Thursday, May 09, 2019

Unrealistically Great Expectations

Our expectations have continued ever higher even as the pie is shrinking..
Let's see if we can tie together four social dynamics: the elite college admissions scandal, the decline in social mobility, the rising sense of entitlement and the unrealistically 'great expectations' of many Americans.
As many have noted, the nation's financial and status rewards are increasingly flowing to the top 5%, what many call a winner-take-all or winner-take-most economy.
This is the primary source of widening wealth and income inequality: wealth and income are disproportionately accruing to the top slice of earners and owners of productive capital.
This concentration manifests in a broad-based decline in social mobility: it's getting harder and harder to break into the narrow band (top 5%) who collects the lion's share of the economy's gains.
Historian Peter Turchin has identified the increasing burden of parasitic elites as one core cause of social and economic collapse. In Turchin's reading, economies that can support a modest-sized class of parasitic elites buckle when the class of elites expecting a free pass to wealth and power expands faster than what the economy can support.
The same dynamic applies to productive elites: as I have often mentioned, graduating 1 millions STEM (science, technology, engineering, math) PhDs doesn't magically guarantee 1 million jobs will be created for the graduates.
Such a costly and specialized education was once scarce, but now it's relatively common, and this manifests in the tens of thousands of what I call academic ronin, i.e. PhDs without academic tenure or stable jobs in industry.
This glut is a global: I've known many people with PhDs from top universities in the developed world who have struggled to find a tenured professorship or a high-level research position anywhere in the world.
In other words, what was once a surefire ticket to status, security and superior pay is no longer surefire.
No wonder wealthy parents are so anxious to fast-track their non-superstar offspring by hook or by crook.
There is an even larger dynamic in play. As I explained here recently, the economic pie is shrinking, not just the pie of gains that can be distributed but the pie of opportunity.
Would parents and students be so anxious about their prospects if opportunities abounded for average students? The narrowing of opportunities to secure a stable career and livelihood is driving the frenzy to get into an elite university.
As everyone seeks an advantage, there's a vast expansion of people with advanced diplomas: what was once relatively scarce (and thus valuable) is no longer scarce and therefore no longer very valuable.
The soaring cost of the middle-class membership basics--home ownership, healthcare and access to college--has drastically reduced the number of households who can afford these basics.
Two generations ago, just about any frugal working-class household with two wage-earners could save up a down payment for a modest home and later, save enough to put their children through the local state college.
Now, even two relatively well-paid wage earners in Left and Right Coast urban areas cannot afford to buy a house or put their kids through college. They are lucky to afford the rent, never mind buying a house.
As the number of upper-middle class slots declines, expectations have risen.This manifests in two ways: a rising sense of entitlement, which broadly speaking is the belief that the material security of middle class life should be available without great sacrifice.
The second manifestation is is higher expectations of material life in general:not only should we all have access to healthcare, college and home ownership, we also "deserve" to eat out every day, own luxury brand items, take resort vacations, and so on.
In a recent pre-recording conversation with a podcast host, we were talking about the number of average workers who think very little (apparently) of buying a $15 breakfast and/or a $20 lunch for themselves every day, plus an expensive coffee or beverage. This contrasts with the "old school" expectations which reserved lunches in restaurants for executives with expense accounts or The Boss. Everyone else filled a thermos with coffee at home and packed a brown bag lunch (or kau-kau tin in Hawaii).
From this perspective, $25 a day is $125 a week or $6,250 annually (a 50-week year). That's $12,500 annually for a two wage-earner household. Five years of foregoing this luxury yields a nestegg of $62,500, a down payment for a $300,000 house, or the full cost of a four-year university education for two students who attend the local state university and who live at home.
(Sidebar note: a kind person gave us a $50 gift certificate to a popular casual-dining breakfast-lunch cafe. I reckoned we'd get a nice chunk of change after ordering two basic sandwiches and one beer. The $50 didn't cover the three items, much less the tip. I nearly fell out of my chair. Over $50 for two sandwiches and a beer? And yet the place is jammed with people young amd old, and I wondered: is everyone here earning $200,000+ annually, i.e. a top 5% income? If not, how can they afford such a costly luxury?)
As I noted earlier this month in the blog, the Federal Reserve's obsession with generating a "wealth effect" by inflating bubbles in stocks and housing have enriched owners of capital at the expense of the young.
But even if we set aside the perverse and destructive impact of this disastrous policy, the economy is changing in structural ways. Scarcity value is becoming, well, scarcer. Global competition has reduced the scarcity value of education, ordinary labor and capital, and so the gains flowing to these has declined accordingly.
Yet our expectations have continued ever higher even as the pie is shrinking.Common sense suggests realigning expectations with a realistic appraisal of what's possible and what sacrifices are necessary is a good first step.
My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com. New benefit for subscribers/patrons: a monthly Q&A where I respond to your questions/topics.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
 
Thank you, Annisa S. ($10/month), for your outrageously generous pledge to this site-- I am greatly honored by your support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:

Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Adsense and Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative)
If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.

Our Commission Policy:

Though I earn a small commission on Amazon.com books and gift certificates purchased via links on my site, I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP