You got to admit it's getting better

Perhaps not all the time, but most of the time, so what's all the belly-aching about?

Happy Snowpocalypse, to all those who celebrate.

• new wages for new grads (it’s not the best)

• what people really mean when they say “unaffordable”

• biggest winners at the bottom half

• household balance sheets? pretty, pretty good

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Random Walk is back after a much-needed break.

You got to admit it’s getting better

So, I offhandedly posted this chart to twitter late last week, and it sort of blew up:

Revelio

Real starting salaries for new grads have dropped ~15% since 2020 (and ~20% from peak), at least according to Revelio’s data.

So, that’s not great, and it’s consistent with the rough market for recent grads, so it’s not entirely surprising, either (although I would not have guessed that the decline would be quite so steep).

In any event, the graph really resonated with the “everything is terrible for Gen-Z because affordability” crowd, and I had to mute notifications because all the resonance was a bit tiresome.

What people mean when they say “unaffordable”

Allow me to rant, for a moment.

Random Walk’s view of the “affordability” discourse is that it’s really two related things, neither of which have anything to do with affordability.

The first is status. The second is flows (not stocks).

In other words, when people complain about affordability what they’re really complaining about is the rate and pace of (relative) upward mobility.

up-and-to-the-right

People want to move upwards, the progress of which is measured (in large part) by their status relative to their peers.

That being the case, when “educational attainment” doesn’t translate into “corporate ladder attainment,” people get frustrated, even if material well-being continues to improve. And because the corporate ladder has stopped lengthening of late (due to the lack of capital stimulus), it’s meant less ladder-climbing.

That’s the flows part.

keeping up with the rich n’ famous joneses

On the status part (which is related, of course), the problem starts with a social media-driven erosion of local maxima.

Social media has put ‘lifestyles of the rich n’ famous’ on steroids—whether real or feigned, ‘success-maxxing’ is a dominant form of posting. And unlike the lifestyles of the rich n’ famous of yore, social media influencers thrive on the “parasocial” relationship with their audience, i.e. the one-way perception of “friendship” that the audience experiences, but which the influencer most definitely does not. In that case, the success-maxxer appears not as some distant, unattainable celebrity, but as a friend. “I know that guy—we talk every day” but actually he talks, and you listen, and you are definitely not friends, and really you know only as much about him, as he chooses to let on.

The result is that people are constantly consuming the relative (and sometimes outlandish) success of “peers,” who are, in fact, not their peers. It’s a game of keeping up with the rich n’ famous joneses, every minute of every day.

And that makes winning status-games hard. Rather than competing on various local maxima (e.g. best pitcher in the county, nicest yard in the cul-de-sac, freshest whip at the club), people are competing on a global scale, where “winning” tends to follow a pareto distribution.

So, people get upset when they cannot afford the status symbols (car, house, clothes, travel) that truly only a small segment of the population can afford, but nonetheless appear “attainable” because they saw it on insta (in a carefully cultivated feed that selects precisely for envious moments).

actually, things are quite affordable

When people cannot obtain the material things commensurate with the status they think they think they deserve, they complain it’s “unaffordable.”

And people get upset, even as things get steadily more affordable.

• electronics

• cars

• stadium food (and groceries, ‘artisanal’ food, generally)

• tailored clothes, cashmere sweaters, cloud-knit tees;

• ‘high end’ finishings, and yes, even housing

Sure, some things are worse.

• High touch services are still shrinkflationy worse than before, but that’s post-pandemic thing.

• Toys, although cheap and plentiful from China, are definitely lower quality.

I’m sure there are some others. But, for the most part, people are objectively much better off in an absolute sense.

And yet, what really grinds their gears is the slowing progress in the relative sense (made much worse, in part, by their own artificially inflated expectations of relative benchmarks).

It’s a theory, at least.

Anyways, I’m not going to prove it all here, and that wasn’t my intention. It’s just a thing about a commonly misunderstood thing that I think to be true, and I was prompted to lay it out by the chart above, and the charts that follow (which, truthfully, are only varying degrees of on-point).

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ICYMI

The month the labor market broke?

Family offices are risk-on, too

Some creaking and two shocks, walk into a bar

China feelin’ the pinch (maybe), and pinching back (maybe)

Where does all the sanctioned oil go?

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The not-rich get richer

As the old saying goes “the not-rich get richer.”

The biggest (relative) winners of the pandemic “wealth boom,” but really the extended post-GFC ZIRP boom, are the bottom 50%:

Citadel

The bottom 50% of households have grown HH wealth by 1,195% since 2010.

1,195% is not a typo. And it’s far more than the top 1% (209%), the next 9% (158%), and the next 40% (168%).

Now, of course, the bottom 50 grew their wealth off a much smaller base, but all those stock market (and housing market) gains have been far more meaningful for the bottom-half of society.

Higher quality stuff

What else?

On a “quality” basis, look how much imports improved:

NY Fed

Pretty much every category of import (but “agriculture and mining” equipment) got better, and electronics and apparel, especially so.

Whatever the second-order effects of globalization (and there definitely are some), the deflationary effect of Chinese stuff is even higher than people think.

People are pretty ok

In general, people are pretty ok.

• Less debt:

  

  Carson Group via Daily Chartbook

• More liquid:

  

  TS Lombard via Daily Chartbook

And while wage growth has slowed of late, it’s still pretty solid, and I expect it will begin to pickup, soon.¹

The thing is, for the umpteenth time, the labor market is secularly tight. There just isn’t all that much labor to go around. So, the people who are working, are likely going to work more hours, and get paid more for doing so.

There’s already been some evidence for that, and I suspect we’ll see more.

Now, to be fair, it truly is a very rough job market for recent grads (which is likely a result of “aging in place,” a theory, which gets more convincing to me every day). And “knowledge work” in general, is not where the action is. Plus, healthcare is a steadily rising tax.

So it’s not all great, and again, insofar as status is where it hurts, abandoning corporate splendor for the skilled trades, won’t make people feel any better. But it’s still pretty good, it’s definitely not bad, and it could be much much worse.

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Previously, on Random Walk

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1. Consumption, of late, has been fueled in part by dipping into savings:

Consumption has grown more than incomes, leading to a decline in the savings rate.