Why do Boomers Own Everything?
Last week Treasury Secretary Scott Bessent reported that the top 10% of Americans account for half of consumption — a new record.
This 10% is, of course, overwhelmingly Baby Boomers.
Who've spent the past 50 years having their assets pumped by the Federal Reserve while voting for big government that knocks the first rungs out of the career ladder for the young.
The end result is Boomers relaxing in vacation chalets while for the young wages are flat, prices are up, and buying a house or starting a family is a pipe-dream.
Instead, they lurk in Mom's basement fantasizing about the revolution.
Our “K-Shaped” Economy
The numbers come from Moody's Analytics, who finds that the top 10% of Americans accounted for just 36% of consumer spending 30 years ago, but now it's up to 49.7%.
And it's getting worse fast: in Biden's last year the top tenth increased spending by 12% while the other 90% of Americans actually spent less.
That's a so-called K-shaped economy, with the top living it up while everybody else getting killed.
In fact, over Biden's 4 years, spending by the bottom 80% of Americans was flat while the rich increased spending by nearly a third.
Earlier this week I mentioned how the Fed seems to be running policy based on the stockmarket. This is why; if the rich are holding up the entire economy, it means stock prices -- and home equity -- are holding up the entire economy.
Boomers Feast
A few years ago the Washington Post published a chart showing shares of national wealth by generation.
By the time they were in their mid-30's Boomers owned 20% of the wealth in America.
For Gen X in their 30's it was 8 and a half percent.
For Millennials in their 30’s it's not even 3%.
So how did this happen?
There's two main causes: Out of control growth in the Federal government. And decades of easy money from the Federal Reserve.
Between 1990 and today, inflation-adjusted federal spending more than doubled. Federal regulations, which mainly hit business, have gone from 118,000 pages to 180,000.
This matters for the young because regulation hits small business startups much harder. In manufacturing regulation costs small companies twice what they cost big business, who spread it over a bigger base.
In fact, according to the National Association of Manufacturers, regulations cost small manufacturers more than salaries.
Crippling small business knocks out the first rungs on the ladder. By one estimate, native-born business formation is down 85%. And it costs the economy at least $3 trillion in waste.
The Fed’s Free Lunch for the Rich
Even bigger than simple growth of government is the Federal reserve.
Since 1990 the Fed's average real interest rate has been just 0.1%. In other words, 35 years of free money.
This has been amazing for Boomers. Because zero interest rates make stocks -- and house prices -- soar.
To illustrate, before Boomers, in the 35 years from 1955 to 1990, both house prices and stocks went up by half -- 47 and 49% after inflation.
In the 35 years since 1990 house prices went up one hundred 24 percent.
Stocks went up 600 percent.
So anybody who owned a house in 1990 is rich. Anybody who owned stocks is a millionaire.
And if you didn't own a house or stocks in 1990? You got the inflation that paid for it all.
What’s Next
The solution's very easy: radically shrink the government -- both dollars and scope. Trump and Elon are, of course, doing this just as fast as Obama judges allow.
And the other half: Get rid of the Fed. Leave interest rates to the market, which has set them for millennia.
And limit money printing to either a fixed rate of growth -- the so-called k-percent rule championed by Milton Friedman.
Or, much better, just retire the money printers — the basement spreadsheets where the Fed magics up money — and return to hard assets, whether Bitcoin or good old gold.
Here on the newsletter I recently walked through how to get back to gold. Or, if we’re feeling frisky, how to End the Fed.
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It makes sense that the boomers would have the most wealth since they have worked the longest and have had time to accumulate it. Don't worry though, the boomers are dying off already and the pace will pick up in the next 5 years.
As a 75 year old boomer (I despise that title) I am spending less and getting rid of junk, not accumulating it. I try to by used things if I need them and don't worry about being able to afford a lifestyle of running around all day like a headless chicken thinking that in my last years I have some 10,000 item bucket list I have to spend every waking moment checking off.
I don't think it's safe to assume that everyone in the top 10% are all boomers. Many very rich people are much younger. I know many boomers who are barely surviving and we always hear about the millions of retirees living on Social Security and not much else. Not much boom there.
I'd bet that much of that boomer spending is on supremely over-priced and over-valued medical care. It does make up almost 20% of the economy.
All largely correct, but I would add a little nuance. Boomers were told incessantly to go to college, buy a house and save for retirement. It worked for us, but the game changed over time and it’s not been the same for a while, especially re: the benefits of an increasingly expensive, and often useless, college degree.