create demand and Keynsian economics would actually work.

          And there are lots of things coming over the horizon. Productivity and technology are going up exponentially faster now than in the 19th Century.

          And colonizing India cost England a fortune. India was always a luxury.

          1. If it did, government borrowing would create demand and Keynsian economics would actually work.

            Keynesian economics does create demand, in the short run. There’s a reason Keynes famously said “In the long run, we are all dead anyway” or something like that.

            Its in the long run that Keynesianism fails. And the long run always gets here sooner or later. Its just our bad luck that we’re going to be here for the later.

            1. Keynesian economics does create demand, in the short run

              No it doesn’t. The money has to come from somewhere. It just shuffles money around. At best it will create demand if people are refusing to spend their money. If the money is just sitting in the bank, Keynesian economics might come and spend it. But that it about it.

              We owe most of the debt to ourselves and the rest of it to places like China who buy from us anyway. Paying down the debt is doing to do little or nothing to overall demand.

              1. At the micro level, I guess we agree that debt shifts demand from the future to the present, and thus creates demand in the present by destroying demand in the future.

                You are arguing that, regardless of this effect at the micro level, at the macro level debt doesn’t destroy demand in the future, because when the money gets repaid, it can just be spent again.

                The circulation of money, in effect, prevents demand destruction at the macro level? Wouldn’t this mean that there is no limit to the amount of debt that we should take on, because there is no downside to debt at the macro level? The level of debt is irrelevant at a global level?

                We can borrow our way to permanent prosperity? Put another way, since all our money now is debt anyway, we really can print our way to prosperity?

        2. The US also is sitting on a few trillion dollars worth of oil and natural gas that has yet to be exploited.

          It is really not that hard. Bring the deficit back into something approaching balance, take the government’s foot off the throat of the economy, stop printing money and take our medicine letting the housing bubble finally die, and the economy will start growing at three or four percent a year again and the debt will look a lot better.

          1. I am beginning to wonder if the gas and oil will ever be exploited. Certainly not in a second Obama term. The man says no to all things domestic but lends billions to Brazil, Mexico, and Columbia for oil drilling.

            1. If we are too stupid to exploit it, we get what we deserve. But it is not like it is going anywhere.

            2. I am beginning to wonder if the gas and oil will ever be exploited.

              I’m just hoping that gas comes back down to $4 a gallon. This improving economy is killing me at the pump.

          2. Well, what the Fed is doing is utterly retarded. Massive increases in monetary base. Okay, that would make sense if they simply wanted an inflationary boom. Instead, they pay interest on bank reserves so that the banks just sit on their newly created dollars. A bit of the money has seeped out to the large investment houses. Otherwise, the banks have no incentive to loan any of the money out, and businesses have no incentive to borrow with the huge levels of uncertainty.

            This is why I think the Obama administration is more stupid than evil – they’re doing this, and they can’t understand why the economy isn’t getting better.

            1. I’m trying to figure out why they’re still paying interest on reserves.

              I realize that in 2008 they just wanted to create a risk-free income stream for insolvent banks, but why keep doing it now?

              1. Because it creates a risk-free income stream for banks, and let us not forget that the Fed is a bank, staffed by bankers, and run, ultimately for the benefit of banks?

                1. Fed is a bank, staffed by bankers, and run, ultimately for the benefit of banks?

                  This seems racist, but I can’t put my finger on why.

      3. I don’ think most of the debt we have incurred has anything to do with “building/investing” or “taking entreprenurial risk” that, I agree, are worthwhile provided that it helps to successfully separate the wheat from the chaff.

        1. NO it hasn’t. But most of the debt the England ran up during the Napoleonic wars went to bullets and such not wealth.

    2. This year will look (artificially?) good, at the cost of next year looking that much worse.

      That’s why we need more debt. So Greece will look good next year too. This is just crazy austerity talk, RC.

  6. There is a reason some of us who do OK are hitting the Aldi and such places when shopping…

    1. Sedition?

    2. I’ve walked through a couple of Aldi’s before. Could never find anything worth buying. We do have a bakery that sells bread/buns etc. at deep discount nearby which is pretty cool.

  7. I’m on an 8-year plan to pay off the house, at which point I’ll be debt-free (other than the taxes on said house, which really does act just like a debt).

    Does that make a lot of sense when I expect significant future inflation? I don’t know. I mean, I suppose the value of my assets (house) would be expected, long-term, to increase in value in proportion to my loss of future purchasing power. But it also means my mortgage payment would be relatively smaller, in terms of purchasing power, in the future so paying it off slowly would be advantageous.

    But debt sucks. Hard. I’m getting off the wheel. When I’ve got a fully-paid roof over my head I’ll cut back my hours and spend time pondering whether or not I made the most financially savvy decision. I’ll do that with a beer, on a Tuesday afternoon, in a hammock on my rooftop deck.

    1. does it make sense? The proverbial question only you can answer. Bought my condo for cash when prices were depressed on the Gulf Coast. It tied up money that could have gone for other things but it also eliminated mortgage payments, so money is still free for other stuff.

      And a beer on a rooftop desk is the ideal place for such pondering. Especially on a Tuesday.

      1. ^exactly.

        Who gives a shit if you’ll make a few extra points (or not) by investing it somewhere. You are drinking a beer in a rooftop hammock on a Tuesday.

        1. If he was making some extra points he might be able to be drinking an authentic lambic beer in a rooftop hammock made from eagle feathers on a Tuesday!

        2. Who gives a shit if you’ll make a few extra points (or not) by investing it somewhere.

          Except few people do. It works in theory, but in practice… not so much.

          It’s not very often that someone calculates they can carry a mortgage at 5%, and use the money the would have paid the house off with and make 6.5% on some other investment.

          Besides, most people get the mortgage because they don’t have the damned money for the house in the first place.

          So it’s debt all the way down.

          To coin a phrase, if you can afford to college, you probably shouldn’t go.

    2. Does that make a lot of sense when I expect significant future inflation

      The purpose of money, an economy, all that, is to create material security, the ability to be housed, fed, etc.

      If you own your house outright, that’s a big bump to your material security. The alternative is to take that money and invest it so that it grows faster than the rate of interest on your mortgage. If you can manage that, good for you, but leverage is risk, and risk and material security are not good bedfellows.

  8. If I were in a position to invest, I’d probably just buy used guns (and ammo). I can’t think of a better store of value. Plus, guns.

  9. Affluent people are shopping in dollar stores because many affluent people tend to be:

    1. Smart

    2. Cheap

    Sure, there are lots of brand-obsessed affluent people, but there are also a lot of cheapos. I know this because I am a cheapo.

    To justify me not buying a grocery item at Aldi’s (for example) the quality difference between the Aldi’s item and the same item at Stop and Shop has to be larger than the price difference. And the quality of mainstream brand-named goods is too low for that now.

    Every time I go to the dollar store or the Aldi I see more BMW’s.

    1. Most people who shop at COSCO are pretty well off.

      1. Well those evil bastards make you pay just to get in the door. Of course only rich people could afford to get in there to eat $1.50 giant hot dogs with unlimited soda.

      2. God, I love Costco. I wish I could afford to buy $150 worth of groceries every day.

    2. Some of the store band grocery items taste better than the name brand.

      1. That’s because most of them are the name brand items. They’re purchased from the name-brand sellers on a special contract deal and repackaged as the store brand.

  10. There are several reverse mortgage disadvantages that you should evaluate before taking out one. You will be paying a higher interest rate than on other loans, have less equity in your home, and you may run out of the money sooner than you think.

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