W. Michael Cox, senior vice president and chief economist at the Federal Reserve Bank of Dallas, and Richard Alm, a business writer, are co-authors of Myths of Rich and Poor: Why We’re Better Off Than We Think.
Meet the Luckiest Generation.
When it comes to the material facts of life, the young men and women coming of age at the start of the new millennium are better off than any previous generation. And, perhaps even more important, there are rock-solid reasons to be sure this generation will continue to fare better in the years and decades to come.
Predictions of a rosy future for today’s youth run counter to the pessimistic posturing of those who still argue that calamity lies just over the horizon, despite nearly two decades of strong economic growth. When it comes to America’s future, these pessimists paint a distressing picture of meager job prospects, growing income inequality, and heavier tax burdens. The nation’s economic failure, they say, will condemn today’s young people to the sad fate of being the first generation in history not to live as well as their parents.
If this scenario were to play out, it would be a historic reversal of fortunes for the nation. America’s free-enterprise system has had its ups and downs—including, of course, the painful years of the Great Depression. But the dominant theme of the past 225 years hasn’t been failure; it’s been success, with each generation of Americans better off than the one before it.
Yet even in the best of times, there has never been a shortage of doomsayers and fear mongers, each hawking his latest book or theory about the coming depression.
Don’t buy it.
America’s good times aren’t at an end, not by a long shot. Today’s young Americans are entering their adult years with a big head start in living standards. A typical college student arrives on campus with household possessions that his parents often didn’t acquire until they were 40 or even 50 years old.
The best, though, is yet to come. Throughout the rest of their lives, members of this generation will reap the benefits of a dynamic capitalist economy that creates millions of good jobs every year, offers unlimited opportunities, and routinely delivers new, better, and cheaper products to consumers.
A Summer Job’s Shopping Spree
Jobs and innovations yet to come are, by their very nature, speculative. Today’s prosperity, though, is right before our eyes. Indeed, the birthright of the Luckiest Generation is a consumer paradise well beyond the grasp of its members’ parents and grandparents.
The summer job, a rite of passage involving ten or so weeks of work between the end of one school year and the start of another, provides a useful starting point for looking at the prospects of today’s young people. Taking a job at the minimum wage, a worker can easily pocket $2,000 over the summer, with only a modest tax bite.
The earnings of one summer’s employment pack quite a lot of buying power. The money would be enough to fill a dormitory room or small apartment with all kinds of gadgets and gizmos—with $10 left over for a pizza.
The hypothetical shopping list, based on prices offered on the Internet or in the daily newspaper, might start with a personal computer, the signature invention of our times. A powerful Compaq model with monitor, modem, color printer, keyboard, and mouse sells for $509.
After that, the budget could to extended to include a $299 Sony DVD player, a $230 Palm IIIx organizer, a $119 19-inch color television, and a $70 compact-disc player. Creature comforts shouldn’t be ignored, so how about a DeLonghi coffee and cappuccino maker for $100 and a small refrigerator for $89?
The rest of the hypothetical buying spree ranges from the prosaic, such as a table lamp, blender, and ironing board, to the cutting edge, such as a five-motor seat massager and digital camera. And there’s still money for a few additional necessities—a telephone for $49, a hand-held vacuum for $20, a toaster oven for $36, an electric toothbrush for $30, and an alarm clock for $17.
The total bill: $1,990.
Sound far-fetched? If anything, the example underestimates what today’s young Americans can afford. Data recently released by the U.S. Department of Labor show that 71 percent of working Americans between 15 and 17 years old earned more than the minimum wage of $5.15 an hour in 1998. With the jobless rate for teenagers at its lowest point since 1969 and with help-wanted signs in just about every window, the vast majority of summertime workers probably are earning well above the minimum wage.
Previous generations didn’t have it as good. Just compare the cornucopia of consumer goods readily available to today’s young people with what their parents and grandparents could buy with the money from a summer job.
Working at the prevailing minimum wage in 1970, a student would earn $618. The money would be exhausted in buying a $290 stereo record player, a $150 black-and-white television, a $99 electronic adding machine, a $59 used typewriter, and a $20 clock radio.
Present-day students are better off in several ways. First, they can purchase more goods and services, outdoing the 1970 student with a refrigerator, blender, iron, vacuum, lamp, and other goodies. Second, they can buy products that weren’t available a generation ago at any price—most notably computers, fax machines, and VCRs. Third, many of the products that perform the same functions are now a lot better, just as black-and-white televisions pale before color models.
One generation further back in time, the material rewards from summer work were even less. With $282 from a minimum-wage job in the summer of 1950, a young worker could purchase a $180 black-and-white television, a $37 record player, a $37 clock radio, and a $28 Brownie camera. That’s it.
The earnings from today’s summer job go so far largely because of a hidden bonus from the capitalist system. Over time, wages tend to rise faster than prices, so the cost of what we buy in terms of hours worked becomes cheaper.
A hundred kilowatts of electricity, for example, required 2 hours of work at the average manufacturing wage in 1950. By the end of the 1990s, the work-time price had fallen to 38 minutes. A hundred miles of air travel declined from 2 hours, 43 minutes in 1960 to 1 hour, 2 minutes in today’s economy.
Over the past few generations, such progress in the purchasing power of our work time has occurred over a broad range of products—from a gallon of milk to a Big Mac. The trend is particularly strong in manufactured goods, where productivity is rising rapidly. Actual prices of computers, VCRs, cellular telephones, fax machines, and other electronic products are falling. Factor in the increase in wages, and consumer affordability improves by leaps and bounds.
In the early 1970s, it took a month of work to afford a color television. Now, it’s just three days. In a quarter century, the work-time price of a cellular telephone plunged 97 percent. A hand-held calculator now costs 45 minutes on the job, down from 31 hours in 1972.
Better Jobs, Bigger Paychecks
The three hypothetical students’ purchases from their summer income neatly encapsulate the experience of most Americans over the past three generations. The country has witnessed a tremendous surge in living standards.
The Americans in college today begin adult life far ahead of previous generations. How could they end up worse off for the rest of their lives? It seems an absurd notion.
A dorm room or apartment full of consumer goods, of course, doesn’t necessarily translate into a lifetime of improving living standards. The promise of future prosperity for today’s young people lies in the U.S. economy’s proven ability to deliver the goods—and the services, too.
It’s the most powerful economic engine in history—a free, open economy that harnesses individual initiative. Even in seemingly tranquil times, this free-enterprise system churns onward and upward in a relentless quest for newer, better, and cheaper.
“Creative destruction”—to borrow Joseph Schumpeter’s famous phrase—generates continual progress, each generation living better than the one before it. Along the way, new products emerge, new technologies arrive, new industries eclipse existing ones, new jobs replace old ones, with paychecks getting fatter and working conditions getting better.
In the past decade or so, the U.S. economy percolated with creative destruction, providing employment for an additional 18 million workers. The driving force behind the spurt of job creation has been a New Economy spawned by the spread of the microprocessor, a 1970s invention that reached critical mass in the 1990s. Tiny but increasingly powerful electronic “brains” kicked off a wave of rapid progress—in computers, consumer electronics, telecommunications, software, the Internet, and even medicine.
The economy’s 21st-century growth will come from the same catalyst that shaped most of American history—invention and innovation. The country now sits on a mother lode of technology, a potential source of progress that dwarfs anything we’ve known in the past.
What are these new technologies?
They are many and varied, but a few examples will serve as proxies for a dizzying array of science and invention. Increasingly powerful computers are multiplying the potential applications of artificial intelligence and virtual reality. At the same time, breakthroughs in recognition technology are leading to machines that detect shapes, sounds, and even smells.
Advances in robotics are producing machines capable of fighting fires or obeying doctors’ orders in an operating room. Noise-reduction technology is using the physical properties of sound waves to make the environment quieter and cell-phone transmissions clearer.
Nanotechnology, the manipulation of matter at the molecular level, makes possible more powerful superconductors and frictionless bearings. Micromachines, some the width of a human hair, are starting to work inside the human body.
The deciphering of human DNA promises great advances in medicine and biology. Outer space offers untold commercial possibilities, some of which are already emerging from the Global Positioning System now in place.
In and of itself, technology doesn’t produce economic growth. It’s the task of the economic system to translate advances of labs and think tanks into marketable products that will spawn new businesses, industries, and jobs.
The strength of America’s economy is its unmatched ability to put technology to work quickly and efficiently. Free enterprise encourages innovation, rewards risk-taking, and gives individuals the freedom to pursue their own destinies. This is what spurs progress and improves living standards.
In this environment, it’s a good bet that job opportunities will be better in the future than they are now. Today’s young people are steeped in computer skills, the Internet, and other technologies—making them scarce resources in an economy that’s increasingly globalized.
It’s an old story in America: Education and ability translate into higher wages, more benefits, and better working conditions. It worked for previous generations. It will work for the generation just now coming on the scene.
An Even Luckier Generation
Those peddling pessimism to today’s young people are wrong—spectacularly so. This will not be the first generation to end up worse off than the one that came before it.
Quite the contrary. The prospects for America’s future are bright not bleak. Our capitalist system will put an abundance of science and technology to work. It will spur innovation, spawn new industries, create well-paying jobs, increase productivity, and drive down consumer prices.
There’s other good news for today’s young Americans, not all of it purely economic. The demise of the Cold War lessens the prospect of a nuclear annihilation. Retirement is coming earlier and lasting longer. Work is becoming more flexible, providing the opportunity for leisure and recreation.
The booming economy is producing record budget surpluses that are easing fears of ballooning interest payments gobbling up future tax payments. The national debt might even be paid off before the Luckiest Generation hits middle age.
Add it all up. When it comes to their economic prospects, today’s young Americans are the Luckiest Generation in history—at least until their children grow up and forge an even luckier one.