Who is the Wealthiest Generation?

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).

Data is for 1989-2021 from the Federal Reserve’s Distributional Financial Accounts, but only the first quarter is available right now for 2021. For 1989, it is the average of the third and fourth quarters. Population data comes from Census single-year of age estimates for various years. 2020 and 2021 population estimated using growth rate from 2010-2019.
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Simone Biles and the Trojan War

When star gymnast Simone Biles decided to sit out the Olympics this week to ‘focus on herself’, both those praising her and those criticizing her seemed to treat this like a unique story that wouldn’t have happened in earlier generations. But it reminds me of one of the oldest recorded stories in the world, one that predates even the first ancient Greek Olympics of 776 BC- Achilles’ decision to sit out the Trojan War.

Here is Biles this week:

We also have to focus on ourselves, because at the end of the day we’re human, too… We have to protect our mind and our body, rather than just go out there and do what the world wants us to do.

Here is Achilles, greatest of the Greek warriors, thousands of years ago:

Him do I hate even as the gates of hell who says one thing while he hides another in his heart; therefore I will say what I mean. I will be appeased neither by Agamemnon son of Atreus nor by any other of the Danaans, for I see that I have no thanks for all my fighting. He that fights fares no better than he that does not; coward and hero are held in equal honour, and death deals like measure to him who works and him who is idle. I have taken nothing by all my hardships- with my life ever in my hand; as a bird when she has found a morsel takes it to her nestlings, and herself fares hardly, even so man a long night have I been wakeful, and many a bloody battle have I waged by day against those who were fighting for their women. With my ships I have taken twelve cities, and eleven round about Troy have I stormed with my men by land; I took great store of wealth from every one of them, but I gave all up to Agamemnon son of Atreus. He stayed where he was by his ships, yet of what came to him he gave little, and kept much himself….

Agamemnon has taken her from me; he has played me false; I know him; let him tempt me no further, for he shall not move me. Let him look to you, Ulysses, and to the other princes to save his ships from burning…. I will draw my ships into the water and then victual them duly; to-morrow morning, if you care to look, you will see my ships on the Hellespont, and my men rowing out to sea with might and main. If great Neptune vouchsafes me a fair passage, in three days I shall be in Phthia. I have much there that I left behind me when I came here to my sorrow, and I shall bring back still further store of gold, of red copper, of fair women, and of iron, my share of the spoils that we have taken; but one prize, he who gave has insolently taken away. Tell him all as I now bid you, and tell him in public that the Achaeans may hate him and beware of him should he think that he can yet dupe others for his effrontery never fails him.

As for me, hound that he is, he dares not look me in the face. I will take no counsel with him, and will undertake nothing in common with him. He has wronged me and deceived me enough, he shall not cozen me further; let him go his own way, for Jove has robbed him of his reason. I loathe his presents, and for himself care not one straw. He may offer me ten or even twenty times what he has now done, nay- not though it be all that he has in the world, both now or ever shall have; he may promise me the wealth of Orchomenus or of Egyptian Thebes, which is the richest city in the whole world, for it has a hundred gates through each of which two hundred men may drive at once with their chariots and horses; he may offer me gifts as the sands of the sea or the dust of the plain in multitude, but even so he shall not move me till I have been revenged in full for the bitter wrong he has done me. I will not marry his daughter; she may be fair as Venus, and skilful as Minerva, but I will have none of her: let another take her, who may be a good match for her and who rules a larger kingdom. If the gods spare me to return home, Peleus will find me a wife; there are Achaean women in Hellas and Phthia, daughters of kings that have cities under them; of these I can take whom I will and marry her. Many a time was I minded when at home in Phthia to woo and wed a woman who would make me a suitable wife, and to enjoy the riches of my old father Peleus. My life is more to me than all the wealth of Ilius while it was yet at peace before the Achaeans went there, or than all the treasure that lies on the stone floor of Apollo’s temple beneath the cliffs of Pytho. Cattle and sheep are to be had for harrying, and a man buy both tripods and horses if he wants them, but when his life has once left him it can neither be bought nor harried back again. 

My mother Thetis tells me that there are two ways in which I may meet my end. If I stay here and fight, I shall not return alive but my name will live for ever: whereas if I go home my name will die, but it will be long ere death shall take me. To the rest of you, then, I say, ‘Go home, for you will not take Ilius.’ Jove has held his hand over her to protect her, and her people have taken heart. Go, therefore, as in duty bound, and tell the princes of the Achaeans the message that I have sent them; tell them to find some other plan for the saving of their ships and people, for so long as my displeasure lasts the one that they have now hit upon may not be

In either case, economists aren’t surprised to see people stop showing up to work when they think the costs to them exceed the benefits, even when that work is itself unusual and could benefit their country.

The Recession Is Over! (15 months ago)

Lately there has been lots of both good and bad news about the pandemic and its impact on the economy. But here’s once piece of good news you might have missed: the recession which began in February 2020 ended in April. And not April 2021… it ended in April 2020. At least, that’s according to the NBER Business Cycle Dating Committee, which made the announcement last week.

The 2020 recession of just 2 months is by far the shortest on record. NBER maintains a list of recessions with monthly dates going back to 1854 (there are annual business cycles dates before that, including important modern revisions of the original estimates, but the monthly series starts in 1854). In that timeframe, there have been 7 recessions in the 6-8 month range, but nothing this short. Still, it was mostly definitely a recession, as unemployment briefly spiked to levels not seen since the Great Depression. But only for 2 months. Keep in mind that the first part of the Great Depression last 43 months.

Unemployment Rate, 1948-present

But how can this be? Is the recession really over? There are still about 6-7 million fewer people working than before the pandemic began. Lots of businesses are still hurting. The unemployment rate is still 2 full percentage points above pre-pandemic levels. How in the world can we say the recession ended 15 months ago?

To answer that question, it helps to know what NBER and most macroeconomists mean by a “recession” — essentially, it is used interchangeably with “contraction.” It means the economy, by a broad array of measures (NBER uses about 10 measures), is shrinking — or we might say, going in the wrong direction. The only other option, at least in the NBER chronology, is an expansion — when the economy is going in the right direction.

Does an economic expansion mean that everything is fine the economy?

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CEA on Inflation Today and WWII

This week the Biden Council of Economic Advisers blogged about “Historical Parallels to Today’s Inflationary Episode”.

Consumer demand in 2021 is roaring back after pandemic shutdowns. Demand for airline travel is exceeding expectations. Car dealer lots are empty.

The authors argue that, of all the periods of rapid inflation in American history, the boom after WWII has the most parallels to today.

During WWII, Americans were obviously in war mode. Price controls and supply shortages led to deprivation on the Homefront. Families had trouble buying cars, just like today.

Instead of focusing on consumer or industrial durable goods, manufacturing capabilities were concentrated on military production. Today’s shortage of durable goods is similar—a national crisis necessitated disrupting normal production processes. Instead of redirecting resources to support a war effort, however, manufacturing capabilities were temporarily shut down or reduced to avoid COVID contagion.

Remember when oil had a negative price in 2020? While people in the US were staying home, many were building up personal savings. As soon as the “war” ends, consumers compete as buyers and drive up the prices of the limited available goods.

They present the post-war inflationary episode as dramatic but temporary, because it only lasted for two years. It’s short compared to inflation of the late ‘70’s. They are standing behind the Powell “transitory” story, in their conclusion.

On the other hand, they say that the most comparable moment in history to today involved the price level spiking 20% and taking two years to come down. I’m pondering a very expensive repair on our car, just make sure I don’t have to buy a new one soon.

Philosopher dude, c. 1770

This joke is relevant to the recent discussions within the economics profession about rigor in research. It’s also just funny and shouldn’t be lost, as so many memes quickly are.

The worst philosopher dude offender is Rousseau. Rousseau is cringe.

Here are his misleading thoughts from the bath about primitive humans, “The produce of the earth furnished [man] with all he needed, and instinct told him how to use it.”

A quick search about primitive humans brings up this from Psychology Today:

The caveman diet is a great diet if you want to live to be 30 or 35 years old. That was the adult life expectancy until very, very recently (indeed, it wasn’t until well after the advent of agriculture that life expectancies began to rise—in agricultural communities!). We know this from skeletal evidence.

The data is very sketchy on primitive life. However, there is no reading of the available evidence that makes it sound like people were well-provisioned to care for themselves and their children. This BBC article provides more sources on life expectancy throughout history.  

History according to Polybius

It’s unusual for me to sit down on a weekend morning and read *literally checks notes* Polybius. This was assigned to me for a seminar. Here’s his proposal for the inevitable endless cycle of human leadership structures:

  1. Some humans are still alive. They band together because they are too weak to survive alone.
  2. A strong man who bravely defends the group in his youth becomes a monarch. “Kingship” is the next progression. Polybius assumes that people could consent to be under the leadership of a powerful and noble man.
  3. The king has children. The people venerate the descendants of the good king, but these princes and princesses will be spoiled and selfish. The princes “gave way to their appetites owing to this superabundance…” Thus, kingship becomes tyranny.
  4. Nobles overthrow the tyrants, and so become aristocrats. “But here again when children inherited this position of authority from their fathers, having no experience of misfortune and none at all of civil equality and liberty of speech… they abandon themselves to greed… and… rape…” The aristocracy becomes a corrupt oligarchy.
  5. Democracy emerges when people have “killed or banished the oligarchs” and the people remember being mistreated by kings. How does Polybius think democracy ends? Once again, it’s the new generation and the corruption they indulge in. Where do they end up? “… democracy in its turn is abolished and changes into a rule of force and violence.”
  6. There are two ways to get back to stage 1 monarchy. Life in the decline of a democracy is chaotic enough that people willingly back a strong man to protect them. Alternatively, he presents a “floods, famines, failure of crops… all arts and crafts perish…” scenario. A natural disaster, regardless of what stage in the political cycle humans were at before, will position the survivors to start again at monarchy.
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Flying the Friendly Skies (Today and in the Past)

It’s almost summer. About half the US population has at least one dose of a COVID vaccine. For many Americans that haven’t had their employment impacted by the pandemic, their bank accounts are flush with cash and they are ready to do one thing with that cash: travel. See family and friends. See something other than the inside of your own home.

And for many Americans traveling this summer, they will fly. The airlines, no doubt, will appreciate your business. At this time last year, the world had so radically shifted that Zoom’s market cap was bigger than the 7 largest airlines in the world. In May 2020, air passenger traffic in the US was less than 10% of traffic in 2019. Today, we’ve recovered a lot, but we are still only back to about two-thirds of normal levels. And since airplanes are just a marginal cost with wings, flying all their planes at close to full capacity is crucial for airlines to return to profitability. They really need you to fly the friendly skies this summer.

One of the reasons that so many Americans are able to fly in today is because flying is, compared to historical prices, very cheap.

How cheap is flying to today compared to the past? Let’s look at some historical price data for flights.

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Wait for the Lower Cost Version of Policy

I’ve written previously about initial US state compulsory schooling laws in regard to literacy and in school attendance rates. I ended with a political economy hypothesis. Here’s the logic:

  1. Legislators like lower costs, all else constant (more funding is available for other priorities).
  2. Enforcing truancy and educating an illiterate populous is costly.
  3. Therefore, state legislatures that passed compulsory attendance legislation will already have had relatively high rates of school attendance and literacy.

That’s it. Standard political economy incentives. But is it true? Well, we can’t tell what’s going on in politician heads today, much less 150 years ago. Though, we can observe evidence that might corroborate the story. In plain terms, consistent evidence for the hypothesis would be that school attendance and literacy rates were rising prior to compulsory schooling legislation. The figures below show attendance and literacy rates for children ages 10 to 18.

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Working Hard for the Money

40 hours. That’s what we think of as a typical workweek. 8 hours per day. 5 days per week. Perhaps the widespread practice of working from home during the pandemic (as well as the abnormal schedule changes for those unable to work from home), has led some to rethink the nature of the workweek. But the truth is that the workweek has always been evolving.

Take this chart, for example. It comes from Our World in Data (be sure to read their excellent related essay as well), and the historical data comes from a paper by Huberman and Minns. I’ve singled out 4 countries, but you can add others at the OWiD link.

The historical declines are dramatic. This is especially true in Sweden. The average Swedish worker labored for over 3,400 hours per year in 1870. Today, that’s down to 1,600 hours. In other words, the typical Swede works less than half as many hours as her historical counterpart. Wow! The decline for the US is not quite as dramatic, but still astonishing: a US worker today labors for only about 57% of the hours of his 1870 predecessor.

It’s tempting to focus on the differences across countries today: the average worker in the US works about 250 hours more than the average French worker. That’s 6 weeks of vacation! And as recently as 1980, the US and France were roughly equal on this measure. We might also wonder why these historical changes happened. For a very brief introduction to the research, I recommend the last section of this essay by Robert Whaples.

But still, the historical declines are dramatic, even if we in the US haven’t seen much improvement in the past generation (and those poor Swedes, working 100 hours per year more than 40 years ago).

I think another natural question to ask is whether GDP data is distorted, at least as a measure of well being, given these differences in working hours. The answer is partially. Let’s look at the data!

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New Dead Sea Cave Finds: Scrolls, 10,500-year Old Basket, Lice Comb, etc.

The original 1947-48 finds of scrolls in caves near the Dead Sea were a huge sensation. Preserved by the aridity of that region in the southwestern part of Israel, these scrolls dated back to around 100 B.C.-100 A.D.  They included Hebrew texts of much of the Old Testament, which were about a thousand years older than previously known Hebrew Old Testament manuscripts. There were also other writings peculiar to the Jewish community that lived near those caves, which gave new insights into the religious and social currents of that day.

The last of those manuscript finds by scholars was in 1961. Since then, there has been only trickle of artifacts from looters who have dug up items to sell, but with no proper historical context. In the last few years, the Israel Antiquities Authority (IAA) has mounted an exhaustive survey of every nook, cranny, and hole in that Judean Desert area, in order to forestall further loss of ancient artifacts. The IAA has now announced some finds from that survey. They include further Bible texts (in Greek), the oldest known woven basket (10,500 years old), and a 6,000 year old mummified skeleton of a child, covered with a cloth. The searchers also found arrow and spear tips, coins, sandals and even lice combs, all from the time of the Bar Kochba revolt (133-135 A.D.).

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