Economist Writing Every Day

Have you seen this chart?

I have seen it many times. It comes from this Washington Post article, but it seems to go viral on Twitter about every 6 months or so.

The implication of the chart seems to confirm what many young people feel in their bones: Boomers had it much easier, and it’s getting harder and harder for later generations to catch up and build wealth. For many the graph… explains a lot, as one recent viral Tweet put it (in the weird world of social media, 5 short words and a recycled chart are all it takes for 20,000 retweets).

But wait. A few questions probably come to mind. For example, when Boomers were young they comprised a much larger share of the population. The original article makes an attempt to adjust for this, by calculating a few ratios towards the end of the article. However, there’s a much more straightforward way to adjust for this, which also nicely fits into a chart: put wealth in per capita terms!

If we do that, here’s the chart we get (also, of course, adjusted for inflation).

[Note: my very first post on this blog also covered this topic. But that was using borrowed data and not exactly replicating the viral chart, so I decided to address it again and more directly.]

Looking at the exact same data (from the Fed Distributional Financial Accounts) from a different perspective gives us a much different picture of recent history. In this version, Gen X is now richer (30% richer!) than Boomers were at the same age (late 40s). Millennials don’t yet have a year of overlap with Boomers, but they are tracking Gen X almost exactly. There is no reason they won’t continue to track Gen X, and therefore exceed Boomers as well when they are in their late 40s (which will happen in about 2037 for Millennials).

My prediction is that by the time Millennials are in their late 40s, they will even surpass Gen X in wealth. Why? The reason is counterintuitive: student debt.

Huh? Isn’t student debt what is holding Millennials back? In some sense, yes. But in the long run, no. Right now, many Millennials (and some Gen Xers!) hold a lot of student debt. That goes on the liabilities side of the balance sheet. But there is no corresponding asset showing up the balance sheet, but there is an asset: their human capital! Over their lifetime, that human capital will give them even greater earning potential in later life. Much like Gen X basically tracked Boomers until their mid-40s, until their student loans were paid off, and their degrees (and graduate degrees!) really started to pay off in the labor market.

So right now, student debt is doing two things: overstating liabilities and understating assets. To be sure, this may cause some short term problems: perhaps it is harder to buy a house, or at the very least to save for a down payment on a house. This could (I repeat could) lower Millennial wealth in the long run. But keep in mind that Gen X faced this same headwind, though to a lesser degree than Millennials.

We might still wonder though: aren’t the shares of wealth still important? Isn’t it relevant that Millennials had a smaller share of wealth than Gen X at the same age, who in turn had a smaller share than Boomers? As presented in the chart, I would firmly say: no. It doesn’t matter that much that Millennials have a smaller share of wealth today than Boomers had in the 1980s. Inequality might matter for all kinds of reasons, but inequality matters at a point in time. It doesn’t matter in the sense the viral chart presents it.

And the original viral chart is completely predictable. In a country with a growing and aging population, it will always be true that later generations have a smaller share of wealth than their predecessors did. It must be true, mathematically.

Maybe we should care about inequality, but if we do we should care about it at a point in time. For example, right now Millennials have about 5% of total wealth and Boomers have over 50% of total wealth. If wealth equals, say, political power, then Boomers have 10 times as much political power. Perhaps that’s really bad! Maybe we should do something about it. But it doesn’t matter that Boomers had 20% of total wealth in the late 1980s. That’s in the past, and it has little bearing on politics today. Furthermore, while there is some evidence that the rich tend to get their way in politics, the effect is not very dramatic. This is really a topic for a future blog post, but whether wealth inequality skews politics depends on wealth inequality right now, not comparing wealth inequality across generations during different decades.

What probably matters more than wealth in politics is votes. People. And as of 2019, Millennials outnumbered Boomers. And that understates the number of young people. In 2019, there were 158.7 million people between 18 and 54 (Gen X and younger) and 96.5 million people 55 and older (Boomers and older). In fact, the “break even” age among voting-age adults was about 47.5, the age at which there are roughly the same number of people above and below that age (roughly 127.5 million, again restricting it to just adults 18+). The youth have the numbers! And yes, they vote!

I’ve gotten a bit away from the original data in the charts above, but I think these are important issues to address. Inequality and political power is an important topic. But that viral chart, oh boy, it gets used to make the most ridiculous claims. For example, that Millennials “are significantly poorer” than past generations. No! Even if you think relative inequality is more important than absolute inequality, this only matters at a point in time.

We might also be interested in whether generational inequality is increasing. To know that, we would need to compare Boomers to older generations at different ages. But we don’t have data good enough to do that. For example, we know that right now Boomers have about 11 times as much wealth per capita as Millennials.

How did Boomers compare with the Greatest Generation at about the same age as Millennials are now (the mid-to-late 1980s)? We don’t know from this data. We can say that all the older generations combined at about 3.6 times as much wealth per capita as Boomers in 1989 (first year in this dataset). But to give a fair comparison, we’d need to split of the Silent Generation and the Greatest Generation in the data.

Here’s the closest comparison I can make for whether generational inequality has changed over time: if we combine Gen X and Millennials today, per capita wealth in this combined group is about $307,000. The Silent Generation and Boomers combined are at about $943,000 per capita today. That’s about 3.1 times as much wealth among the old versus young today. Compare that with 3.6 times from above when Boomers were younger. This is not a perfect comparison, but it suggests generational inequality is no worse than when Boomers were young.

Millennials! They are doing OK!

(Finally, I don’t want to give the impression that there is nothing we can do to help Millennials build wealth by changing policy. For example, I have written before about how zoning and other land-use restrictions drive up the cost of housing. We could, and should, change these policies.)

Bonus Charts!

I have had several requests for different versions of The Chart. Here are two. First is using PCE instead of CPI-U as the inflation adjustment. I don’t think it changes much.

Second is using a log scale, to more easily see the differences early on in the chart.