In my introductory post, I focused on intensification of inputs to production to conceal inability to increase labor productivity. This idea can seem a little too cute and conclusory. After all, if this force is so irresistible, how is it that it is successfully resisted? A theory that proves too much is, at best, discursively useful and as such cannot be the basis for an overall ratfacing strategy.
To be clear, intensification is only one possible outcome of the ongoing dynamic between employees and employers. It’s perfectly possible for workers to reverse intensification. However, doing so requires employers to court their employees. Here’s why this isn’t happening:
Similar trends prevail across most of the fully developed economies. For example, Japan:
In the early 90s, there were about 4 jobs available for every 10 fresh grads, so that most of them started off their careers with an unsettling streak of rejection that led to many of them being unable to secure a job in an already depressing economic climate. It was also precisely at this time when lifetime employment, once taken for granted in Japan, began to break down. While companies were bread-crumbing the Dankai Jr., the Dankai stayed on their entitled salaries and in eternally secure employment thanks to the seniority system that was still fully intact 30 years ago.
Or in the UK:
The generational divide in wealth has been in the oven for more than 20 years at this point, so by now it’s become determinative for the economic fortunes of those in their prime work years. Gen X and Millennials collectively form a mass precariat. As such, their dependence upon their employers has created an employer-employee dynamic very different from the one boomers faced.
Some hope that this will end real soon now, but fat chance:
That’s right. In 2030, when the youngest of them will be 66 and the oldest will be 84, Boomers will still control nearly the same share of the national wealth that they did in 2015! Meanwhile, the Millennials, who will be 30-50, will have about 3/4 of the share that Boomers had at 35. The Deloitte graph doesn’t directly capture this, but this graph understates the severity of Boomer dominance because Boomers also have access to social programs and job benefits that are superior to those of younger generations, like defined-benefit pensions or unaffordable government subsidies to housing and stock prices.
We thus have two strands: systematic generational differences in wealth and opportunity during prime working years, and the shift of wealth from workers to retirees. Retirees, however, are investors, and despite their shocking collective wealth, Boomers are systematically underinvested, with most planning to live off of social security and a majority entering retirement without a paid-off mortgage. Boomers (and their proxies, such as CalPERS et al.) thus need to make systematically impossible rates of return:
In the 90s, people worried about their retirements rotated their stock portfolios from stodgy companies to tech. That didn’t work; tech outperformed from the mid-90s to the end of the decade, then collapsed. Since investors form their expectations by looking backward, expected returns for stocks declined. The UBS/Gallup survey showed that in 2000, equity investors expected one-year returns of about 16%. By 2002, expected returns were 6%. In the 2000s, the move was to lever up by buying bigger houses with lower down payments…
Levering up… doesn’t directly change the state of the world, it just changes who collects which tranche of returns. If you buy the house you can afford with a 25% down payment, a 10% appreciation in its value makes your investment worth 40% more. If the same sum of money is a 5% down payment, a 10% increase in your home’s price means a 200% gain. But the larger mortgage means that a larger dollar amount of the home price appreciation accrues to your lender, not to you — they earn the first (1–down payment %) * (interest rate) of returns, every single year. You’re buying a higher-strike option on the same basic asset.
The adjusted expected return ca. 2002 seems to have been pretty rational: CalPERS in fact returned 6.7% in 2018-19. However, this is lower than the average public pension plan’s asset-weighted return assumption of 7.75%, to say nothing of actual performance, which was 5.87% from 2000 to 2018. In short, pensions are underfunded and the only way to make it more is to realize more from your investment.
We thus have the collective agents for the Boomers (pension funds, mutual funds, etc.) coming under intense political pressure to make high returns now. Any politician who screws Boomers will get turfed quickly. The funds are subject to capitalist accountability and are listening attentively. They are moving into ever more aggressive and aggressively managed vehicles. At the same time, human and physical capital is eroding. The only solution is to intensify productivity by the dwindling percentage of the population that is still highly skilled, highly productive, and in the workplace. That’s you, by the way.
And this explains why it actually sucks now to be a doctorlawyerconsultantetc. You’re producing, or at least aggregating, a lot of the remaining wealth accruing to present workers. There’s no one else to tax. (Taxing corporations would just reduce investment returns to Boomers). And that’s why, if you’re one of those cows, you have to transition to rat as fast as possible.
A word on endgames. Boomers can’t, I hope, live forever. Where will the money go? “To medical bills” isn’t an answer, because we really want to know where those bills reach the bank account of some identifiable person. We already know that doctors produce far more revenue than they receive comp. If the money goes to a hospital chain, it’s going to those hospitals’ investors. And the investors are going to be Boomers! In other words, Boomers’ money will go in large part to other, richer Boomers. Obviously from there it goes to inheritance, and thus concentrated, to scions in younger generations. We thus enter the next generation with greatly filtered wealth and no social mobility (you can’t “earn” a billion dollars) and intensification continues.
On that note–Merry Christmas!