Big Babies and Low Wages

200911211839jiachang4 The typical argument is that 20somethings living at home with their parents are big babies who haven’t cut the umbilical cord—Call it Big Baby Syndrome. This may be true for some but there’s good reason for them to stay home: tradition and economics.

Adrian Chen of Gawker explains:

There are basically two theories. One: today’s adult children are fickle, overgrown babies who need their parents to tuck them in at night and are so enamored with themselves that they refuse to get a job unless it is as special as themselves. Or, two: vast economic shifts have conspired such that it is impossible for these young people live on their own.

Chen references a study by MacArthur Research Network for the Transitions to Adulthood publication:

[I]t is the American Way to live with your parents into adulthood. The study confirms that, young Americans are indeed "living at home longer, are financially insecure and are making lower wages." But it also says that living at home in your younger years was the norm until recently. In the early 1900s, the grandparents of today’s basement-dwellers also lived at home, existing in a state of "semi-autonomy," building up their personal resources until they could set out on their own and start a family.

The WW II era brought about growth in the manufacturing sector and empowered the people to move out on their own earlier. Chen mentions “the study says the Boomers were an ‘anomaly.’ … Americans were never meant to strike out on their own!” He mentions, however, that instead of helping the household increase income, parents “today spend 10 percent of their income supporting their adult children,” effectively proving that they’re mostly big babies.

There is economic reasoning behind BBS, though. Wages and have been stagnant for decades, making it more difficult for 20somethings to venture out on their own. Especially now, with the recession still grinding away at the middle and lower classes, BBS is becoming an epidemic likely to become endemic.

There is a problem with this far beyond the issue of BBS, though. John Cassidy of The New Yorker mentions Raghuram Rajan’s latest work:

In a new book he is working on, entitled “Fault Lines,” Rajan argues that the initial causes of the breakdown were stagnant wages and rising inequality. With the purchasing power of many middle-class households lagging behind the cost of living, there was an urgent demand for credit. The financial industry, with encouragement from the government, responded by supplying home-equity loans, subprime mortgages, and auto loans. (Notwithstanding the government’s involvement, this is ultimately a traditional Chicago argument: in response to changing economic circumstances, the free market provided financial products that people wanted.) The side effects of unrestrained credit growth turned out to be devastating-a possibility that most economists had failed to consider.

Mike Konczal is surprised this would be coming from a University of Chicago economist.

Rather than focusing on how nice of a refrigerator the poorest can buy, it might be worthwhile to look at how inequality has played out in the middle-and-working classes here (which ultimately effects mobility among the poorest too). I’m curious as to the drivers he finds between inequality and a middle-and-working-class squeeze.

Konczal responds to critics here.

In other words, BBS is a real phenomenon with real economic reasons for its existence and spread. It would be really nice if we could deal with income inequality and kick high finance to the curb. There’s no trickling down to the masses of anything other than piss from the wealthy.

Consider the implications of this, as Rajan notes: stagnant wages, economic inequality, and easy credit set up the makings of the sub-prime mortgage crisis and the eventual credit and income crunch led to the financial crisis. Dealing with nominal GDP is important to maintaining some semblance of order and regularity in the economy system as a whole but doing something about wealth stuck in the clouds, far out of reach of the little people, is important as well. Let it rain.

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