It’s fairly easy to find articles about millennials; about how the younger generations don’t buy houses, about how millennials are not as wealthy as previous generations. It seems that today’s young people in the West are not as well off as their parents were at the same stage in their lives. I believe there are two primary reasons for this which I will explain in this week’s blog post. The first reason is that the post-2008 period has made gains from capital greater than gains from labour, and young people tend to have a great ability to work but not much capital saved up. The second reason is that Western economies have matured to a point where growth probably stay low for the foreseeable future.
I written about Quantitative Easing several times before and I won’t go in to too much detail here, if you want to know more about it you can read last weeks post which was about how QE exacerbates inequality here. The main point I want to emphasise is that QE has made it more difficult for young people to buy housing which is usually a great investment as it tends to appreciate in value and it tends to make living costs lower. The delay in buying a home also makes people less inclined to start families which might have an effect on demographics in the future.
The slowdown in growth that result from Western economies being mature also has significant impacts on the younger generations’ ability to achieve the wealth of the previous generation in their 20-30’s. When economies grow at a fast pace there is much room for wages to grow and there is much room for savings and assets to appreciate in value. As I’ve written about previously, it’s natural for economies to grow at a slower pace when the economies have large amounts of capital. In this case I mean capital as a factor of production.
There are reasons to believe that the current generational inequality is maintained as the opportunity sets are different now from what they were. If you liked this blog post you can follow me on Twitter or sign up to my email list to get notified when the next post goes live. Thank you for reading and please leave any suggestions for future posts in the comment section.
Photo by Buro Millennial from Pexels
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