Assets Are Not Income

Jordan Weissmann, “Why Twenty-Somethings Aren’t Doomed to Be Poor (but Thirty-Somethings Might Be),” The Atlantic.

Referring to the recent Times article about the Urban Institute’s study on young (under 40) people, Weissmann opines:

But the Times misses something key, I think, which is that not everybody under 40 is in the same boat. As this graph from Urban Institute’s study shows, it’s mostly Americans in their thirties (in red) who have seen their net worth collapse compared to 30 years ago. The quarter-life set are actually doing a bit better.

Weissmann further argues that the wealth lost by 29-37-year-olds is due to the housing bust, which didn’t affect their juniors. Twenty-somethings may have some student loan debt, but they’re better-educated than their parents were, so they can expect higher incomes, he says.

Would that Weissmann were right, but young people (however broadly you feel like defining them) are doomed because they don’t have much income. This is how the financial life cycle works. Young people are asset poor but cash rich, the cash being their unrealized net future incomes as good drones in the capitalist order. As they work, they gain skills and wage raises, pay down their debts, save for retirement, and dissave as they age. As I wrote last week, if you lock their wages and load them down with nondischargeable debts they don’t get to be good drones and end up paying an income surtax to the government.

And how are the drones’ incomes? The Census Bureau (P-28–P-31) tracks mean earnings by age bracket and education via the Household Survey.

Mean Earnings by Age

Observe that the income growth stops for most age brackets in 2000.

Annualized Earnings Growth by Age

The under-25 crowd is especially in a bind because its income increases even to 2000 were trivial in absolute terms. Thus they drop out of the workforce (and probably go to college):

Top: Civilian Noninstitutional Population (16-24); Middle: Civilian Labor Force Level (16-24); Bottom: Civilian Employment Level (16-24)

How many “young people” can afford to wait until their 50s for their first real job so they can become land speculators?

None of this is to say I’m in favor of wholesale generational warfare. Many older Americans lost everything in the last two bubbles, they pay high health care costs, and even their student debt levels are exploding upward. Rather, it’s a handful of older Americans who are hoarding the country’s wealth. People like Mark Zuckerberg and Lena Dunham are extreme exceptions.

I’m not going to address Weissmann’s value-of-the-college-degree point.

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3 Responses

  1. Thanks for bringing this up. I generally like the Atlantic, but their research on this topic only brushes the surface of the real issues, and they willfully take the party line on stats about average incomes for degree holders being so strong. They just do not go deep enough.

    Once they get into theories about “The economic engine of a college campus” I run for the door.

  2. “People like Mark Zuckerberg and Lena Dunham are extreme exceptions.”

    …who both come from relative privilege compared to 98.5% of America.

    The real interesting thing to me is the dramatic rise in incomes of people over 65. That tells me: 1) people aren’t retiring/dying like they used to; and 2) the wealthy sect have found ways to be paid a generous in-retirement income that their peers in 1975 did not.

    We have an economy where people are essentially going to suck everything out of it that can up to the moment of their death.

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