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Yes, AOC, your generation has seen American prosperity

Michael Barone on

"An entire generation, which is now becoming one of the largest electorates in America," says Rep. Alexandria Ocasio-Cortez, D-N.Y., whose visibility as a spokesperson for this generation has been boosted by political friend and foe, "came of age and never saw American prosperity."

Of course, AOC misspoke. It's ridiculous to say that someone who grew up in and worked in metropolitan New York City "never saw American prosperity." Those high-rise buildings didn't rise by spontaneous generation. Somebody put up money to build them.

What AOC surely meant to do was make the often advanced argument that Americans born around 1989 who came of age around 2007, the year AOC graduated from Yorktown High School in suburban Westchester County, haven't seen much economic growth.

That's the year the Great Recession hit, when layoffs skyrocketed and job openings plummeted. College graduates faced bleaker prospects than their counterparts a few years before, and jobs for young non-college males seemed to disappear.

Economic growth remained sluggish through Barack Obama's presidency, and the spike in economic growth since Donald Trump took office and his tax cuts passed has been most robust among lower-skill workers, rather than college graduates like AOC. But that suggests America is moving to less economic inequality -- an argument you're not likely to hear from a Democrat.

But perhaps AOC is taking a longer perspective, based on research like a recent Federal Reserve report that, using standard inflation indexes, says her fellow millennials are doing worse than Generation Xers or baby boomers. One common refrain is that blue-collar wages reached a peak way back in 1973 and have never recovered since.

 

As economist Tyler Cowen points out, the use of inflation indexes intended to measure short-term fluctuations can be misleading when extended to longer, multi-decade periods.

As it happens, 1973 was a year followed by almost a decade of the highest inflation since the years just after World War II. Applying standard inflation indexes over the next several years made "real dollars" earnings seem very low.

The problem is that any inflation index, based on the cost of a market basket of goods, tends to overestimate inflation over time. One reason is because people respond to higher prices of the measured goods by buying something else -- apples rather than oranges, for example.

Government statisticians in the 1970s assumed people refinanced their mortgages every year, thus spiking housing costs. But when interest rates spiked, people stopped buying houses and taking out mortgages.

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