When I was about 9 years old, my father took my elder sister and I to see a performance by a famous magician called Blackstone. What I remember most about the show is when Blackstone, with a flourish of his cape, made an elephant appear onstage out of thin air. It was an astonishing feat, and the crowd - including me - went wild with applause. I had no idea how he did it. After the show however, as we were exiting the theater, my elder sister said, "I didn't see what was so great about that elephant. It just walked onto the stage and everyone started clapping."
My sister's revelation was just as amazing as the trick itself, which suddenly made perfect sense. Blackstone had used some kind of sleight of hand, distracting the audience over here while he got the elephant to walk on stage over there. With this simple, well-known magician's tactic, he managed to fool just about everyone.
Yesterday, as the Dow "smashed its all time high," closing above 13,000 for the first time in history, I was strangely reminded of Blackstone's performance that day some thirty years ago. The Dow's current levitating act is the result of another well-known sleight of hand trick used by central bankers. It's called inflation. Even so, most everyone is mesmerized by the performance. Everyone seems transfixed, clapping in amazement at this spectacular feat.
But at the margins of society, far from the action on Wall Street, a silent depression has already begun - one that is affecting the most vulnerable members of our society. This depression is documented in two books that I recently finished reading: Tamara Draut's Strapped: Why America's 20- and 30-Somethings Can't Get Ahead, and Anya Kamenetz's Generation Debt: Why Now is a Terrible Time to be Young. Both were recently released in paperback, and I was able to find the hardcopy editions at the local library.
What both of these books confirm, though painstaking research and in painful detail, is what today's younger generation has already long known: Simply surviving in this hyper competitive world is harder than ever, to say nothing of getting ahead. As Draut points out, a college degree is the new high school diploma; to be considered for any kind of a "good job," you've got to have one. The problem is that college tuition costs have been rising three to four times as fast as inflation for the past few decades, and financial aid hasn't kept up. Whereas the Baby Boom generation had the hat-trick advantage of cheap tuition, ample grants and scholarships, and a booming economy providing well paying jobs upon graduation, the younger generation has had none of these advantages.
Financial aid has shifted increasingly towards loans instead of grants. Because of higher tuition costs and generalized chronic inflation (in spite of official Federal government statistics), housing and food are more expensive too. Many kids who want to go to college simply can't because they just can't afford it. Of those who can cobble together enough money - and here I'm talking about working class families, not the privileged minority whose families can college without much pain - many have to work full time to make ends meet. And even then, in this inflation-ravaged world, it still isn't enough. So they turn to credit cards, which are amply peddled on college campuses to bright-eyed, green newbies who don't know a thing about debt or personal finance.
Welcome to higher education - at the school of hard knocks.
Today it is not uncommon for young adults to graduate with unmanageable thousands of dollars in combined student loans and credit card debt. "The next generation is starting their economic race 50 yards behind the starting line," says Elizabeth Warren, co-author of The Two Income Trap. The debt is unmanageable because good jobs are hard to find. This is not your father's economy. Sure, there are plenty of jobs available. How does $8 per hour sound, no benefits? As Kamenets, a recent Yale grad points out:
...when the Boomers were entering the workforce in 1970, the nation's largest private employer was General Motors. They paid an average wage of $17.50 an hour in today's dollars. The largest employer in the post-industrial economy is Wal-Mart. Their average wage? Eight dollars an hour. The service-driven economy is also a youth-driven economy, burning young people's energy and potential over a deep-fat fryer...The entire labor market is downgrading toward what was once entry level.
In case you missed it, this week GM was dethroned by Toyota as the world's top automobile producer. Earlier this year, in an effort to shore up American manufacturing, the Bush Administration proposed reclassifying hamburger flipping as "manufacturing." The times indeed are changing, and the experiences of the younger generation shine a light on the terrifying leading edge of that change.
The Second Great Depression is Here
For the past five years I've been saying "The second great depression will not be televised." In addition to paying homage to the 60's civil rights activist and poet Gil Scott Heron (The Revolution Will Not Be Televised), it is a jab at the inadequacy of the mainstream news to actually report the news. The composition of the American economy is changing in fundamental ways -- ways that will not, in the long run, be favorable to most Americans if current trends continue. The younger generation is simply the first to bear the brunt of these changes, and as a result, is the first to grow up poorer than the generation preceding it. This, ladies and gentlemen, is known as national economic decline.
This is unpleasant news, and is therefore completely unacceptable to the mainstream media. It's easier to sell the idea that the younger generation is just plain lazy, stupid and hopelessly screwed up. After all, didn't you hear? The Dow just hit 13K! How can the economy be bad?
As a result, Draut and Kamenetz take the brunt of Boomer criticism from elders who dismiss their claims and only hear what they believe to be whining. But all these authors are doing is telling the story of their generation, pointing out how times have changed, and just how difficult it is to be young, broke, in debt and with little hope for the future. To me, it is the story of a second great depression. College, housing and food are more expensive, taxes, debt and interest rates are higher, (In spite of the fact that official rates hover near historic lows, one late or missed payment by a financially strapped young person sends credit card interest rates soaring across the board -- 29% or higher), wages are lower, competition is fiercer and most of the good jobs have moved away. Given the facts, it is amazing there is not more complaining or real demands for change. Draut points out that this younger generation was thoroughly "Reaganized" - raised under a steady diet of conservative rhetoric which they have fully internalized: The government is the problem, the free market is the solution - if you fail, it is your own fault, so don't complain and don't ask for help. Even though youths 18 - 24 are the most likely to hold minimum wage jobs, giving them a poverty rate of 30% in 2000, we've heard pitifully little about this in the MSM.
But poverty is a big impediment to getting higher education. Kamenetz points out that the nationwide high school graduation rate peaked in 1970 at 77%. It was around 67% in 2004....For every 100 young people who begin their freshman year of high school, just 38 eventually enroll in college, and only 18 graduate in a timely manner. This is especially worrisome as the world continues its march towards a knowledge-based economy. America is clearly falling behind.
The question of particular interest to readers of all ages should be whether the current decline in living standards is a one-generation anomaly, or the start of a new American trend. The problems afflicting the young - the outsourced jobs, the low wages and high levels of debt - are increasingly moving up the generational ladder. Just ask the entire city of Detroit, where a house can now be purchased for less than the price of a new car. This year also marks the first time in history that the median American home price is likely to decline.
What these two important books demonstrate clearly is that at the margins - where all the interesting economic (and other) activity takes place - the US economy is no longer able to provide its citizens with an increasing standard of living. Having read Jeremy Rifkin's 1992 classic The End of Work a few years ago, the only surprise to me is that his scary predictions of the disappearing jobs are actually coming true. And with "Outsourcing 2.0," things are only bound to get worse. Yet as Boomers retire - the first crop starts retiring next year - it is young people that they will be relying on (i.e. taxing) in order to maintain their disproportionately wealthy lifestyle. A Generational Storm indeed looms on the horizon.
What will this mean for the future? Neither Draut nor Kamenetz offer a comprehensive view, but James Fallows had an excellent piece in the Atlantic Monthly a few years ago that remains relevant today: Countdown to a Meltdown, a look back from the year 2016.
Lack of Awareness
To my disappointment, neither author goes deep enough into the root causes of the inflation that makes life for young people so difficult: The Federal Reserve System. We all know by now that the Fed has a "printing press" with which it can mint money, but like the 70% of Americans who don't know that plastic is made from oil, the majority of Americans don't realize that a fiat money printing press is the cause of currency inflation. The result of this inflation is more expensive food, housing, college tuition, and (surprise!) Dow 13K. You certainly won't read about that in the New York Times. The information is, however, widely and freely available on the internet, as my friend Charles Zentay points out. All it takes is some thinking to figure out what is really going on.
[Thank you to BlueWire Studio for the above image, which was originally published in the Trendsman's excellent report The American Inflation: Where we are, How we got here and Where we are going]
Not surprisingly, many of Kamenetz's interviewees regret ever having gone to college in the first place. They're saddled with debt and working in jobs that are completely unrelated to what they studied - if they even graduated at all. As a result, she makes the daring recommendation that kids think hard about whether college is right for them or not. Before deciding to become an indentured servant to the bank in exchange for a college diploma, she recommends investigating this book: 300 Best Jobs Without a Four-Year Degree. The key point, which I wholeheartedly agree with is to look at the landscape of the world, see it with clear eyes and think! Don't go to college just because everyone is doing it and because your parents want you to. The world is changing and navigating it will require a new set skills and street smarts - smarts you're likely not going to get in school. More on this in future installments. Sign up here to be notified.
I urge everyone to go to the library or the bookstore and take a look at the books. For young people, I give the nod to Kamenetz's book. Her writing is more urgent, more suited, I think to the younger crowd.
Each generation reshapes the country in its own image. The Boomer generation is the current cultural center, but its cultural power will soon be in decline, and as they fade from the national spotlight, a new generation is rising. Based on Strauss & Howe's generational analysis in The Fourth Turning, the current young generation will likely be shaped by an extreme crisis - brought on by the exiting Boomer generation - sometime quite soon. It is from this crisis that a new America will be born - perhaps it will be the Golden Age that Ravi Batra writes of, or the complete reorganization that Peter Drucker predicted in 1993.
Every few hundred years in Western Civilization, there occurs a sharp transformation . . . Within a few short decades, society rearranges itself - its worldview; its basic values; its social and political structure; its arts; its key institutions. Fifty years later, there is a new world, and the people born can't even imagine the world in which their grandparents live and into which their own parents were born.
We are currently living through just such a transformation.
Thirteen is considered an unlucky number in American culture. Strangely, most American buildings don't have a thirteenth floor. Both the income tax and the Federal Reserve were established in 1913. The much-maligned Generation X is the thirteenth born on American soil. It makes me wonder just what Dow 13K will bring.
Getting back to the theme with which I began this piece, Dow 13K is a kind of sleight of hand, brought about by inflation, and distracting the majority of people from the true condition of the economy. Inflation makes the economy less prosperous, not more. If the younger generation is any indication, prepare yourselves, for the times indeed they are a changin'.
The way that is bright seems dull;
The way that leads forward seems to lead backward;
The way that is even seems rough.
The highest virtue is like the valley;
The sheerest whiteness seems sullied;
Ample virtue seems defective;
- Tao Te Ching 41