Post No. 47: Generation Z and the Baby Boomers: An Economic Contrast

This post explores the economic contrast between Generation Z (born 1997-2012) and the Baby Boom generation (born 1946-1964). It highlights the critical role the economy plays, the widening wealth gap, the change in expectations between the generations, and the need for new policy solutions. As a baby boomer I admit I was blissfully unaware of this contrast until I had some interesting discussions with Gen Zers. Then I did my research. This post is a result of that.

There is significant concern today among young members of Generation Z. They worry about their future and how their economic situation will be much more difficult than that of the Baby Boom generation. Many older members of Generation Z cannot afford to live independently and still reside with their parents. Even those currently in college wonder if they will be able to secure a decent job. Affording rent, food, and a car on their own is often out of reach. Marriage and having multiple children are distant dreams. The contrast with the Baby Boomers is stark.

Baby Boomers and those born ten years or so before them had it much easier economically. For example, in 1954, the average American family in Detroit, Michigan could afford a house, a car, and enough to support a family on a Ford factory worker’s wages alone. They married significantly younger. They could afford to have 3-4 children, keep their wives at home, take annual vacations, and retire on a pension! This lifestyle is out of reach for the average Generation Z wage earner. Many Generation Z individuals may fall out of the middle class.

There is another aspect to this story, although it does not address the main economic dilemma facing Generation Z. Unlike today's consumption-driven lifestyles, families in the 1950s and 1960s typically owned only one modest car, rarely dined out, seldom flew on airplanes, and took inexpensive vacations—often staying at home or driving to their destinations. Additionally, houses were typically around 1,000 square feet, lacked air conditioning, and had only one black-and-white TV. There was no cable television, no streaming services, no smartphones, and fewer electrical outlets. The cost of raising children was significantly lower. A much smaller percentage of people attended college, and college tuition was considerably less than it is today. Children were not given as much attention or financial investment as is expected today.

Consumerism was already a concern in the 1950s and 1960s. The psychiatrist and author Erich Fromm lamented what he saw as a descent into a "market mentality" and rampant consumerism during those times. Today, consumerism has intensified even further. Online platforms like TikTok and others heavily promote consumerism among Generation Z. The lifestyle of a working-class family in the 1950s and 1960s is arguably more similar to that of a lower-class family today who cannot keep up with modern materialistic expectations. While a shift toward a less materialistic and consumer-driven mindset might help Generation Z, such a change is unlikely to occur.

As described in  martinsblogs.com post number 34, the American Revolution was fundamentally about economics and the people's right to have a voice in economic matters. During Bill Clinton's 1992 presidential campaign, his team adopted the mantra "it's the economy, stupid." Today, the economy is even more central to people's lives. Many members of Generation Z feel they lack a voice and are pessimistic about their economic prospects. They are acutely aware of the widening wealth gap in the country.

The trend toward a larger wealth gap is likely to continue. Technology companies are becoming leaner, meaning fewer jobs are available for Generation Z individuals seeking lucrative positions. Artificial Intelligence (AI) may exacerbate this issue further. Currently, AI is largely controlled by a handful of powerful and wealthy companies, such as Google, Microsoft, and xAI (owned by Elon Musk). Some argue that the stock market has become a casino that favors the very wealthy. Hedge funds primarily aim to game the system to generate tremendous profits for themselves and their wealthy clients.

Our political leaders should not ignore the widening wealth gap. If left unaddressed, it will become a major problem. While there is an argument that technological advances will solve this issue, technological productivity alone will not suffice. A brief look at productivity and worker compensation data shows that the disconnect between productivity growth and wage growth began to accelerate around 1980.  (See chart at end of this post.)

In addition to this disconnect between productivity and compensation that started around 1980, the wealth gap began to widen during Ronald Reagan's presidency. As detailed in martinsblogs.com post number 45, tax policies were changed dramatically starting in 1980 under Reagan to favor the wealthy.

According to polls from Pew Research Center, YouGov, and the Heritage Foundation, about half of younger Americans favor socialism over capitalism    https://www.pewresearch.org/politics/2022/09/19/modest-declines-in-positive-views-of-socialism-and-capitalism-in-u-s/   (https://www.pewresearch.org/politics/2019/10/07/in-their-own-words-behind-americans-views-of-socialism-and-capitalism/(https://www.pewresearch.org/politics/2019/10/07/in-their-own-words-behind-americans-views-of-socialism-and-capitalism/)

While it is not time to panic, this is a notable trend that warrants attention. What can be done about it?

There are some actions being taken to address this issue. The current administration is attempting to reverse manufacturing losses due to globalization that began under Reagan and accelerated under President Clinton by using tariffs to bring back higher-paying manufacturing jobs. However, it remains to be seen whether this effort will be effective. Recently enacted tax policies are designed to disproportionately benefit the lower and middle classes, although political opponents argue otherwise because any tax reduction tends to benefit the wealthy more in absolute terms (see post number 45 on martinsblogs.com for examples). Additionally, eliminating taxes on tips and overtime directly helps service workers who make up a large percentage of lower and middle-class workers. While these changes are helpful, a more focused and sustained effort is needed to reduce the wealth gap.

The political party that effectively addresses these needs—jobs, housing, healthcare, tax policy, and interest on federal debt—is likely to win elections. Currently, Democrats have primarily focused on criticizing existing policies, while Republicans have proposed various initiatives in hopes that some will resonate with voters. The party (Democrat, Republican, or other) that wins will likely put forward a multi-pronged, proactive agenda that addresses economic issues head-on. Once again, the winning party will have heeded the mantra "it's the economy, stupid." Then Gen Zers may become more hopeful about their future.