Millennials Are Taking It on the Chin (Again) in This Recession
By: Ben Le Fort
Tags: Money, Personal Finance, Society, Economics, Millennials

Millennials Are Taking It on the Chin (Again) in This Recession

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I graduated from University in 2010, near the bottom of the financial crisis. This was considered by most economists to be the most severe recession since the great depression of the 1930s. It even earned the moniker “the great recession.”

My experience starting my career in the aftermath of the financial crisis left me saddled with debt and financial anxiety.

A decade later, we are experiencing an even more severe economic shock. While I am managing just fine, millions of other Millenials my age have been punched in the gut by the second “once in a lifetime” recession in the first decade of their career.

In this article, I review how the financial crisis and the 2020 recession disproportionately hurt younger people and why allowing inflation to run (a bit) hot can help young people recover financially.

Millennials got screwed during the financial crisis

More specifically, they got screwed by how governments responded to the financial crisis.

Governments and central banks in most rich countries responded with accommodating monetary policy and not enough fiscal policy.

Accommodating monetary policy refers to reductions in interest rates and quantitative easing programs.

Fiscal policy refers to taxation and spending policies by governments.

The bulk of the government response to the financial crisis was focused on monetary policy, lowering interest rates, and providing liquidity (money) to major banks and financial institutions.

Which was the right thing to do. Letting the major banks go down could have plunged us into a global depression.

But the thing about monetary policy is that it does not help everyone equally. One of the features of accommodating monetary policy is that it helps to increase asset prices.

In the decade following the financial crisis, the stock market and the housing market have hit record highs.

The monetary response helped older generations who own houses and are invested in the stock market but did nothing for younger people who don’t own a home and have little or nothing invested in the stock market.

Wage growth has been weak, tuition prices have been skyrocketing, and many younger people have been barely scraping by and piling up debt.

Young people have paid the highest economic price of COVID-19

Millennials and Gen-Z are more likely to work in industries impacted by COVID-19, such as retail and hospitality. According to the Economic Policy Institute, the unemployment rate for workers aged 16–24 jumped from 8.4% in 2019 to 24.4% in 2020. This was especially true for anyone who was not both white and a man.

Young people have paid the economic costs of the recession, while many older generations have done just fine.

As we just discussed, COVID-19 disproportionately hit industries that employ young people. These were often lower-paying jobs, to begin with.

Many of the jobs that easily transitioned to working from home were often higher-paying jobs and tended to be occupied by older people.

The closure of the economy has also disproportionality helped older generations who have a higher mortality rate than younger people.

The sad reality of this recession

If you’re over 35, have been working from home, and have a happy and healthy family/relationship dynamic in your home; you're living a privileged life right now.

Your morning commute is gone.

You do not have to be around other people, which means you can greatly reduce your exposure to COVID-19.

You're more likely to own your home and be invested in the stock market, which means your wealthier than you were in 2019.

Your expenses have gone down, so you’re saving more money than you’re were in 2019.

Yeah, homeschooling your kids sucks, but you also get more time with them. My son was born in February, and ordinary, I would get home from the office an hour before his bedtime. In the past 8-months, I’ve spent more time than I ever thought possible, which has been a blessing.

Compare that to the experience of many young people.

They are more likely to have lost their job.

They are more likely to be living alone or with roommates (not family.)

They are less likely to be able to work from home, which means if they are lucky enough to still have a job, they need to be in a public setting which exposes them to the virus.

They have not seen any benefit from rising stock prices or housing prices. In fact, it's less likely many young people will ever own a home than it was in 2019.

They are more likely to have taken on more debt loads to get through this crisis.

That last point about higher debt loads for younger people is what I want to focus on because this is something that governments can help with.

Balancing the generational scales

If governments want to help alleviate some of the debt burdens that many young people are shouldering, all they need to do is let inflation run (slightly) higher than expected.

Normally, central banks want to keep inflation low. But for the next few years after the COVID-19 crisis is contained, there is a case to let inflation run slightly higher than is expected.

This would help balance the generational inequities that have arisen from this recession because higher than expected inflation helps people who are in debt and hurts people who own debt.

If inflation runs higher than what the market expects, the “real” or after-inflation value of debt will fall. That means that the debt that young people have will be relatively less burdensome than it is today.

At the same time, older people are the ones who own debt. As people approach retirement age, they are more likely to shift more of their financial capital into bonds (which is a form of debt.) Higher than expected inflation reduces the value of current debt, which hurts bondholders (older people.)

Since younger people are the ones in debt and older people are the ones who own debt, higher than expected inflation will be a win for younger people.

In the past recession, younger people got screwed by the way governments fixed the economy. During this recession, they have been hit even harder than they were during the financial crisis.

One way for the government to help debt-ridden Millenials and Gen-Z is to let inflation run a little hot for a few years. But only a “little” hot; too much inflation can be dangerous, but a touch of inflation can help balance the scales of the generational wealth inequalities building in society.

It’s not the only thing that needs to be done, but it’s something that should be on the menu.