I want to excerpt a single quote from this post at Zerohedge:
Right now, young people cannot save enough on their own because they face stagnant incomes and heavy student-debt burdens.
to which I would add that the very low interest rates today probably aren’t helping, either. Zerohedge is quoting Blackstone President and COO Tony James from a CNBC interview.
Does any of that sound familiar? It’s what I said some years back about why we need a federal system of social insurance. And I think we also should remember that our economic growth is based mostly on personal consumption spending which would decline if young people were actually saving.
Unfortunately, too much of what as country we’re consuming are education and healthcare services, both of which have experienced declining productivity per dollar input for decades.
The young won’t be young forever and unless something changes they’ll be in even worse shape than we are when they inevitably become as old as I am. I do not envy them.
… our economic growth is based mostly on personal consumption spending …
If the goods and services that are being consumed cannot expand the economy alone, the economy must be expanding through financing. The US economy is a deficit based economy, and since this private debt will never be paid-off, it must be continually rolled over. Since the economy does not produce enough to afford the personal consumption, the service payments on the existing debt will need to be financed, also.
Since the rich are the ones providing the credit, they are the ones getting richer, and since the amount they supply grows at an increasing rate, the rate they get rich increases, also. Everybody else goes in the opposite direction.
Are we seeing the picture yet? Let me help. Take money from rich, and give to the poor. Poor have money to spend, but rich have less money to lend. Economy expands through borrowing not spending. Hence, economy cannot expand. The rich are still rich, and the poor are no better off.
Of course, this must be wrong. The Nobel Prize committee awarded a famed economist with an award. This famed economist was so smart he proposed an alien invasion as a viable economic solution, but then, the Nobel Prize committee awarded a Peace Prize to a warmonger and probable war criminal. Go figure.
We don’t do that here in the United States. We take money from the rich and give it either to a) the slightly less rich or b) somebody else who’s rich. Occasionally, we also take money from the poor and give it to the rich or nearly rich. We have an interesting system.
I know you just excerpted the quote, but the point advocated by Tony James made by skin crawl. Look, there are three concepts in the excerpted quote: income, savings and debt. Separate, but related. Young people purportedly are not saving enough because of weak income and high debt. The optimal solution cannot be forced savings, i.e. further reducing income and encouraging debt. It cannot be sugar-coated by requiring employers to contribute to the savings, which would also serve to weaken income.
Weak income and high debt are the problems, insufficient savings is one of the results.
PDS: “Young people purportedly are not saving enough”
Young people are saving more than they were 10 years ago, but they never save enough according to spreadsheets produced by investment brokers, particularly when they promote the freedom of an age-sixty retirement. I would certainly be more concerned about job/career and responsible debt than retirement savings.
“Weak income and high debt are the problems, insufficient savings is one of the results.”
Yes, I think that’s the right sequence. Weak income can only be addressed by a more robust economy, or it’s inverse, not spending so much. I don’t know about you, but in my 20s I didn’t spend $400 for a phone and $200 each for cable TV and phone service. You wouldn’t have wanted to see what I drove, or my apartment.
As for debt, that’s a product of spending too much (I haven’t had an unpaid in full monthly credit card bill since my late 20s) and this student loan issue. The student loan issue is related to poor consumer choice and government subsidy.
As you can see, I think it’s heavily an entitlement mentality and government intervention.
It’s not clear if “income” means net income or gross income, not to mention regional cost of living.