Please, Gen Z Aren’t “Doomed to be the First Generation of Americans Who Will Grow Up with a Lower Standard of Living Than Their Parents”

By James Pethokoukis of AEI.

"One could easily fill all the waking hours in the day—and non-waking hours, too!—with pointed responses to all the bad economic opinions expressed on social media. That said, I like to dip in every now and then with a humbly offered counterpoint. This week’s 9/11 anniversary, for example, meant the recycling of this passage from Hunter S. Thompson’s 2003 book, Kingdom of Fear on the economic prospects of Americans born since the middle 1990s:

We are At War now, according to President Bush, and I take him at his word. He also says this War might last for “a very long time.”

Generals and military scholars will tell you that eight or 10 years is actually not such a long time in the span of human history—which is no doubt true—but history also tells us that 10 years of martial law and a war-time economy are going to feel like a Lifetime to people who are in their twenties today. The poor bastards of what will forever be known as Generation Z are doomed to be the first generation of Americans who will grow up with a lower standard of living than their parents enjoyed.

That is extremely heavy news, and it will take a while for it to sink in. The 22 babies born in New York City while the World Trade Center burned will never know what they missed. The last half of the 20th century will seem like a wild party for rich kids, compared to what’s coming now. The party’s over, folks. The time has come for loyal Americans to Sacrifice. . . . Sacrifice. . . . Sacrifice. That is the new buzz-word in Washington. But what it means is not entirely clear.

There’s certainly been a lot of wild happenings in the 20 years since that book was published, including the long war in Afghanistan, Iraq War, Global Financial Crisis and Great Recession, shock election of Donald Trump and rise of protectionism, and COVID-19 pandemic. (I would certainly be a bad Chicago Cubs fan if I didn’t mention a certain event that happened in November 2016.) 

Question: With two decades of data points to analyze, does it look more likely or less likely that “the poor bastards of what will forever be known as Generation Z are doomed to be the first generation of Americans who will grow up with a lower standard of living than their parents enjoyed,” as Thompson pointedly put it? The typical social media response to Thompson is that the author has nailed his forecast. While not a surprising appraisal, my read of things suggests otherwise. 

For example: Gen Zers are outpacing their Millennial and Gen Xers counterparts when it comes to home ownership at the same age. Likewise, they’re doing a much better job saving for retirement. See, even comparatively slow economic growth will boost living standards (though of course, sustainable rapid growth is preferable) and provide considerable financial resources for workers. Over the past 20 years, US real GDP growth has averaged about 2 percent annually. And during that period, wages for the typical American worker have risen in real terms by more than a fifth—including the chaos of the pandemic years.

Looking upon that data, I am reminded of this quote from the 19th-century British historian and politician, Thomas Babington Macaulay: “On what principle is it that with nothing but improvement behind us, we are to expect nothing but deterioration before us?” Indeed, the current long-term CBO forecast is that the economy will continue to grow over the next 25 years, which suggests a good chance that typical wages will as well.

Of course, that is just a forecast. Things can happen and will happen to confound our best predictions. Maybe AI advances will generate such inequality that the economy will grow but only those at the tippy-top will benefit. Maybe. Then again, early studies suggest that not only does generative AI boost worker productivity, but it’s most helpful for less-experienced and lower-skill workers. What’s more, AI might play a key role in accelerating economic and productivity growth overall, which would provide a strong tailwind for wages.

That last point is critical. The most likely risk to Gen Z living standards is not decline but that they will grow more slowly than that of previous generations. It might feel a bit like stagnation. This is why public policy needs to be growth- and innovation-focused so as to work with and build upon the advances we’re currently seeing across a variety of sectors such as AI, biotechnology, energy, and space. Stagnant or lower living standards are a choice, not destiny—even if you get a lot of bad luck along the way."