New Evidence on Downward Mobility

Official Washington, including many Democrats, seems to believe that the U.S. can prudently trim entitlement programs for seniors -- with the main impact of these cuts felt years from now. But a big problem with this thinking, as I have noted here often, is that future generations of seniors are going to be poorer than current seniors or the Early Boomers who are just now starting to retire. 

Given how little many younger Americans have saved for retirmenent, we're going to need a bigger safety for seniors a few decades from now, not a smaller one. 

The latest evidence of that alarming truth comes from an analysis by the Urban Institute, which finds that:

Today, those in Gen X and Gen Y have accumulated less wealth than their parents did at that age over a quarter century ago. Their average wealth in 2010 was 7 percent below that of those in their 20s and 30s in 1983. Even before the Great Recession, younger Americans were on a strikingly different trajectory. Now, stagnant wages, diminishing job opportunities, and lost home values may be merging to paint a vastly different future for Gen X and Gen Y. Despite their relative youth, they may not be able to make up the lost ground. If these generations cannot accumulate wealth, they will be less able to support themselves when they eventually retire. 

One striking thing about this finding is that it defies the usual trajectory of inter-generational wealth accumulation. The authors -- Eugene Steuerle, Signe-Mary McKernan, Caroline Ratcliffe, and Sisi Zhang -- note that "As a society gets wealthier, children are typically richer than their parents, and each generation is typically wealthier than the previous one at any given age."

Not this time around. The U.S. has gotten plenty wealthier overall in recent decades, but younger people have gotten poorer, in relative terms: "Today’s adults in their mid-30s or younger—the prime time for career and family formation—benefited little from the doubling of the economy since the early 1980s and have accumulated no more wealth than their counterparts 25 years ago."

So what happened?

The best answer is "a lot of things," as Tamara Draut spelled out in her 2006 book, Strapped: Why America's 20- and 30-somethings Can't Get Ahead. Draut explains that young people have been whacked from every direction: Young people need more post-secondary education than ever to have a shot at the middle class, but disinvestment in higher education has meant heavier student debt, which stops young people from building wealth. Credit card debt is also a major problem, with lenders luring in young people earlier and piling on fees and usurious interest rates thanks to deregulation -- a form of financial predation that didn't really exist in earlier times. Housing prices have moved out of reach for many young people, especially in coastal cities with the highest paying jobs. Childcare costs can be murderous -- and yet are impossible to avoid giving the imperative of two incomes.

And, underpinning a lot of these problems, the labor market has changed in fundamental and negative ways over recent decades. Good middle class jobs with good pay and benefits have become more scarce, especially for younger people without a college degree. In contrast, the economy produces lots of bad jobs in sectors like retail which barely pay a living wage and don't offer retirement plans or other benefits.

Even as the economy has turned more hostile to young people, public policy has failed to respond with a new generation of policies to build the middle class -- comparable to what we saw after World War II. That failure, in turn, reflects the growing influence of the wealthy and corporations in America's democracy -- groups that often don't prioritize upward mobility policies, as Demos lays out in our new report, "Stacked Deck."

Conservatives often rail against government policies that foster "dependence." But there is no better way to create dependence than to under-invest in people's ability to learn, earn, save, and build wealth. As the authors of the Urban Institute report point out:

If current trends for younger generations are not reversed, within a few decades they may become more dependent than older Americans today, especially in retirement, upon safety net programs less capable of providing basic support.

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