Monday, September 12, 2016

Confidence Game

I have previously raised the question in these pages as to whether "History Will Be Kind To Millennials?"

Why do I say this?  Here is what I wrote shortly after Barack Obama was sworn in for his second term.

Voters do not typically vote against their self-interests.  That is why the unions and government workers who believe in big government and big spending typically vote for Democrats.  It is also the reason that small business owners and investors who are concerned about high taxes and government regulations vote for Republicans.  It is why young voters in the Vietnam era voted for Eugene McCarthy and George McGovern and why generations of African-Americans voted for Republicans after the Civil War.
Obama carried two-thirds of voters aged 18-29 in 2008.  He carried this demographic with about 60 percent of the vote in 2012.  When you consider the following it is hard to understand why.
We know the obvious.  Over $4 trillion in national debt has been added in the Obama years. The President's budgets over the next four years looks to be more of the same. When Obama leaves office it looks as if these young voters will be inheriting at least $20 trillion in federal debt that they will have to pay for from future taxes.
The overall unemployment rate for 18-29 year olds in December, 2012 was 11.5%.  This is far worse than the 7.8% national rate.  The African-American unemployment rate was 22.1%.  12.2% of young Hispanics were unemployed. These are all worse than four years ago when President Obama took office.

I was reminded of this as I came across the chart below in Business Insider that compares the Conference Board's consumer confidence index between younger and older Americans.  It is one of the more astounding graphics I have seen this year. Note the difference in consumer confidence between those under age 35 and those over age 55. It is a mind-boggling difference of 58.8 points.! There has never been a bigger disparity in consumer confidence between the young and the old.

The overall consumer confidence index is at 101.1 today but Millennial confidence is close to 130 and those over age 55 come in at around 70. It is as if these different generations are living in two different worlds.

From where I sit, the Millennials look like they are living in a dream world. Older Americans seem to be more grounded in reality.

Younger Americans are on the hook for $19.5 trillion and counting in federal debt. Social security and Medicare are both fundamentally bankrupt and will need a massive infusion of new tax dollars before long. Millennials will be on the hook for many more trillions in public sector pension costs for state and local workers. All of these obligations will require that current tax rates will need to be increase substantially in future years.

Millennials are also on the hook for over $1.25 trillion in student loans that are not dischargeable in bankruptcy. The amount of student loan debt has doubled since Obama became President---from $700 billion to close to $1.4 trillion as this graph from the Federal Reserve of St. Louis illustrates.

Let's put $1.4 trillion in perspective compared to other forms of debt. Total credit card debt is $883 billion and total auto loan debt is $750 billion. When Obama became President, student loan debt was lower than both these other forms of borrowing. Student loan debt is now close to overtaking the two other leading forms of household debt---WHEN COMBINED!

The unemployment rate among those age 18-29 is 8.6% compared to an overall employment rate of 5.3% in total.  In fact, one-third of all unemployed workers are 18-29 years of age. Adjusting for those who have quit looking for work, the real unemployment rate for 18-29 year olds is 12.5%.

Even worse, a recent study by Accenture indicates that 51% of Millennials report being underemployed.

Therefore, almost 1 in 10 of them is unemployed and more than 1 in 2 is underemployed.  The poor economy and low interest rates are keeping millions of Baby Boomers in the workforce and blocking Millennial career advancement.  They almost certainly will pay much more into Social Security and Medicare than they will ever get out of it or they will end up caring for Mom and Dad somewhere down the line.

Does all of this sound like it would put your consumer confidence through the roof?

I guess as long as you can live in your parents' basement, their parents' Wi-Fi is working, your cell phone bill is paid and Instagram doesn't crash, life is pretty good.

The only explanation I can come up for this disconnect is that things have been so bad for so long that Millennials do not know any better. They think this is as good as it gets. They see small improvements in employment and the budget deficit and it all looks like peaches and cream to them.

The 2016 Presidential election will largely turn on whether these younger voters will vote...and how they will vote.

For example, 24 million voters age 18-29 voted in 2012 and 60% voted for Obama. On the other hand, 30 million voters age 60+ voted in 2012 and 56% voted for Romney.  These groups essentially cancelled each other out and the election was determined by those between ages 30 and 59 as I explained in my blog post, "Turned On and Turned Out ".

However, in the mid-term elections in 2010 and 2014 which saw tremendous GOP wins, only 10 million voters age 18-29 bothered to vote. 14 million stayed home compared to their turnout in 2008 and 2012. However, 30 million voters 60+ still came out. each election And they voted for the GOP in roughly the same margins as they did for Romney in 2012. That is why Romney lost and there were landslide wins for the GOP in both 2010 and 2014.

Younger voters seem to have a poor opinion of both Hillary and Trump. However, if they vote, they seem ready to support the Democrat again based on most polls I have reviewed.

Why not? It seems they think life is good if you look at the consumer confidence data. They seem to be totally oblivious to the storm clouds swarming all around them.

Will history be kind to Millennials?

Put me down for about a 10 on that confidence scale.

1 comment:

  1. Points to ponder. If low interest rates are keeping baby boomers working and Millennials out of work, why not raise interest rates? Surely this will stimulate the economy. Yet the mere mention of a rate hike yesterday sent the stock market into a nose dive. Hardly good for consumer confidence. Just seems that no matter what happens it is all doom and despair.

    And what about the national debt. Is either candidate going to tackle that? They would have to be brave. We had a state premier in Qld a few years back who was elected on his promise to cut the state debt. Yet he was kicked out at the next election for doing just that. It seems paying your debts is uncomfortable and rather than pay, people prefer to blame someone for it, put their head in the sand and just keep sucking the welfare tit.