Sunday, April 21, 2013

Economy Creating Lost Generation

Seth Mason Charleston SC blog 26
I don't seek out bad economic data; bad economic data find me. I gather data from numerous reputable sources, and, sometimes, reputable sources send them to me. One of these reputable sources is John Lounsbury, Founding Partner and Managing Editor at Econintersect LLC. This morning, John sent me the following article about the lost generation that the current economic depression has been creating:
The inordinate growth of student loans – and its effect on the economy – is killing consumption (autos) and the housing sector.  This is no short term dynamic, but will effect the economy for decades.
Economy Creating Lost Generation - Consumer Credit Outstanding
The USA is a consumer driven economy.  A study released this week authored by Meta Brown and Sydnee Caldwell stated:
As a result of tighter underwriting standards, higher delinquency rates, and lower credit scores, consumers with educational debt may have more limited access to housing and auto debt and, as a result, more limited options in the housing and vehicle markets, despite their comparatively high earning potential.
Economy Creating Lost Generation - Credit Risk Scores
Both these factors—lowered expectations of future earnings and more limited access to credit—may have broad implications for the ongoing recovery of the housing and vehicle markets, and of U.S. consumer spending more generally. While highly skilled young workers have traditionally provided a vital influx of new, affluent consumers to U.S. housing and auto markets, unprecedented student debt may dampen their influence in today’s marketplace.
Some believe the lack of jobs is causing a higher than normal attendance in schools – but historical data from the BLS shows attendance appears moderating.
Economy Creating Lost Generation - College/University Attendance
And there seems little correlation between the ability of the young to get jobs and enrollment in colleges / universities.
Economy Creating Lost Generation - Labor Force Participation
The student loan growth phenomenon seems to be directly related to cost inflation of education outstripping the general rate of inflation by significant multiples.  The following table is from a study by Jordan Bowersox and Jonathan Breazeale.

Yearly Cost of Colleges / Universities

Economy Creating Lost Generation - Cost Of College
This study appears to correlate well with the associated BLS education cost index.
Economy Creating Lost Generation - Tuition Inflation
It is interesting to this author that economists talk about the economic drag by the baby boomers on the economy, but yet ignore the built in drag of higher education on the economy.  The young are historically higher consumers than the old – yet the cost of education is weakening the ability of the young to consume.
It's important to note that ever-expensive higher education not leading to good-paying jobs not only prevents younger people from contributing to the economy as consumers; it impedes their ability to achieve life milestones that contribute to the economy: getting married, having children, etc.

Seth Mason, Charleston SC


Post a Comment

Note: Only a member of this blog may post a comment.