POMP AND CIRCUMSTANCES: Five decades after college

Cauliflower is nothing but cabbage with a college education. ~ Mark Twain

How could have it been this long, 50 years since I graduated from college? My how time really flies.

Now that I’ve reached my Baccalaureate’s golden anniversary I decided to explore how our economy and its college graduates can be compared during the 50 years since June 1967 when I received my B.A. degree in economics. I assess the current economic circumstances that the graduating Class of 2017 is about to inhabit with that of my graduation. I also have examined the economic landscape in June 1971, when I (finally) entered the full-time work force having completed my Ph.D. course work and much of my dissertation.

Here’s a minor insight I gained from this inquiry. In looking back at my college transcript – no, it wasn’t on papyrus – I re-discovered that my college senior thesis and five years later my doctoral dissertation both examined aspects of the economics of technological innovation, a topic that’s still of personal interest.
Can there be a golden reunion of sorts between my Class of 1967 and the Class of 2017? Let’s see…

First, here is some basic information regarding the impressive accomplishment of increasing our educational attainment. Chart 1 below shows the ever-growing percentage of adults who have received a B.A. or more during the past century. In 2015, the latest year available, 32.5% of adults had a 4-year college degree or more and 88.4% had a high-school diploma. In 1967, 10.5% of us had received a B.A. or higher degree. In 50 years we’ve tripled the share of adults who have college degrees.  

Chart 1: Percent of US adults who have a B.A. or higher degree

Source: NCES.ed.gov. Adults are defined as people between 25 and 64 years.

 An interesting perspective on the current level of degree-attainment is the percentage equivalence between the high-school graduation share in 1950 and college graduation in 2015. The percent of adults who have at least a B.A. in 2015 (32.5%) is in a way comparable (and up an educational notch) to 1950, when 34.3% of adults had a high-school diploma. In 1950, the bulge of American GIs who benefited from the federal government paying for much of their post-high school education had started completing college. People with a B.A. or more in 1950 represented 6.2% of adults. In 1971, about 11% of adults had a B.A. or more.

Table 1 shows the breakdown of college graduates by gender for the three years I have focused on.

 Table 1: Adults who have completed four years of college or more, by gender

Year	Men / Women with a B.A. or more(% of US population)
1967	12.8% / 7.6%
1971	14.6% / 8.5%
2015	32.3% /32.7%

Source: https://www.statista.com 

As shown, in 1967 almost twice as many men received degrees as women. Between 1967 and 2015 the percentage of adults with a B.A. or post-graduate degree more than doubled for men and more than quadrupled for women, a notable feat for improving the nation’s human capital and enormously benefiting America. Each year, women now account for more college degree-holders than men.

Table 2 summarizes macroeconomic conditions in the US for these three graduation years. 

Table 2: US Economy in three graduation years

Year	Real GDP (billions 2009$)	Real GDP Growth	Employment* (millions)	Unemployment Rate**	Inflation Rate (CPI)+	US Average Annual Earnings++
1967	$4,355.2	0.3%	65.89	4.0% ↑	2.8%	$5,907 ($43,246)
1971	$4,877.6	2.3%	71.25	5.6% ↓	4.3%	$7,530 ($44,780)
2017	$16,842.4	0.7%	146.06	4.4% ↓ (2.4%)	1.8%	($45,677)

*All employees: total nonfarm payrolls.  ** ↑ indicates increase in rate from previous month; ↓ indicates decrease from previous month; in parentheses, unemployment for people with a B.A. or higher.  + 2017 inflation based on CPI change from 2015Q4 to 2016Q4.  ++ Average annual real earnings in parentheses (2017$).

Source: BEA, BLS. If available, I used June data for each year. 
You can see that real GDP almost quadrupled from 1967 to 2017 and that that real GDP growth was lowest in 1967, an unimpressive 0.3%. The June 1967 unemployment rate also was the lowest. Even though the 4.0% unemployment rate had increased marginally from the month before, 790,000 more people were added in June 1967 to the employed, nonfarm labor force. Using today’s economic thinking a 4.0% unemployment rate would signal robust full employment with a solid likelihood of inflation around the GDP corner. Yet the annual inflation rate in 1967 was a relatively mild 2.8%. Real GDP growth was far stronger when I entered the full-time labor force in 1971, 2.3%, although the 5.6% unemployment rate was the highest of any of the three years. The 4.3% inflation rate also was the highest of these three years. What wasn’t high during the four year period between 1967 and 1971 was the increase in average annual real earnings that grew less than 1% per year. It increased even less during the 1971-2017 time period. Despite this miniscule income growth, the US was not in a recession during any of these three years.

The Class of 2017 faces an economy that’s expanding, at an all too modest rate (0.7%), with a declining unemployment rate and very modest inflation, 1.8%. The unemployment rate for all people with at least a B.A. is much lower than the overall rate, just 2.4%; although the unemployment rate for young adults (21-24 years) with a college degree was 5.6%. The income of young college graduates has recovered to about $40,000. These economic descriptors sound quite encouraging for the Class of 2017; certainly when compared to seniors who graduated in 2007 and soon thereafter during the lingering Great Recession. This year 21% of the class of 2017 accepted a job before graduation, up from 12% last year and 11% two years ago according to Accenture.

Nevertheless, there are qualifications to this year’s good news based on two factors. First, there are now more young adults with B.A.s seeking jobs than ever before. This steady increase in B.A.-holders first began in earnest in the 1980s, as shown in Chart 1. In 2017, 1.9 million college students are expected to graduate. Having a college degree has become much less exceptional than it was in the 1960s, 1970s or 1980s. Now, it’s increasingly seen as necessary, not optional, for securing a brighter economic future. This surge in college-educated labor in part has allowed employers to “up-credential” certain entry-level jobs, meaning employers have been able to specify that job applicants require a college degree, where before the job didn’t require a B.A. credential. Of the more than 11 million jobs were created since the last recession, almost 75% of those positions have been filled by people with at least a B.A. degree.

A second factor is persistent, historically-low economic (GDP) growth, shown in Table 2. As I’ve mentioned before, US macroeconomic growth remains rutted well below 3% since 2006. Lower growth produces fewer new jobs for everyone looking to be employed, lower labor-force participation and slackened wage increases.

Beyond up-credentialing, underemployment of recent college graduates has risen and includes 43.5% of college graduates ages 22 to 27 who are working at jobs that don’t even require a college degree. Employment of non-white college graduates remains even more problematic.

With the sizeable number of college grads working in “non-college” jobs, the employment prospects for recent high school graduates have become doubly-difficult. High school graduates’ unemployment climbed to 16.9%, one percent higher than in 2007; their average income is $22,600.

The properly-vaunted college wage premium has been one often-cited motivating factor for increased college attendance during the past decade. According to a recent NBER paper the college wage premium has levelled-off. The wage premium between the average annual income of B.A. holders and of high-school degree holders, remains large (about $27,000 per year), but its growth has dropped significantly since 2010. Between 2010 and 2015 the increase in this premium only grew 0.4%; between 2000 and 2010 it was a much larger 25.2% gain. I expect this wage premium will continue to decay as college attendance rises and low growth persists.

If this trend persists, it will be very challenging for new college graduates because these grads have taken on ever-larger student loans in order to cover their ever-increasing college costs. The most recent information states that 71% of students graduating from four-year colleges have student loan debt. College attendees and graduates now owe $1.4 trillion on their student loans. The average monthly student loan payment is $351 for 20 to 30 year old borrowers. Student loan debt has increased the most rapidly of any debt type (e.g., mortgages, car loans, credit cards) during the past decade. It doubled both as a share of total consumer debt and in dollar amount since 2007. Student loan debt now accounts for 10.6% of all consumer debt. To add fiscal salt to these debt wounds, students’ ability to pay has withered. The average income of B.A.-holders increased a meager $915 from 2010 to 2015, a paltry 0.3% per year.

The president’s more-detailed budget for the next fiscal year was submitted to Congress on May 23. In it he proposes to cut student loan funding and subsidies by $143 billion. That may save some cents, but it does not make sense.

Until more robust economic growth re-appears, the Class of 2017’s economic prospects will be far less buoyant than those of our Class of 1967 were. Despite the president’s pledges for higher growth, it’s unlikely to occur any time soon. His policies don’t support it. Many economists rightly believe his visions of sustained 3+% growth is a fantasy. Greater macroeconomic growth depends on two principal sources, higher productivity and higher work-force participation, neither of which has risen much if at all lately. None of the president’s hazily-stated policies will positively affect productivity or work-force participation.

In many economic respects it was relatively better for us 50 years ago as newly-minted graduates in the Class of 1967. QED, the Summer of Love, complete with embroidered bell-bottoms, and beyond. But it is worth remembering from a broader, life perspective that recent college grads very fortunately haven’t had to worry, as we did, about General Hershey and local Selective Service Boards (which, to this day, still require men to register at age 18) drafting us as young graduates, then donning a uniform and heading into the jungles of Viet Nam. As they fling their mortarboards in the air, the challenges facing the Class of 2017 thankfully have nothing to do with tropical war zones. Here’s to more pomp and less circumstances.

CONSUMER ILLUSION: Why we don’t get any respect.

We believe we are the consumers, but we really are the consumed. ~ Bryant H. McGill 

What group has the most at stake in virtually all of the laws and regulations now being either considered or changed by the president and his Republican-controlled Congress? This assemblage of Americans is the most numerous and broadest of any group, but probably doesn’t immediately come to mind as an answer to the question. It is consumers; the millions of individuals and households who every day buy goods and services in every market in the US. Consumers run our economy. But we don’t get any respect.

Last week Congress managed save some face by rescuing itself – and spared consumers from inevitable harm – from yet another government shutdown and passed a Continuing Resolution (CR) for funding through September 30, the end of the federal government’s fiscal year. It’s a very low bar to surmount – to keep the federal government actually operating – but somehow this do-nothing Congress succeeded. Thank goodness for small favors. The largest single loser from the CR was the president, who didn’t get a dime for building his wall nor get reductions in funding of agencies like the National Institutes of Health. Astonishingly, the CR also prevented Attorney General Jeff Sessions from interfering with marijuana policy provisions of the 44 states that have already passed medical marijuana laws. Who would have guessed?

Yet the media stories about the CR never mentioned American consumers as winners for having the government stay in business. Instead, despite the vast importance of consumers in this country, stories like this one mentioned distinct, individual groups like coal miners and Planned Parenthood as winners who were spared the fiscal axe that the president and many Republicans wanted to sway their way, not consumers.

As we already know from personal experience, we are a nation of consumers. Personal consumption expenditures (PCE) drive our GDP and make up the single largest component, 68.6%, of our top-ranked GDP. PCE has grown gradually over the past 30 years, as shown in the figure below from the St. Louis Federal Reserve Bank. Most recently, the BEA reported that during the last quarter (2017Q2) PCE had increased a dismal 0.23%. Consumer purchases of durable goods – those lasting 3 years or longer (like appliances, furnishings and cars) – decreased 0.19%. This softness in consumer spending is in large part why the latest, annualized real (inflation-adjusted) GDP growth was a dreary 0.7%. Given his usual denials of economic reality, I expect the president labelled this fact as “fake news.” 

Personal Consumption Expenditures as a percent of GDP, 1984-2013

 The chart below shows the US share of GDP from PCE tops the list when compared to other large nations. Notice that as a share of China’s GDP, the world’s second-largest, Chinese consumer expenditures just account for about one-half of the US share. Yes, we certainly know how to shop.

Source: CIA World Factbook

How many consumers are there in the US? Surprisingly, it’s not a straightforward question to answer despite the importance of consumption in our economy. Using several sources, I determined there are about 249 million adult consumers in the US, including you and me. Our per capita average annual consumption is now $40,326. Per capita consumption has increased only 1.7% in real terms since the end of the Great Recession.

How are we consumers doing? The Federal Reserve’s apt actions to hold inflation in check have clearly benefited consumers. In some ways consuming in the US has never been better. There are more goods and services being marketed to us than ever before. When I was last at the grocery store, I counted an amazing 167 different types of pasta sauce on the shelves! 5/5/17 at the Park & Pay/Safeway

The following table illustrates how we consumers have been doing during the decades from 1950 until 2015, relative to average salary-based purchasing power for 3 staples of modern consumption; a gallon of gasoline, a new car and a loaf of bread. The national average annual salary is taken from the Social Security Administration’s national average wage index. I’ve examined how much work time, based on average salary, it has taken to buy these items over this period.

Consumer Welfare during the Past 6 Decades

Year	Average Annual Salary*	Price of Gasoline (1 gal.)	Minutes to Purchase Gasoline	Price of New Car	Hours to Purchase Car	Price of Bread (Loaf)	Minutes to Purchase Bread
1950	$2,643	$0.18	8.5 min.	$1,510	1,189 hrs.	$0.12	5.7 min.
1980	$12,513	$1.19	11.9	$7,210	1,198	$0.50	5.0
2010	$41,674	$2.96	8.9	$27,950	1,395	$1.41	4.2
2015	$48,099	$2.40	6.2	$33,543	1,445	$1.44	3.7

Sources: Social Security Administration, AAA, KBB, thepeoplehistory.com, infoplease.com, BLS

*Calculated from the national average wage index (AWI).

As shown, consumers in 2015 can buy a gallon of gas for 23% less time than in 1950, and about 50% less time than in 1980 (when OPEC was not exporting petroleum to the US for the second time), due principally to the rise in average salary during these decades. Unlike gasoline and bread, the time needed to buy a new car has risen. Through the 1950 to 2015 time frame consumers have needed to spend 21.5% more hours to buy a new car. It’s worth remembering the quality and capabilities of the “average” new car have vastly improved since 1950, much more than either gasoline or bread. And speaking of dough, recent consumers have definitely benefited when buying a loaf of bread. In 2015 we had to work 65% fewer minutes to buy the bread than in 1950. 

Our near-term prospects as consumers, however, are quite mixed due to the Trump administration’s strong anti-consumer bent. Politicians and policy-makers invariably pledge allegiance to consumers and our interests, but it’s fleeting and illusory. Rarely do they offer any improvement in consumer wellbeing.  In effect, we’re so numerous we’re taken for granted.

Consumers represent a very broad and diverse group of citizens. In contrast, “special interests” are exceedingly narrow and much deeper. Politicians spend far more time and effort satisfying these better-defined special interests than inclusive consumers.

Citizens do not march on Washington, or elsewhere, as identified consumers. Whenever we march it’s as worried scientists, as people concerned about environmental or other specific policies. Such marches and public assemblies carry considerable weight and should continue, but consumerist sentiments are never at the forefront of these actions, except when we’re pushing a grocery cart down the actual or electronic aisles.

This is a large part of the illusion connected with consumers. As consumers we’re essential for the health and growth of our economy, but rarely important when policies that affect us (and virtually all of them do in some way) are considered by the federal, state or local governments. Usually we are seen just as a source of tax revenue. In a grand irony, consumers are too numerous to be politically acknowledged. Not one of the $11,645,680,000,000 dollar “votes” that we consumers spent in March 2017 gets counted when this administration formulates economic, health and social policies that affect us all. We are illusory ciphers.

The House of Representative’s passage of the Republicans’ new health care legislation this week will impose higher costs and more restrictions for virtually all US health care consumers. For Republicans, this legislation isn't ultimately about health care at all, it's about reducing taxes for the rich. President Trump’s and Republicans’ pledge to weaken and eliminate the Consumer Finance Protection Bureau, begun in 2011 via the Dodd-Frank Act, typifies their anti-consumer views.  

The president’s policy pronouncements regarding international trade will directly and indirectly increase the price of a vast array of consumer goods sold in America. First, let’s look at his proposed tariffs on Mexican imports into the US; then his annunciated 45% tariff on Chinese imports to the US.

The president has said he wants either a 20% or a 35% tariff (depending on what else is going on in his jumbled, “untrained” mind) on imports from Mexico to pay for his Wall. In 2015, Mexico exported $295 billion (B) worth of goods into the US, including vegetables and fruit (avocados, tomatoes, peppers, lemons, watermelons and mangoes), beer (Corona, Dos Equis, Pacifico, Modelo), electronic equipment and machinery, and cars and trucks (Toyota, Ford, Chevrolet, Honda, VW, Nissan and Ram trucks). One US Congressman said consumer prices of Mexican goods subject to such tariffs could increase by 20%. How’s them (more expensive) avocados, Coronas and Fords for you John and Jane America.

Illustrating the president’s inability to connect the economic dots, such a tariff would be paid in varying degrees by US consumers of Mexican imports, not Mexican producers. It is worth noting that Mexican-made automobiles and trucks, its most valuable import to the US ($75.2B in 2016), are 40% comprised of US-made parts. If such tariffs are imposed it could threaten some of the 6 million US jobs that depend on trade with Mexico according to the US Chamber of Commerce. Mexico has already stated such tariffs will provoke it to purchase corn and other agricultural products ($18B US exports in 2016) and US electrical and other manufactured machinery ($83B) from other nations and/or impose retaliatory tariffs on US exports. Shades of the Smoot-Hawley Tariff Act that induced international trade wars in the 1930s and intensified the Great Depression. Maybe the president is thinking Andrew Jackson should have considered it to avoid the Depression. 

If the president’s suggested 45% tariff on Chinese imports is actually enacted, similar though larger negative consequences would ensue for US consumers because the tariff is higher and the imports are greater. In 2015, China’s imports into the US totaled $483.2B, almost twice as large as Mexico’s. China’s imports, ordered in descending value, include electronic equipment (cellphones, computers, printers), machinery, furniture, toys/games, footwear and clothing. By value, China is the source of 75% of cellphones and 93% of tablets or laptops shipped into the US.

A 45% tariff on Chinese-made goods could drive up US retail prices on those goods by an average of about 10%, according to Capital Economics. Consumers would find it hard to escape these price increases. "There are few alternative sources for the main products the US buys from China," says Mark Williams, Capital Economics' chief Asia economist. China would also retaliate with their own tariffs on US products, as they did in 2009 when the Obama administration imposed levies on automobile tires imported from China. China imposed a tariff on US chicken (including chicken feet) exports. The US tire tariffs didn’t bring back domestic tire industry employment, but did allow manufacturers to raise their prices when US consumers bought them.

President Trump purports to be interested in increasing blue-collar jobs, but his tariffs will increase the prices of goods that far more blue-collared workers and other consumers regularly buy, all in the name of his Wall and “fairness.” Tariffs may possibly be good politics, but they are poor economics for the majority of customers because they raise consumer prices and potentially reduce jobs dependent on US exports.

Customers will be consumed by higher costs to buy health care, food, cars and trucks, clothing, electronics and other key items of modern life, courtesy of the Trump administration. The president has yet to support consumers with his scattershot, inconsistent policies. He’s firmly on the side of private, moneyed interests. His policies are all about consumer illusion and falling discretionary incomes. President Trump’s anti-consumerist policies won’t make America any greater again for our 249 million adult consumers, just more expensive and less healthy.