(What’s Left of) Our Economy: The Real Demographics of Wage Growth

Tags

(What's Left of) Our Economy wages, Atlanta Federal Reserve Bank, Baby Boomers, Bloomberg, Conor Sen, demographics

The debate over whether American wages are rising or not continues apace. Hopefully, if only for the sake of competitiveness, the optimists will come up with offerings better than Conor Sen’s column on Bloomberg today. He claims that breaking workers down by age group shows clearly that the only cohort of the workforce suffering anything close to wage stagnation is the huge generation of Baby Boomers.

According to Sen, data from the Atlanta branch of the Federal Reserve demonstrates that the slow wage growth of the Boomers is dragging down all of these pay figures – but that this problem will steadily fade away as they retire. And because the economy keeps generating huge numbers of job openings, and because so many businesses are reporting labor shortages, the wage “tailwinds” for younger workers are going to be “great.”

Unfortunately, understood properly (i.e., examined for the entire time span of the Atlanta Fed data series Sen is touting), the numbers tell a very different story. It’s true that wage increases get bigger the younger the worker, as the Atlanta Fed chart below shows. But the more important trend illustrated is that, for all generations of workers tracked, this wage growth has weakened over time. (It’s important to note that these statistics are tracking wages of different age groups as they exist in any given year. They don’t examine the wages of age groups as they age.)

You can easily see this trend by just eye-balling the chart. Although wage increases have experienced ups and downs for all age cohorts, each successive peak since 1998 has been lower than the last. Nor are your eyes deceiving you.

The interactive feature of the chart (which can be used in on the original on the Atlanta Fed website linked above) makes clear that, measured by twelve-month moving averages, median wage growth for the workforce as a whole peaked (before inflation) in the spring and summer of 2001 at about 5.2 percent. For workers aged 16-24, though, wages then were surging by roughly 9.5 percent (slightly less than in the late-1990s), for those in the 25-54-year old group, the figure was between five and 5.2 percent, and for that year’s workers older than 55, only about 3.7 or 3.8 percent.

The next high for the overall workforce came in the fall of 2007 – just before the Great Recession hit. Overall wages were still rising in pre-inflation terms, but only at 4.2 percent. That was also the rate of increase recorded in wages for the 25-54 cohort, while wages for older workers were improving by only about 3.2 or 3.3 percent a year. The best performance was put in by the young, whose wages were increasing by 9.3 percent. So these peak figures were lower for all groups of workers than the previous one.

The next wage peak has come this spring. But overall wages have only been rising at a 3.5 percent annual rate. The 25-54-year old age group has done a bit better – 3.8 percent. But that’s lower than their last peak increases (4.2 percent). The boomers’ rate of increase is a thoroughly unimpressive 2.2 percent – also lower than this cohort’s progress just before the recession struck. Although younger workers are indeed doing much better than that – their paychecks have been growing by 7.5 percent – but that pace is much slower than the 9.3 percent increases registered a decade ago. Moreover, just last November, the wages for the 16-24s were improving at an 8.4 percent annual rate. So for the time being, they’re already past peak.

In other words, although younger workers have consistently out-earned older workers for the last nearly two decades, their rates of increase keep trending lower and lower. And guess what? Everything we know about biology tells us they’re going to get older – and therefore presumably move into the age groups whose wages haven’t risen nearly as fast.

Past isn’t always prologue, and it’s indeed possible that this secular decline (in relative terms) could be broken in the years ahead by any number of developments – like continually sluggish productivity growth or the emergence of genuine labor shortages throughout the U.S. economy. But it seems just as likely that recent wage-depressing developments will continue and new ones will emerge. More automation is certainly conceivable, as are higher immigration levels (especially if President Trump’s political fortunes don’t take a turn for the better), and the arrival of a new recession. (The latter is almost certainly a matter of “when,” not “if.”)

Here, though, is what I am pretty confident about. Few Americans are going to look at the Atlanta Fed chart showing steadily lower highs for young workers’ wage increases and conclude that Happy Days Are Already Here Again on the paycheck front.

(What’s Left of) Our Economy: Has the Fed Gotten Savings Incentives Completely Wrong?

Tags

Baby Boomers, banks, consumers, debt, deposit rates, federal funds rate, Federal Reserve, finance, Financial Crisis, housing, incomes, interest rates, recession, retirees, savings, savings rate, seniors, spending, The Economist, zero interest rate policy, {What's Left of) Our Economy

As many of you may know, the Federal Reserve yesterday raised the interest rate it directly controls above an effective zero level for the first time in seven years. So it’s especially interesting and important that a post from The Economist just before the rate hike made a strong case that one of the main rationales for keeping interest rates so low has backfired big-time on ordinary Americans and on the consumer spending still driving most U.S. economic activity.

Just after the height of the financial crisis, the Fed lowered its so-called funds rate to zero (actually, it was a range of zero to 0.25 percent) in part to make sure that the carnage that was spreading from housing to Wall Street and increasingly to the rest of the economy wouldn’t scare households into closing their wallets,and therefore choke off even more growth. The federal funds rate doesn’t directly set consumer borrowing rates – it’s the rate offered by the central bank to the country’s biggest banks. But the Fed was hoping that super-easy money would have twin stimulative effects.

First, when these banks’ borrowing costs fall, they can offer cheaper loans to both consumer and business borrowers and stay just as profitable. And the more affordable credit becomes, the more borrowers were expected to use. Second, the Fed was hoping that super-low rates would penalize saving. A rock-bottom federal funds rate would drive way down the returns on such popular consumer savings vehicles as money market funds and certificates of deposit and savings bonds, and convince Americans that they were better off spending existing savings and incoming income rather than receive literally no reward for thriftiness.

The Economist, though, has argued that the Fed’s penalize-savings strategy was misbegotten. And it looks like it should have been obvious even then. As the magazine points out, the biggest reason Americans save is to ensure a comfortable retirement. For any retirees or those nearing that age who already have substantial savings, even very low-yielding assets can together spin off enough income to ensure the golden years living standards they want.

But then ask yourselves how many Americans were in this situation when the financial crisis and recession struck. Inflation-adjusted incomes for the typical household had been stagnating. Thrift became a forgotten virtue; in part because of those stagnant incomes and in part because perpetually rising home values were hyped as an acceptable substitute, the nation’s personal savings rate hit historic lows and in fact briefly fell below zero. Then, of course, home values began cratering and the stock market went into free fall. So safe but low-yielding assets looked like the only viable savings game in town.

Unfortunately, the lower the return, the bigger the pot needed to guarantee that comfortable retirement. As a result, more and more of the aging American population has felt greater and greater pressure to salt away any new income not needed to cover ongoing living expenses.

Nor do you need to take The Economist‘s analysis on faith. For nothing has been clearer during this weak economic recovery than the continued consumer caution so responsible for holding it back. Many analysts attribute this behavior to a simple – possibly excessive – “once burned-twice shy” fear. But The Economist‘s treatment at least points to another important factor: For Americans with stagnant incomes and meager liquid savings – along with continuing debt – returning to pre-crisis and recession-level spending simply hasn’t been an option. In fact, evidence is accumulating that growing numbers of seniors, including recently retired baby boomers, are feeling these pressures, too – especially on the debt front.

Not that the Fed’s quarter-point rate hike will change matters much. In fact, signs haven’t even appeared yet that it’s a step in the right direction, as those banks that have raised the rates they’re charging for borrowers haven’t raised those that they’re paying to depositors. Until rates rise high enough to reward savings significantly again, most Americans will have ample reason to view recent Fed policies as lose-lose propositions.

Im-Politic: What I Did – & Didn’t Do – in the PC Wars

Tags

Baby Boomers, Chile, First Amendment, free speech, hate speech, Im-Politic, junta, political correctness, Princeton University, The Daily Princetonian

Time to take a break from the terrorism wars and turn to the latest round of political correctness wars raging on many of the nation’s college campuses.  Given their seeming prevalence, it was instructive to be reminded recently that (a) I used to be a college student and (b) I was involved in some of these skirmishes back in the day myself.

The specific incident took place in November, 1974, and concerned a speaking invitation that the debating society at Princeton University extended to Chile’s ambassador to the United States. To save everyone the need to Google this, the decision was controversial because Chile’s democratically elected socialist government had just been overthrown the year before in a military coup, and the ambassador was a general who represented the junta responsible and its repressive rule.

It would be an exaggeration to say that the campus was convulsed in debate over how – or if – to respond to the planned event. (The counterculture and any major political residue of the 1960s was long gone by then from Princeton.) But the invitation certainly triggered an unusual amount of discussion and even actions by individual students and by various campus groups, including the student government.

For example, the latter voted to condemn the junta, but turned down a motion to urge students to boycott the speech. The campus Socialist Study Group (trust me – it was small), denounced the invitation itself, and also sponsored a “militant boycott.” This consisted of a protest outside the venue whose participants sought to convince others not to attend.  (This account comes from articles in the digital archives of the student newspaper, The Daily Princetonian.)

What I find especially interesting – and pertinent for today’s free speech controversies – is that I can’t find any record, and don’t personally recall, any organization or individual at the university that urged that the invitation be withdrawn, or that the speech be disrupted. In fact, the Socialist Study Group explicitly decided to oppose any attempt to interfere with the event. And I found genuinely eloquent and moving one activist’s rationale for the planned demonstration: “We want it to be impossible for someone to get inside without having to ask himself ‘why am I going inside?'”  

Of course, The Princetonian needed to weigh in, and as one of the editorial page editors, I drafted our perspective. In retrospect, the main point made seems sensible – and struck the necessary balance between tolerance and conscience. The editorial blasted Heitmann as “nothing more than a thug in formal clothing” but insisted that “The wisdom of Whig-Clio’s [the debating society] decision to invite him is both debatable and immaterial.” It continued:

“What is important is that when [Ambassador Walter] Heitmann appears, the community should expose him to the full force of its outrage and indignation. Accordingly, we strongly urge all members of the university to protest vigorously Heitmann’s presence and’the murderous nature of what he represents. At the same time, the community should remember that to disrupt the ambassador’s speech is to resort to his own gutter tactics.”

And then came the part that, in my mind, was crucial. The edit spotlighted and praised the debating society’s president for announcing that the ambassador had agreed to take questions after his speech. That, apparently, had not been a foregone conclusion. According to the editorial, this decision mattered because:

“it adheres to the spirit as well as the letter of free speech, a notion which entails much more than undisturbed presentation. At its crux lie ideas of discussion and exchange, which are by no means served by giving Heitmann a soapbox and then permitting him to make a neat, quick exit.”  

The upshot: Heitmann gave his speech. A crowd estimated at 275 protested outside. Their chants could be heard through the windows of the venue that remained open, but evidently were not loud enough to interfere with the proceedings. Inside, two students who were standing with their backs to the podium moved to the rear of the room when, according to the Princetonian, they were “told that they were blocking the view of the audience….” But no one was hurt or arrested.  And by all accounts, Heitmann was challenged vigorously.

But although preventing “neat, quick exits” and insisting on opportunities for genuine exchange still seems to be a good policy for handling speakers with arguably offensive messages, it doesn’t address another major aspect of today’s campus speech controversies: what seem to be increasingly common instances of what deserves to be called – at least unofficially – hate speech.

I imagine that it’s difficult for my baby boom peers to get a grip on this problem, because racial and homophobic and similar epithets were practically unheard of in public, on campus of off, whether in the form of slogans scrawled on walls or insults shouted at individuals or groups.

The First Amendment enthusiast in me bridles at the thought of official responses, especially when it comes to remarks made in the heat of the moment. But the rest of me believes that everyone has a right to go about their daily routines, especially in a place of learning, without being assaulted audibly or visually by words whose only purpose can be to denigrate and harm and in fact to dehumanize, but that fail to threaten physical violence (a plausible threshold in my view for legal action, along with findings of vandalism).

Any thoughts from you RealityChek readers on handling this dilemma would be most welcome. But until I figure this out, I’m left with the hitherto unimaginable thought that, at least compared with the present, my time as a student, in the ’60s and ’70s, was generally a garden party.

Our So-Called Foreign Policy: The Real Lesson of Vietnam

Tags

Baby Boomers, economics, energy, foreign policy establishment, geopolitics, internationalism, interventionism, isolationism, Middle East, Our So-Called Foreign Policy, Persian Gulf, public opinion, realism, terrorism, Vietnam War

No one who lived through it in 40 years ago, and was following the news even sporadically (far from everyone in the dazed and confused mid-1970s!), will ever forget the TV footage of U.S. military helicopters evacuating the last Americans and at least some of their local allies from Saigon in a humiliating denouement to the Vietnam War.

Even for many Americans who had lost much of their faith in the country’s virtues (all too easy in that stagflationary aftermath of the turbulent 1960s and the Watergate scandals), and who had watched disaster in Southeast Asia unfold slowly for years, this final act was surely harrowing emotionally. After all, however ugly Americans might have become to however many foreign populations, anything smacking of lasting military defeat had never been experienced in U.S. history.

The simple uncertainty of life without Vietnam-related news at least in the backdrop must have been unnerving as well, even if not consciously. Those who had actively or passively defined themselves as opponents, supporters, or bewildered spectators of the war faced even greater questions. Four decades later, it’s anything but clear if many of them have been answered among Baby Boomers and their surviving elders.

Failure in Vietnam shook up the nation’s leadership classes and foreign policy establishment, too. But what’s most striking four decades later is how few fundamental challenges to the policy status quo have emerged in these circles. The public is clearly more skeptical of foreign intervention and international engagement, although televised Middle East horrors in particular have interrupted that trend for the time being.

In addition, throughout the post-Vietnam decades, a handful of analysts has cogently explained how the Indochina debacle stemmed directly from the foreign policy strategies pursued by the United States since Pearl Harbor, and how this approach would undermine prosperity as well as needlessly court risk. (I’ve made my own small contributions, on this blog and elsewhere.  If you’re interested in others, I wholeheartedly recommend Googling – and reading! – the following “realists” in particular: Earl C. Ravenal, Robert W. Tucker, David C. Calleo, and Christopher Layne. For powerful indictments of U.S. interventionism on an issue-by-issue basis, see the many writings of Ted Galen Carpenter.)

But as I’ve argued, the left, right, and centrist wings of the foreign policy mainstream clung determinedly to an ideology called internationalism.  It’s characterized by the bizarre conviction that a geopolitically secure continental power with an immense potential for economic self-sufficiency can not be acceptably safe or prosperous unless literally every corner of the world becomes safe and prosperous, too. As a result, liberals, moderates, and conservatives alike defined American vital interests in breathtakingly sweeping terms, differing only on which combination or ratio of tactics (mainly the “hard power” versus “soft power” debate) were likeliest to pacify, stabilize, and enrich the entire planet.

In the process, all these leaders and analysts have neglected opportunities to reduce the country’s vulnerabilities to disrupted supplies of foreign goods, like energy, and to terrorist attack. Indeed, in defiance of the defining feature of economics itself, all have assumed that all the material resources to pursue this limitless agenda would somehow always be available, or could be created as needed.

That’s why, in the forty years since the fall of Saigon, American leaders from all over the political spectrum have:

>obsessed over fighting leftist forces in miniscule El Salvador and Nicaragua;

>fought two wars in Iraq, largely to protect the flow of Persian Gulf oil;

>permitted the worst attack on American territory in 70 years to take place;

>allowed the nation’s armed forces to become dangerously dependent on imports from a prospective Chinese adversary;

>kept the nation locked into defending allies against nuclear-armed adversaries increasingly able to retaliate powerfully against the United States;  

>remained committed to a futile policy of safeguarding U.S. energy and anti-terror interests by fostering stability and reform in a Middle East so thoroughly dysfunctional that it’s very state structure is falling apart;

>become addicted to preserving the semblance of growth and well-being by falling ever deeper into debt even though this blueprint triggered one financial calamity less than a decade ago;  and

>devoted oceans of rhetoric, and real and digital ink, to sliming any genuine dissenters as ostrich-headed isolationists, xenophobes, appeasers, or all of the above.  

As a result, all the commentary I’ve read that’s been occasioned by 40^th anniversary of Saigon’s fall has missed the main point. The most important lesson Vietnam is that American leaders have learned no important lessons at all.