An interview with Joseph Sternberg and an excerpt from his book “The Theft of a Decade: How the Baby Boomers Stole the Millennials’ Economic Future”
A NEW intergenerational skirmish broke out in 2017 when an Australian businessman bemoaned millennials who, instead of prudently saving to buy a home, splurged on smashed-avocado breakfasts and lattes. The complaint seemed unjust. The younger generation countered that they were imprisoned in gig-economy jobs, burdened by student loans and condemned to tenement life because of overheated housing markets.
Now, millennial angst has found its intellectual voice in Joseph Sternberg, an editorial-page writer based in London for the Wall Street Journal. In “Theft of a Decade”, he documents the ways that the modern economy conspires against younger workers, in many instances because of deliberate policies that favour older people, like pension and health-care benefits, tax deductions and the like.
“We need to discuss these issues because we’re not just talking about dollars and cents here. We’re talking about core values of freedom and opportunity, and whether millennials will enjoy those in the same way their parents did,” he says.
As part of The Economist’s Open Future initiative, we interviewed Mr Sternberg about what’s gone wrong, what young people can do and whether the older generation should really be so smug. Following the interview is an excerpt from the book, on the punishing situation of college debt.
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The Economist: How, in short, did America’s baby-boomers screw the millennials?
Joseph Sternberg: I look at this over two spans, the long term and then the response specifically to the 2007-08 financial crisis and the Great Recession.
The longer-term boomer mistake was that they allowed—or rather, encouraged—a dangerously unbalanced economy to develop. A host of policies going back to the 1990s have distorted investment, whether by trying to foster tech or goosing the housing market or goading large numbers of teenagers to borrow huge amounts of money to “invest” in their “human capital”. Already before 2007 it was clear the American economy was working for some people but not for others—and that this was often the result of policy and not the normal workings of the market.
Then after the crisis, boomers doubled-down on a lot of those bad policies. The Affordable Care Act, or “Obamacare,” is a good example of this: the boomers had allowed to persist a system in America that increased the costs of employing people by goading employers to provide health insurance. The ACA doubled-down on this in ways that made it even more expensive to hire workers. Monetary policies that boomers thought would boost growth mainly boosted asset prices while making it harder for a lot of small companies to access credit. And on down the line.
Although many Americans were negatively affected, they weren’t equally negatively affected and often the dividing line was generational. Anything that disproportionately hurt small firms was bad for the younger workers who traditionally find their first jobs at that kind of company. Anything that inflated housing or other asset prices helped older owners and hurt younger people trying to buy into those markets.
The Economist: Did something similar happen in Europe or elsewhere? Or is it mainly an American thing?
Mr Sternberg: This is more surprising than people realise: across the developed world we see a wide variety of tax regimes, social-welfare systems, labour regulations, approaches to corporate governance, you name it. The one thing no one has figured out is how to manage the transition from today’s older generation to the younger. If anything, most countries have it worse than America in one way or another.
Much of continental Europe maintains labour policies that turn young workers into economic shock-absorbers in every downturn. In Britain’s property market, monetary-policy distortions are so great and the construction backlog so severe that it may not be fixed before millennials are well into middle age. Berlin’s budget is balanced today, but Germany’s demographic prospects are so bad that young Germans will face terrifying tax bills to pay old-age benefits for their parents. And this is before we get to Japan, whose demographic-economic challenges are notoriously complex and possibly insoluble.
The Economist: What is the worst way that millennials have been harmed?
Mr Sternberg: The theme that ties together so many of the strands I discuss in the book is choice—millennials have been robbed of the ability to make choices about their future.
In the labour market, a generation’s worth of distortionary policies have restricted the job opportunities now available to millennials. The slow-growth aftermath of the Great Recession limited the ability to make practical choices about careers, such as job hopping to upskill and improve pay. In the housing market, monetary policy and zoning rules cut off homeownership as an option. The student-loan-industrial-complex limits the saving and consumption choices available to millennials. The looming old-age entitlement burden will limit millennials’ scope to make political choices about our own spending priorities because all the money will be going to boomers’ benefits.
This is an important way we need to discuss these issues because we’re not just talking about dollars and cents here. We’re talking about core values of freedom and opportunity, and whether millennials will enjoy those in the same way their parents did.
The Economist: What are the best things that millennials can do to put their financial futures in order?
Mr Sternberg: Vote. On an individual level, the only sure-fire way to put right a lot of millennials’ financial problems is to have an economy and a labor market that work for as many people as possible. If you think that politicians and policy makers bear a lot of the blame for the distortions that hold us back, we need to hold them accountable for that and demand better. Ditto on challenges like homeownership that will only improve as millennials crowding into cities demand zoning reforms and other measures to boost housing supply.
More broadly, the reality is that some of millennials’ biggest financial problems only become fixable if we also get a handle on the tax bills we’ll have to pay for old-age entitlements. If millennials want to experiment with student-loan forgiveness, for example, a millennial-run government could only afford to do that if we’ve found some way to ease the fiscal strains imposed by Social Security and Medicare.
As a free-market conservative it’s uncomfortable for me to suggest that so many of these solutions depend on political rather than private action, but that’s the reality of the policy world we’ve inherited.
The Economist: It wasn’t really an intentional “theft” from millennials to boomers, was it… Do you have any sympathy for the Boomers?
Mr Sternberg: I do have sympathy for the boomers! My core argument is premised on the fact that they experienced economic challenges themselves, including the stagflation that greeted them as they entered the job market in the 1970s, the new dawning of globalisation and the outsourcing revolution of that era, and so on. Many of the policy errors I point to arose from boomers’ attempts to grapple with those problems.
But I think it’s fair to hold them accountable for failing to learn the right lessons from their experience both before and during and after the Great Recession. These were intentional decisions, political choices politicians and voters made despite dissenting voices (some of those boomers themselves) warning they were on an unsustainable path.
There’s an embedded warning here for us millennials, by the way. We should ask whether our children will write a book like mine about our generation in 30 years. Our miserable economic experience over the past decade isn’t an excuse for failing to dig into the details of what has happened to us and why, and for figuring out how to make better decisions.
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The student-debt disaster
Excerpted from “The Theft of a Decade: How the Baby Boomers Stole the Millennials’ Economic Future” by Joseph C. Sternberg (PublicAffairs, 2019)
As tempting as it is for Boomers to do so, don’t go lecturing Millennials about how we could avoid [financial] anguish if only we cut back on our consumption of avocado toast—because there isn’t much evidence that Millennial overconsumption is what leaves us without any money to spare at the end of the month. On the contrary, Millennials are inducing a growing panic among a lot of retailers precisely because, while we do our fair share of spending, we’re price-sensitive and value-conscious. […]
While by some (although definitely not all) measures Millennials are better with money than their Boomer parents, we don’t feel better about money. And that in turn may be because we’ve concluded our savings are particularly high-stakes for us because we won’t have anything else with which to support ourselves as we age. We know our employers won’t be there for us since we’re not enrolled in old-fashioned defined-benefit pension plans. But we also don’t believe the government will be there for us, either. A Gallup poll in 2017 found that only 25 percent of Millennials expected Social Security to provide a major source of retirement income, compared to 44 percent of Boomers.
No wonder Millennials appear to be the most financially cautious generation since the cohort who grew up in the middle of the Great Depression. And there’s a touch of rough justice to this. Millennials are now starting to hit what are supposed to be their prime earning and saving years, and doing it in an era when individuals are more directly responsible for their own retirements than any recent generation has been. Investment firms had assumed that would make Millennials cash cows for them, as we started buying more investment advice, brokerage services, wealth-management products, and so on. So imagine these firms’ dismay on discovering that we’re just stockpiling our money in savings accounts instead. Anyone who thinks that Wall Street greed played a role in the financial crisis and ensuing Great Recession can appreciate the element of payback in this: the generation most directly traumatized by the financial crash will punish Wall Street for the next thirty years by denting banks’ commissions and fees. It’s not much consolation, but it’s a nice thought.
Getting the Skinny on Sheepskin
What most definitely is not a nice thought is the next problem on any tour of Millennials’ personal finances: student loans. Of all the words in this book, these two will strike the greatest fear into the hearts of Millennial readers. They should strike fear into the hearts of every other reader, too. Millennials’ mountain of accumulated student debt is at the heart of most of what has gone wrong for us financially over the past decade, and what has gone wrong for us socially and emotionally too.
The numbers are shocking. Americans are sitting on $1.4 trillion in student debt as of early 2018. That’s nearly 11 percent of all outstanding household debt, and second only to mortgages ($9 trillion) as a form of personal indebtedness. Americans owe more in student loans than on credit cards ($815 billion). And the struggle to repay is real. Since mid-2012, the percentage of student loans that are at least ninety days behind on payments has hovered officially between 10 percent and 12 percent. That’s an understatement because at any given time a large proportion of student loans aren’t yet due to start repayments or are otherwise excused for a spell. The delinquency rate for loans that the borrower is actually supposed to be repaying is likely around double the official tally.
There isn’t a crisis in the sense that legions of Millennials are buckling under six-figure debts they can’t afford. But there is a very real crisis in terms of growing numbers of people laboring under five-figure debts, or less, that may never be affordable. And this has happened because Boomers consistently encouraged a lot of Millennials to borrow for college when we shouldn’t have.
Reasonable-sounding data about average household debt levels shouldn’t distract anyone from the fact that student debt has skyrocketed. One way to understand this is to compare how student debt relates to overall debt across generations. A 2014 analysis found that education debt accounted for a minuscule portion of total household debt for early Boomers when they were in their mid-twenties. By the time later Boomers were that age, school debt accounted for 5 percent of household debt. But it was 22 percent for an early crop of Millennials by the time they hit their mid-twenties. Early Boomers took out mortgages instead, with housing debt ac- counting for an average of 43 percent of their household debt port- folios in their mid-twenties, compared to a housing share of only 20 percent for Millennials. Boomers got a house when they borrowed. Millennials only got a piece of sheepskin with some Latin scribbled on it.
This level of indebtedness has tended to track increases in the number of people going to college (many early Boomers just didn’t, because the job market in their day didn’t require it). It also tracks increases in college tuition. The average cost of tuition and fees at a private, nonprofit college in 2017–2018 was $34,740 (in 2017 dollars), which is what the tail end of the Millennial generation, born in 1999, is paying. Millennials born in 1989 paid $27,520 on average when they started college in the 2007–2008 year, whereas tuition and fees were $15,160 in the 1987–1988 year, as the first Gen-Xers were matriculating. […].
The amazing thing is that we take this phenomenon for granted. It seems so natural that more and more people would demand a college education and be prepared to pay almost any price for it. Yet viewed in a different light, these trends are astonishing. Millennials who have taken an Econ 101 course (at an average cost of $594 per credit hour, or $1,039 per hour at a private, four-year college) will know that for the vast majority of goods and services, demand declines as the price rises. […] An underappreciated aspect of the student loan crisis is that we Millennials became convinced that a four-year college education is just as important to our futures as bottled water is for survival during a tropical storm.
Millennials have been taught pretty explicitly to think of college as an “investment”—that word pops up in almost every discussion of higher education and higher-education nance. It’s the justification for taking on large quantities of debt to buy what otherwise would amount only to an intangible and dubiously intellectual four-year experience on a leafy college campus somewhere. One reason for this theory’s popularity is that unlike many things that sound intuitive in economics, this thing has an aura of bona de truth about it. There is substantial evidence that college graduates on average earn more than those who have not graduated from college.
That’s why a distinguishing characteristic of the post-Boomer economy is an obsession, almost on the order of a fetish, with acquiring education. The proportion of the population attending college has risen steadily. […]
That’s the one small problem with the Boomers’ obsession with education for themselves and their children: no one told Millennials what it really means, in economic terms, to view education as an investment. Millennials know that if we invest in the stock market, we might lose our money. Education, we’ve been told, is an investment in our “human capital”—in the knowledge and skills that will allow us to earn good livings for ourselves, in the same way our employers might invest in physical capital like computers or factory tools. But for our entire lives, we’ve been told that higher education is the one investment in human history that always pays off in the end.
That’s preposterous, and a growing amount of data proves it. By now it’s not even clear exactly what students are “investing” in when they go to college.
Excerpted from “The Theft of a Decade: How the Baby Boomers Stole the Millennials’ Economic Future” by Joseph C. Sternberg. Copyright © 2019. Available from PublicAffairs, an imprint of Hachette Book Group, Inc.