The Coin Flip
During a graduate class I taught this summer, a provocative topic emerged. Students debated that Generation Z, the newest entrants into adulthood, face a significant disadvantage in their earning potential.
A colleague of mine strongly contested this view, nearly sparking a heated debate. While plenty of complaints exist, I found the students’ argument valid. How can young people afford anything when New York City’s living costs have skyrocketed?
Looking at menu prices in the Big Apple makes me cringe—they’re undeniably outrageous. And I immediately wonder how a family of four manages these days.
Things were different when I was young.
My father worked as a truck driver. Though he came home every night reeking of grease, we never lacked for anything. Back in the 1980s, life was more affordable.
Later, once I entered the workforce, I earned more than he did. I achieved that across three continents in fields unfamiliar to him. This wasn’t unusual for my generation. I attended college, worked hard, and then surpassed my parents’ earnings, which was the norm.
My son Micah is just 9 now. Honestly, I’m unsure if he’ll out-earn me. This isn’t due to a lack of talent or determination on his part—in fact, I think he’s shaping up to be smarter and more diligent than I was. It’s about the drastically altered system he faces, which couldn’t be more different from mine.
Harvard economist Raj Chetty quantified this intuition, and the reality is bleaker than expected.
The Number
In 2017, Chetty and colleagues published a paper in Science titled “The Fading American Dream.” They examined one key question: What percentage of American children grow up to earn more than their parents did at the same age, after adjusting for inflation?
For those born in 1940, the figure was approximately 92%. If you belonged to that generation, surpassing your parents’ income was nearly guaranteed.
For those born in 1984, only about half achieved higher earnings than their parents.
In just two generations, the American Dream shifted from a near certainty to essentially a fifty-fifty chance.
The 1984 cohort is now 42 years old, in their prime earning phase, yet half are earning less than their parents did at the same stage.
The decline was steady without any recovery, dropping with every birth year in between—like a stone rolling downhill. No state escaped its impact. The hardest hit regions were in the industrial Midwest, including Michigan, Ohio, and Illinois, where manufacturing was once king but has since diminished.
Ross Perot’s warning about the “sucking sound of American jobs” echoes loudly.
Fair Share
Chetty didn’t stop at the headline statistic; he dug into the causes behind the decline.
Two main theories exist. One: slower economic growth meant less wealth to distribute. Two: growth continued, but its benefits became concentrated among fewer people.
He tested both scenarios.
First, he applied the postwar era’s robust growth rates to the 1984 generation but kept today’s unequal wealth distribution. Economic mobility improved from 50% to around 62%, better but far from the golden era.
Then he reversed this, using current sluggish growth but dividing income like America did in the 1940s and 50s. Mobility surged to nearly 80%.
Faster expansion alone accounted for a 12-point increase, while fairer distribution contributed 30 points.
Ultimately, about two-thirds to three-quarters of the decline in the American Dream stemmed less from a shrinking economic pie and more from how that pie was sliced.
Who Held the Pie Knife
As you are aware, newly created money moves from the Fed to banks and then flows into assets near the source. Those owning stocks, bonds, real estate, and private equity gain wealth before anyone sees a paycheck increase. This phenomenon is known as the Cantillon Effect, active since August 1971 (the Nixon Shock) and intensified after the 2008 financial crisis and Bernanke’s quantitative easing.
The 1940 generation experienced a time when productivity gains translated directly into wage increases. For around 30 years following WWII, productivity and pay rose together. However, by the early 1970s, they diverged sharply. Productivity kept climbing, but wages stagnated. The gap represents wealth redirected elsewhere.
That wealth funneled into asset prices. Home values tripled, and the Greenspan Put shielded 401(k)s repeatedly. Meanwhile, young people who owned nothing watched prices for essentials spiral beyond their reach.
This isn’t a personal failure. It’s arithmetic. A typical starter home in the 1970s cost about three years of income; today’s equivalent demands six or seven. A college education that once cost the equivalent of a summer job now rivals a mortgage. Money printing has removed the lower rungs from the ladder of opportunity.
The Uncomfortable Mirror
You likely earned more than your parents did—partly because you held assets that appreciated. There’s nothing wrong with that. You used the cards you were dealt and played them well.
However, this means that the same process that benefited your generation is contributing to your children’s struggles. The Cantillon winners of one era usually end up being the parents of the Cantillon losers in the next.
But this isn’t always universal or inevitable.
Your To Do List
First, stop equating national success with stock market highs. A rising S&P indicates that asset owners are gaining, nothing more. It doesn’t reveal whether a 30-year-old can afford homeownership. Chetty’s measure is the real indicator—and it shows half the population is losing ground.
Second, if you possess assets, you act as the bridge to your children’s upward mobility. Their chances are now, more than during the Gilded Age, tied to inheritance over effort. I don’t approve of this dynamic, either, but denying it won’t assist them.
Help them acquire real assets early, and pass your holdings to them when you’re gone. Donating your wealth to faceless charities instead of your children doesn’t earn moral points. Your primary responsibility is securing your children’s victory in the economic game.
Third, keep your own capital close to the source of monetary creation. Until significant monetary reform occurs (and pigs fly), the best tactic is owning assets that appreciate through inflation and avoiding those that depreciate.
Wrap Up
I surpassed my father’s earnings courtesy of finance degrees earned during booming markets and many airport lounges.
Micah’s generation plays with a deck shuffled by players who never reveal their cards.
You witnessed wages stagnate while housing prices soared. You didn’t need a Harvard study to confirm something broke when the dollar abandoned gold backing.
Chetty simply provided the exact figures.
The outcome is a coin toss. Yet the coin is biased.
Your task is to tilt the odds in your children’s favor.
Have a great day ahead.
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