Wednesday, July 20, 2022

As I mentioned before, I recently went into retirement. People always ask you what you are planning to do with your time in that situation. In my case I have a big project for the moment: I will leave the city and build a house in a small village in the countryside. So for entertainment I currently watch a lot of TV shows about building and decorating houses, for inspiration. As I recently managed to sign up to Discovery+, I now have access to HGTV, which is full of shows like that. And after watching a wide range of those, something struck me: There were a lot of millenials on those shows, renting appartments in Chicago for \$2,500 a month, or buying expensive single-family houses. Is that real, or a TV fantasy? Aren’t millenials supposed to be the broke generation, who somehow got robbed of all the money they were due by boomers like me? So I did some research on the topic, and it turned out to be a case of Mark Twain’s “there are lies, damned lies, and statistics”.

Statistics in general is an attempt to make a statement about a group (e.g. of people), although each individual is different. It is very obvious that in a large group like “the millenials” there are both very rich and very poor people. So how do you make economic statements about the whole group, and what do these statements mean? Two very common concepts here are using the average (all the money divided by all the people) or the median (the amount of money where half of the population has more, and half has less). Both concepts have their flaws. The USA is a rich country, with a GDP per capita of over \$63,000, but that is an average that doesn’t tell you much about the financial situation of a typical American. The median household income in 2021 was \$70,000 , which gives you a better picture. However, the average household income was \$97,000. In personal finance statistics, the average numbers are always higher than the median numbers, because the very rich impact the average much more than the median.

So how about those millenials? Of the 72 million millenials in the USA, over 600,000 are already millionaires. While the boomer generation has a much higher percentage of millionaires now, that percentage is very much a function of age. When the boomers were young, they actually had a lower percentage of millionaires than the millenial generation now. If you look at all the publications showing how poor the millenials are, they all use median incomes, which are very bad for this generation. If you use averages instead, the millenial generation is suddenly richer than the boomers were at the same age, because GDP has gone up every year. What has changed is that inequality has gone up: The difference between average and median is much bigger now, with the median having gone down and the average having gone up.

In a way, the COVID pandemic was a perfect showcase for the rise of inequality in the millenial generation: A lot of millenials in lower income jobs, especially in hospitality, lost their jobs and suffered severe financial consequences. But other millenials in high-paying tech jobs suffered no loss of income at all, being able to comfortably work from home. How comfortable working from home is depends very much on the size of of your home, thus one trend was richer millenials moving away from small appartments in cities and buying large and luxurious homes further away from their jobs, thanks to being able to work home office. HGTV isn’t lying, but they only show a richer slice of the population. I don’t think they have any TV shows on buying the cheapest houses on the market and decorating it from the dollar store, although that obviously is a reality too.

Regardless who you compare them to, rich boomers or rich millenials, the median millenial is in a bad economic place. While the boomers are starting to die, that generational wealth transfer will not fix the plight of the median millenials, it will only increase inequality. Even when all the boomers are dead, the median millenial will still be poor. Because this isn’t really a generational problem, but an inequality problem, and inequality is getting worse. It is the concentration of wealth in fewer and fewer hands that make median households poorer.

HGTV shows are as "real" as reality TV. For example any of the shows where you see people looking at various houses with a "realtor" and then select 1 home to purchase is completely fake. The buyers already have to be in escrow or have the purchase complete before being filmed and the other houses they go see are purely for the show.

Same deal with the renovation shows where the home owners renovate and then supposedly decide at the end to either list their house or stay in it.

That being said of course HGTV is going to showcase wealthier buyers. I don't think people would want to watch a depressing show where a millennial tries to rent a 1 bedroom apartment.

The shows are more exciting when the buyers are getting into nicer homes or doing fancy renovations.

Income inequality is a problem without an easy solution. Even if you somehow got politicians on board how exactly do you redistribute wealth effectively?

The Covid PPP program showed that without a rock solid plan the vast majority of wealth distribution doesn't end up in the hands of those that actually need it but rather in the hands of those with enough knowledge or lawyers to rig the system and redirect the benefits to themselves.

How do you tax the ultra wealthy when most of the Wealth isn't income but stocks that they leverage to take out loans?

Do we simply create a "total wealth" tax that hits billionaires on their potential wealth if they liquidated all assets?

Do we push UBI and just try to increase the income for the bottom 50% and not tackle billionaires at all?

I certainly don't know enough to propose any solutions but I don't think any government be it capitalist, communist or anything in between knows either.

Why do you assume that what is presented in a TV show has anything to do with actual statistics or representation of the population? I have not watched HGTV+, but do they at any point claim they are showing average Americans? Is it marketed as a documentary, or as an entertainment show?

This sounds like watching a TV cooking show and for some reason assuming that they show what the average person eats every day - which would be silly, right? Or like watching a Twitch stream of raiding in a MMO, and assume that majority of people playing that game are active raiders.

I would assume that any TV show has some sort of relevance to the audience, otherwise they wouldn’t watch it. It might be relevant as a fantasy, but it is still relevant. And 5 minutes on Google show that these million dollar homes *do* exist, and aren’t a complete invention.

The easiest way to fix income equality is to tax dividends and stock market gains with the same tax rate as income from employment. That is the leading cause of inequality, and the reason why Warren Buffet pays a lower tax rate than his secretary.

>I would assume that any TV show has some sort of relevance to the audience, otherwise they wouldn’t watch it.

It depends among other things on who the intended audience is - is it average people, or only those with more disposable income, and thus much more likely to buy products advertised on that show?

> The easiest way to fix income equality is to tax dividends and stock market gains with the same tax rate as income from employment.
In at least some countries they are taxed the same rate, but there is still a lot of inequality, so I don't think that is enough. There are a lot of ways that rich people use to avoid paying big taxes, some legal, some not.

@Tobold

The Millennial's aren't in a state of inequality because 'the man' is keeping them down, they're in a state of living with the poor choices they've made based on what our enlightened educational institutions have taught them. The American workforce has drastically changed since the first Millennial was born, and many of the manufacturing jobs have moved to China and elsewhere. As such, and as we've discussed here before, a large percentage of Millennials are opposed to merit based employment, and in an economy that has moved further away from manufacturing and more towards a 'service based' economy, the employment hierarchy in the US still largely embraces merit based systems. The problem is that most 'service' based industries have very little room for upward mobility due to their small and highly focused markets.

Take the time to look at the number of 'service' based jobs in the US as compared to manufacturing jobs, and you will see the disparity that exists in employment opportunities for 'everyone', not just Millennial's.

I do think that on the whole our generation has made the world a better place but we dropped the ball in allowing inequality to grow again after shrinking for so long. The funny thing about it is that I thought we were doing a pretty good job at reducing inequality between nations. The old impenetrable barriers between first second and third world were dissolving and many formerly third world countries were on a development track. Unfortunately even though nations were becoming more equal the gap between rich and poor in every nation has grown and that has come back to haunt us.

Why no mention of GenX? I realise all these generational cadres are spurious but it seems a bit much to just skip one entirely.

To some part this post is a response to different articles and other media claiming that “the boomers stole the millenials’ future”. No idea why other generations don’t figure in that narrative. The trend of increasing inequality is a gradual one, with no generational “steps” in the curve.

I guess you could tax *realised* stock market gains. You can't really tax unrealised gains because that would mean that as soon as the market assessed your future prospects as good you'd have to sell half your investments. And how could that work at all for private companies? "Your farm looks prosperous, comrade - you have to give half to the government. (By the way, I work for the government, I'm not a dumbass like you.)"

But if you tax realised gains, people with a lot of stock will live on borrowed money instead of selling equity.

The other point is that unrealised gains can be used by companies to invest in themselves.