Why Younger Generations Are Convinced They Are Falling Behind | Philipp Carlsson-Szlezak

Episode 504 https://hiddenforces.io/podcasts/why-younger-generations-are-convinced-they-are-falling-behind-philipp-carlsson-szlezak of Hidden Forces is the thirteenth episode in the Hundred Year Pivot podcast series. In it, Demetri Kofinas and co-host Grant Williams speak with Philipp Carlsson-Szlezak, global chief economist at Boston Consulting Group and co-author of "The Kids Are Alright: The Timeless Angst Over Young People and Money https://shockscrisesfalsealarms.com/wp-content/uploads/2026/09/BCG_CME_PW-263-6-221_ON_2026.09.22_Generations.pdf," about why the dominant narrative of Gen Z and Millennials falling financially behind Gen X and Boomers doesn't hold up against the data, and how exalted expectations, flawed benchmarks, and misguided narratives have fueled record pessimism among the young. The conversation pressure-tests Philipp's research and probes where the data might be missing the full picture. It covers how Gen Z and Millennial incomes and balance sheets compare with those of prior generations, why their incomes and wealth are outpacing those of earlier cohorts at comparable ages, and why homeownership is delayed rather than denied. It also examines how consumption patterns among younger cohorts differ from the common narrative, and the role that social media, inflated expectations, and a post-financial-crisis cultural shift have played in distorting perceptions of success despite broad-based economic progress. Demetri and Grant also dig into the narrative of the K-shaped economy and whether it holds up under scrutiny. They challenge the paper's analysis where it may be weakest, particularly regarding family formation, the cost of raising children, and developments in the middle of the income distribution. Subscribe to our premium content—including our premium feed, episode transcripts, and Intelligence Reports—by visiting HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you'd like to join the conversation and become a member of the Hidden Forces Genius community—with benefits like Q&A calls with guests, exclusive research and analysis, in-person events, and dinners—you can also sign up on our subscriber page at HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you enjoyed today's episode of Hidden Forces, please support the show by: Subscribing on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334, YouTube https://www.youtube.com/channel/UC8URhgYos5fjHqFSO4RSIEg, Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP, Stitcher https://www.stitcher.com/podcast/demetri-kofinas/hidden-forces, SoundCloud https://soundcloud.com/hiddenforces, CastBox https://castbox.fm/channel/2629539, or via our RSS Feed http://hiddenforces.libsyn.com/rss Writing us a review on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334 & Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP Join our mailing list at https://hiddenforces.io/newsletter/ Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Subscribe and support the podcast at https://hiddenforces.io https://hiddenforces.io/. Join the conversation on Facebook https://www.facebook.com/hiddenforcespod/, Instagram https://www.instagram.com/hiddenforcespod/, and Twitter https://twitter.com/hiddenforcespod at @hiddenforcespod Follow Demetri on Twitter at @Kofinas https://twitter.com/kofinas Episode Recorded on 10/15/2026

• 0:00Speaker 00

  What's up everybody? My name is Dimitri Karfines and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. What you're about to hear is the 13th episode in a podcast series hosted by me and my co-host, Grant Williams, titled "The Hundred Year Pivot." In it, we speak with some of the smartest and most plugged-in people we know to help position ourselves, our organizations, our families, and our portfolios for the once-in-a-century economic, political, and geopolitical reordering that we believe is currently underway. Our guest in this episode of Hidden Forces is Philip

• 0:45Speaker 00

  Carlson-Szlezak, Global Chief Economist at Boston Consulting Group and the co-author of a recently published paper titled "The Kids Are Alright: The Timeless Angst Over Young People and Money," in which he and his co-authors argue that the dominant narrative around Gen Z and millennials falling financially behind their Gen X and boomer predecessors simply does not hold up against the data, and that a toxic confluence of exalted expectations, flawed benchmarks, and misguided narratives are largely to blame. Grant and I spend this conversation pressure-testing Philipp's research and challenging him on where the data might be missing the full picture, while also gaining a deeper appreciation for how Gen Z and millennial

• 1:28Speaker 00

  incomes and balance sheets actually compare to prior generations, why homeownership and consumption patterns among younger cohorts look so different from the common narrative, and why pessimism among the young has reached record levels even as the underlying data shows broad-based economic progress. We get into why Gen Z and millennial incomes and wealth are outpacing prior generations at comparable ages, why homeownership is delayed rather than denied, and the role that social media inflated expectations and a post-financial crisis cultural shift have played in distorting perceptions of success. We also dig into the narrative of the K-shaped economy, whether it holds up under scrutiny, and where the

• 2:12Speaker 00

  paper's analysis may be weaker, particularly when it comes to family formation, the cost of raising children, and what's happening in the middle of the income distribution. If you want access to transcripts and intelligence reports for this and other episodes, which includes summary sections with key takeaways, you can access those by subscribing to our Super Nerd tier at hiddenforces.io/subscribe. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, which includes Q&A calls with guests, discounted access to third-party research and analysis, and in-person events like our intimate dinners and weekend retreats, you can also do that on our subscriber page. And if you

• 2:54Speaker 00

  still have questions, feel free to send an email to [email protected] and I or someone from our team will get right back to you. And with that, please enjoy this incredibly interesting and thought-provoking conversation with our guest, Philip Carlson-Szlezak.

• 3:16Speaker 01

  Welcome, everybody, to a long-awaited, long-overdue episode of The Hundred Year Pivot. Joining me, because I couldn't do A Hundred Year Pivot without him, is my main man, Dimitri Karfines. Dimitri, my friend, how are you? It's been a long, busy summer.

• 3:30Speaker 00

  I'm great. How are you, Grant?

• 3:31Speaker 01

  I'm good. I'm good. I'm good. I've been looking forward to this conversation for a while. It's good to get the band back together after a couple of months of us both chasing our tails around the world.

• 3:38Speaker 00

  Yeah, I love doing these. I'm sure I've mentioned this in previous ones, that the experience of doing a show together, you and me in particular, where I have a co-host and that co-host is you, are much more enjoyable because they're more relaxed. It's more fun for me, whereas my normal interview process is much more intense and organized.

• 3:59Speaker 01

  Well, that's because you're the grinder. You prepare like nobody prepares your podcast, so it's hardly surprising.

• 4:05Speaker 00

  Yeah, I'm more like Kobe Bryant. You're more like Michael Jordan. You know, I think they... Do you remember we both interviewed Tim Grover? Remember what he said the differences were between Kobe? And Kobe was going to outwork you, and he had to drag him out of the gym, whereas Michael Jordan could go out late night, play poker, go for drinks, go do, you know, go to the golf course and then drop 50 on you.

• 4:26Speaker 01

  Hey, listen, I've never been compared to Michael Jordan, and this will be the first and last time it ever happens, so I'm going to take it. I'm going to take it and revel in it. Well, listen, we have a fantastic guest joining us in a moment. Why don't you tell people who we're about to talk to and why?

• 4:38Speaker 00

  Yeah, we're going to speak with Philip Carlson-Szlezak. He is the Chief Economist at Boston Consulting Group. He's also the author of "Shocks, Crises, and False Alarms." He had been on the podcast back in 2024 on the Hidden Forces podcast to talk about his book. And he and two other of his co-authors recently published a paper called "The Kids Will Be Alright," and it's about, it looks essentially at whether or not the narratives about intergenerational wealth divides stack up against the data. And his argument is that it doesn't. And so today's conversation is going to be an opportunity to talk to Philip and have him make that case, and hopefully have some opportunities on our end to challenge him in certain areas.

• 5:21Speaker 01

  Yeah, I mean, it's a fascinating paper, and, you know, we'll get into it, but the data tell a very different story to my anecdotal and lived experience, which is why I found it so, so interesting. And I'm really looking forward to having a chance to talk Philip about it. So what do you say? We get him on?

• 5:37Speaker 00

  Let's do it. Philip Carlson-Szlezak, welcome to The Hundred Year Pivot.

• 5:44Speaker 02

  Thanks for having me, Dimitri.

• 5:46Speaker 00

  Oh, Grant and I are very excited to have you on. I sent this, your paper, to him. It may have either been, I mean, I read your paper. We both read it, but there was an article that was written in Fortune magazine that I may have seen first. In fact, as I recall, I think you posted something to your LinkedIn to that effect, and I went down the rabbit hole and found the paper. And I knew this was something that Grant would be interested in talking about on The Hundred Year Pivot, and it had been a while since we had done one of these, so we're both very excited to speak to you about it.

• 6:14Speaker 02

  Great. Nice to meet you too, Grant.

• 6:16Speaker 01

  Likewise, Phil. Thank you. The paper was fantastic. It's, yeah, I'm someone who has two kids who are right on the cusp of millennials and boomers. They're 29 and 35, so they're late-stage millennials slash leading-edge Gen Z. So this, it was a fascinating paper for me.

• 6:34Speaker 02

  Glad to hear that.

• 6:36Speaker 00

  So Phil, you have been on the Hidden Forces podcast. You've also been to one of our Genius dinners. I don't think you've been on Grant's podcast, or have you?

• 6:44Speaker 02

  No.

• 6:44Speaker 00

  So for those in his audience who aren't familiar with you, and for those in my audience who haven't listened to the episode that you did with me a couple of years ago, just give us a brief introduction to who you are, what you do, and your background overall.

• 6:58Speaker 02

  Yeah, so I'm Global Chief Economist at BCG, which means I spend about half my time publishing papers like the one we wanted to discuss today, and the other half of my time I spend with clients around the world. So I spend a lot of time in boardrooms and the C-suite discussing their views and worries about the global economy. Generally, as we discussed on your podcast back then, Dimitri, we often take a contrarian view to things. The title of my book was "Shocks, Crises, and False Alarms," and the "False Alarms" piece is the most important in the title, really. So there are too many macro narratives out there that don't really stand up to scrutiny. And so myself and my collaborator, Paul Swartz, we specialize in picking those topics and trying to shed a somewhat different light on those.

• 7:42Speaker 00

  So there were two other authors on this paper, correct? Paul was one of them, and who was the other?

• 7:48Speaker 02

  Henry, another economist on my team, Henry Rubin.

• 7:51Speaker 00

  Okay, great. So I suppose this also falls into the category of what you guys think is somewhat of a false alarm. The report that I mentioned is titled "The Kids Are Alright: The Timeless Angst Over Young People and Money." And in it, you wrote that widely-held beliefs about Gen Z and millennials, that they struggle in the labor market, are slow to build wealth, and are not on track to do better than their parents, just don't, quote, "line up with the facts." What explains the gap between perceptions and reality in your view, and what is the most convincing evidence that there is, in fact, a gap to begin with?

• 8:27Speaker 02

  So let's start with the gap and whether it's there or not. So what we do in the paper, we look at both the income side and the balance sheet side, and we do the generational comparison, starting with the youngest generation, Gen Z, moving on to millennials, Gen X, boomers, and further back, the silent generation. And when you align them up on an age scale, so you compare like-for-like at each stage of life, you can easily see that both in terms of income, inflation-adjusted, so we're comparing like-for-like, on the income side, Gen Z and millennials are not doing worse than prior generations. They're actually ahead in terms of income at a given age. And in terms of balance sheets, too, they're actually somewhat

• 9:07Speaker 02

  ahead of prior generations. So what's available to us and to everyone else, those data don't show some failed generation. They're actually showing a generation that's making its way through life. As we also say in the paper, that path is a little different from prior generations, so it's true that it's not what it used to be for boomers, but in terms of results, it is not at all a failed generational narrative that often dominates public discourse. As for the reasons for this gap between what's often told and what the data actually show us... I mean, there are multiple stories going on. I think my favorite one is Gen Z particularly are the guinea pigs of the smartphone revolution. I mean, this is the generation that is now

• 9:52Speaker 02

  the oldest or 28 years of age. So they went through high school and early adulthood with their smartphones in their hands and they were exposed to social media. And they did all that before there was a turning point in how parents and schools viewed smartphones. So they were exposed to this without any real guardrails. And I think their overindulgence in social media has skewed perceptions of what is success in life. And I think the smoking gun piece of evidence or data we show in the paper is the survey result where Gen Z'ers think you need to make $600,000 a year to be financially successful, which, you know, is what 1 in 100 Americans make in the income

• 10:32Speaker 02

  distribution. So it's definitely not a majority or a median. And where does that come from? It surely must come from, you know, seeing a lot of yachts and private jets on TikTok is where my suspicion lies.

• 10:45Speaker 00

  That survey was done in 2024. What can you tell us about the sample size? Like, what are some important things that we need to understand about how representative that data actually is?

• 10:55Speaker 02

  Well, I mean, it's one survey and it's linked in the in the report. We didn't conduct it ourselves. There's other evidence that young people are influenced by what they've seen in media and social media. I think it's also fairly common sense that we see ever greater proliferation of just fabulous lifestyles. Public discourse is permeated by that type of imagery and success stories. I think what's particularly convincing in that survey is that it also looks at other generations. So it has four or five generations that ask the same question. And you can see the further back you go on the generational stack, the more realistic the answer gets. So, you know, I forget the exact figure, but I think boomers think you need to make $150,000 to be financially

• 11:40Speaker 02

  successful, right? So you kind of see the progressive decay and realistic expectations.

• 11:46Speaker 01

  As I read the paper, and it really is fascinating. Some of the charts in there are just fabulous. The thing that really brought to mind was this idea that Dimitri Koin of financial nihilism, the young generation have in that, you know, there's no time, we need to make money as fast as we can. It doesn't really matter. And I was looking at the data, and as you say, they don't line up with that particular mindset. But I just kind of got to thinking, whether that matters or not, you know, if the perception is that we're that far behind, if the perception is we're not doing as well as our parents, if the perception is we can't afford a house, you know, and the data proving that to be wrong almost doesn't matter to that generation,

• 12:28Speaker 01

  I would guess. I'd be curious if that's anything that you'd either thought about or had discussions about or kind of investigated.

• 12:35Speaker 02

  Well, I think we are seeing the frustration in other surveys. So when you think about consumer confidence surveys, such as the University of Michigan or the conference boards, I mean, these are at record lows, even as real consumption is at record highs. So we've added like more than a trillion in real consumption since COVID. And in the same period, the survey results have cratered and they have not really recovered. I think only recently we've had another record low in that survey or both of them. So, you know, there's no doubt that my perception is my reality, I think, is what you're referring to, Grant. So young people perceive it as such, but there's also no doubt that they're going out and spending money. And when you think at total consumption

• 13:16Speaker 02

  in the economy, or if you think also about the earnings season that we last saw, the evidence of broad spending and firms of all types making tons of money because consumers are consuming, that evidence is overwhelming. So from a macroeconomic perspective, the young generation may well say, my perception, my reality, I feel like I've fallen behind. But if they go out and spend the money, it's spent, it's part of the macroeconomic story and part of the cycle.

• 13:41Speaker 01

  Well, it's just weird in that you're right. And everywhere I go now, I see restaurants, bars filled with what looked like Gen Z kids just spending like there's no tomorrow. But of course, that also feeds into this idea that we can't afford to buy a house or our houses are out of our, the whole thing, there's so much of it that that seems to be kind of mind and behavioral led as opposed to the data. And obviously, the social media is feeding that. And so when you get this general belief amongst that generation that we're falling behind, we may as well, to Dimitri's point, we may as well go out tonight, we may as well not save. I kept coming at it from different ways and couldn't reconcile any of it with anything else.

• 14:19Speaker 02

  Yeah, well, let's double click on the housing piece, maybe. I think it's an interesting one. So it is partly self inflicted. 90% of young people, Gen Z and millennials, want to live in urban areas or maybe, you know, the close suburbs where housing is the most expensive because it's the most scarce and supply is constrained. That is a preference. All right, it's a preference to want to live in the city. It makes a lot of sense. People get out of college, they want to build a career, they want to go where other people are, they want to, they want to meet other people. That all makes a lot of sense. And then as they grow older, and we have a chart to that and in the paper, I think it's somewhere buried in the appendix, but it's in there. So as they grow older, they move out to the suburbs and further afield and their

• 15:03Speaker 02

  homeownership rate actually catches up with the prior generation. So millennials homeownership rate catches up with Gen X at the age of 42. But prior to that, it's a choice to live in New York City, it's a choice to live in downtown Chicago, it's a choice to want to live in the, you know, inner zip codes of London, et cetera. And then as time passes, they move to places where affordability is higher and their homeownership rate also climbs. So I think this is important to keep in mind. It's a choice to be in these very expensive urban areas. The other point that we make in the paper is that here too, expectations have really grown and grown and really never stopped growing.

• 15:45Speaker 02

  So the average home size has gone up a lot. I don't want to say it's double. I'd have to look at the graph in the paper, but it's gone up, what, something like 50, 60%? And so the expectation today is of a much bigger home than it was a generation ago or two generations ago. And so what we did in the paper, we did a counterfactual analysis, or we simply held the home size constant. And guess what? The affordability of a constant size home over the last 20, 30 years is actually flat. It hasn't gone down. For the same size, like for like comparison of a median sized home, the affordability hasn't collapsed at all. So we're expecting much bigger homes. By the way, we're also expecting much better homes.

• 16:28Speaker 02

  The building standards are higher, the stuff we put in them is higher, the entertainment is better. And all of that is somehow not part of the conversation, right? And so I think when you hold these things constant over time, you see that affordability of homes is certainly not easy, but it's not what it's commonly portrayed to be.

• 16:45Speaker 01

  But it sounds dangerously like hedonics to me. It sounds like this idea of hedonic substitution where, you know, you can't buy the $10,000 Honda Accord because the cheapest base model now is, you know, $15,000, but you get a great new CD player and Apple car.

• 16:59Speaker 02

  Well, I mean, I hear you on sort of the stuff we put into the homes and the quality is higher. That smells of hedonic adjustments, which are real, by the way. I mean, they're not fictitious. But I think the home size is not. I mean, you know, if you're willing to buy the home that was typical in the 1960s, well, you're gonna get, you know, a much better price than if you get the typical home today. I mean, you know, if we make the generational comparison, we then also have to compare apples with apples.

• 17:25Speaker 00

  So I want to double down on what Grant said. I think the deflator that you're using matters and hedonic adjustments matter more broadly. But also, there's a limited availability of homes in the size and shape of the kinds that were available to baby boomers at a similar age. So how do you take that into account, which is to say that even if younger people want to find those homes, they aren't available?

• 17:51Speaker 02

  I agree with that. And we mentioned that in the in the paper. So, you know, the same size comparison to some extent runs into a limit because you can't easily find those smaller homes that prevailed in the 1960s and 70s. Okay. But as we saw, millennials do catch up with Gen X in homeownership rates by the age of 42. So the path is not that they never get there. It's delayed. It starts later because they do more education, they spend more time in college, then they build careers to stay in the cities where, you know, housing is extremely expensive. And then as they move out, you know, that's when they catch up with the homeownership rate. So we have no evidence really that millennials never catch up with the prior generation's

• 18:32Speaker 02

  homeownership rate. On the contrary, it shows that 42 is the age when it does happen. And it does coincide with a shift out of these very expensive central areas to the suburbs. That's all I can say on the basis of the data.

• 18:46Speaker 01

  Yeah, as I looked through the charts, and I love charts, and I found these just, it's such a fascinating set of observations. The one chart that I didn't see, and I kind of, I'd be curious to know what it's like and whether it was ever something that you guys put together, was trying to account for the period, not in the age cohort, but the period in real time, i.e. the 2010s. If you overlay how boomers do, how Gen X do, how millennials do during that period, to see how much of the effect of this is maybe the decade that we're living through rather than the age of the cohort. Was there any of that data available or not?

• 19:22Speaker 02

  Oh, well, yeah. So implicitly, some of that is in the paper because you, for example, you see very clearly the impact of the global financial crisis. I mean, you see it in Gen X, you see a big slump in their, in their wealth curve. And then, you know, they dig themselves out from that hole. You see it in all generations almost, but you see particularly strongly in Gen X. You see it to some extent with the millennials as well. So, you know, these things have a big impact when they happen and the adjacent years or the years after. Over the medium longer run, I mean, as you know, since the global financial crisis, we've seen very tight labor markets, we've seen very fast real wage growth, at least since 2017, roughly. We've seen tight labor markets that delivered strong wage growth, particularly at the bottom, by the way. We've

• 20:06Speaker 02

  seen a lot of equity wealth being built. And so this is another point in the paper. While the young don't have real estate assets, they have more equity assets, right? And that has paid off over the last 15 years because the equity market's done really, really well. And so having that greater exposure to the equity asset class is something that has been a winning ticket and shows up in that wealth curve for Gen Z and Gen X. Can that change with another setback? Yes, it can. But did the housing asset class also take a big hit in the global financial crisis? Of course, if you sat on housing wealth that was inflated in 2007, well, you know, you probably also sat on a lot of leverage. And then in 2009, it was brutal from a balance sheet perspective.

• 20:50Speaker 02

  So neither asset class gives you total protection. And currently, equities has worked really well for the young, and they've had much greater exposure to equities than at this stage in life than prior generations.

• 21:01Speaker 00

  I'd love to dig into that a bit more because obviously you're right. Housing took a giant dump during the great financial crisis. But that's because it became a vehicle of nationwide speculation. Of course, we've always had speculative land booms. States like Florida and California are great examples of places where we've seen recurring booms and busts over the course of the last 100, 150 years. But by and large, residential real estate is local. And by the nature of the asset, isn't prone to the same type of price volatility that one expects to see in equity markets. Not to mention that owning your own home gives you more stability over the long term than having to rent someone else's property.

• 21:45Speaker 00

  And I think this has made it a historically great asset on which families can build equity and establish a strong financial foundation. So is there some sense in which we can say that accumulating wealth becomes a bit more precarious or volatile for the average family when they are overly reliant on the stock market as opposed to home equity ownership? And that this perhaps explains some of the discrepancy between what the data tells us and the subjective experience of younger generations?

• 22:22Speaker 02

  Yeah, I mean, look, I can't look into the future and neither can you. The equity market may well be undergoing a correction soon. I'm not in the camp that, you know, this is a bubble about to pop. But certainly, valuations are pretty strong. They've actually come down, valuations, but earnings are very strong. We can discuss all that on the equity market side. I'm trying to say, if I had to place a bet over the next 20 years, and can you build wealth in the equity market? I would have unequivocally said yes. Is it better than homes and real estate? I don't know that, but it's speculative. We can't know that. Historically, if you look at it, equities have been a formidable way of building wealth. And I have no reason to believe that over the long run, where, you know, setbacks are smoothed out over a 10, 20, 30 year period,

• 23:05Speaker 02

  I have no reason to believe that the equity market stops being that vehicle of wealth accumulation.

• 23:11Speaker 00

  I want to go back to something you said earlier, which Grant commented on, which is, and I think Grant had said, you know, everywhere he goes, he sees young people out. Do you think that part of this is a self fulfilling prophecy? Which is that younger people feel like they have no chance of making it. And so they simply live for today. And therefore, don't really put themselves in a position to develop, to accrue the savings that would allow them to buy into the...

• 23:35Speaker 02

  No, I don't think so, because you know, the data just show you that, yes, prices have gone up a lot, but wages have gone up even more, right? I mean, this, when we first wrote about this three, four years ago, it was a little controversial. Meanwhile, even The Economist had a cover story on it, right? Yes, prices went up a lot, but wages went up by more. That doesn't mean for every single American, right? I'm totally aware there's a distribution underneath the aggregate. But for a large part of the population, wages went up by more than prices.

• 24:05Speaker 00

  What I mean is that, no, no, what I'm asking is, are younger people consuming more and saving less because they have bought into this idea that there's no chance for them to buy into the, quote, "American dream"? Whereas younger people had a higher expectation of needing to save and be financially prudent.

• 24:24Speaker 02

  I don't know. I mean, this is speculative. I don't have any evidence that points in that direction. My, the reason why I went into wages and prices is I think the bars and restaurants are full because a lot of people are making real wage gains. Not in the last 18 months where real wage gains have actually really stalled. It's true. But since 22 or so, since inflation's come down, real wage growth has been really, really strong. And I think that's the reason why we see consumption strong. People are actually making reasonable, not everyone again, right? There's a distribution of experiences, but in aggregate, you see strong consumption because people can afford it.

• 24:57Speaker 00

  I just want to say, and again, I'm, I know I'm leaning on anecdotes here. And then I want to give Grant the floor. It does seem to me, in my anecdotal experiences, that younger, you know, Gen Z'ers, for example, or younger millennials have a higher expectation of, of a work-life balance than I did. And that maybe my cohort did. And so that was also, I think, embedded in my question, which is, if there are certain cultural characteristics or characteristics that are unique to this demographic, which puts them behind, to the extent that they are behind, because they prioritize spending today more than saving for the future. But Grant, go ahead.

• 25:42Speaker 01

  The thing that jumps to me with this, particularly about the conversation, Philip, is crypto and where that sits in this, because houses are a very kind of cross generational aspirational items. And obviously, jobs and everything else are. But when it comes to crypto, there's a huge skew away from boomers and Gen Xers who, in the main, want nothing to do with it or don't understand it or whatever, whichever it may be. Whereas those younger cohorts, obviously, are much more digitally native. I was curious as to where that kind of fitted into your analysis and whether it skewed anything in surprising ways.

• 26:17Speaker 02

  Yeah, I haven't really done any research on that. But my gut reaction is that going back to social media, right? And the exposure to what's on social media. I think there's a big overlap with crypto and the tendency to engage in crypto trades. I think it's particularly prevalent in that demographic because that demographic is also very prone to be using social media, you know, intensely. I don't have any other ideas of why it's particularly popular other than what you already said. There's, given the digital native feature of that cohort, maybe there's greater affinity for that reason. And the barriers to access are lower because the digital natives find it easier to engage in this. But I, my hunch is social media is part of that.

• 26:59Speaker 02

  You know, the, the get rich quick kind of stories that like to proliferate on social media.

• 27:05Speaker 00

  Well, actually, I wasn't going to ask about crypto, but maybe, maybe later.

• 27:08Speaker 01

  I'd be curious your thoughts on it though, because it's something you've...

• 27:10Speaker 00

  Well, I do think that one thing it does, certainly on the margin, is it, it increases wealth disparities within the cohort. Because the pyramid scheme is largely operating within the Gen Z and millennial demographics. So to some degree, I mean, in the, in the, I mean, I suppose this does lead to a question that I wanted to ask you, which is that you point out that the median inflation adjusted income of the oldest Gen Z workers is, and I think these are folks that are 28% or that are 28 years old, is 25% higher than millennials and 50% higher than baby boomers of the same age. But what about relative incomes across the generational cohort?

• 27:50Speaker 00

  So have you looked to see if there's more disparity between Gen Z within the demographic of Gen Z and within the demographic of millennials, which of course will have an impact on their perception of how they're doing?

• 28:03Speaker 02

  Yeah, so unfortunately, you don't have inequality data per generation. So you need to use a few tricks to triangulate what might be going on within each generation. What we argue in the paper is, we have no reason or no evidence to believe that inequality within Gen Z or within millennials is greater than in other generations before them. Why? On the income side specifically, you see that wage growth at the bottom of the distribution has been particularly strong since 2015 or so. So over the last 10 years, significant gains, real wage gains, were made particularly at the bottom of the distribution where, you know, college grads and early earners,

• 28:47Speaker 02

  early in their careers, will be making their income. So I have no reason to believe that there is greater inequality among Gen Z and millennials in terms of income. On the wealth side, let's be clear, there is very stark inequality in America. There's always been very stark inequality in America. The question is, do we have a reason to believe that it is greater, the inequality among the young generations than it is among older generations? And the answer again is no, I have no evidence, no reason to believe that. If anything, I would think that the young generations may be less unequal for one specific reason, which is they have generally not yet received their inheritances.

• 29:29Speaker 02

  And inheriting is a big driver of inequality in the United States. This is how a lot of inequality is introduced. So if the young haven't received that yet, that would be one indicative point why inequality is at least not greater than in prior generations.

• 29:46Speaker 00

  What about parental support? You know, a lot of kids in New York City, they get apartments, they have cosigners, and their cosigners are their parents. Their parents, a lot of times, will give them supplemental income. Is that something that we're able to capture? Obviously, it doesn't show up as, as Gen Z income. But how do we take that into account? Because again, anecdotally, that seems to play a role.

• 30:06Speaker 02

  Yeah, I, there's, as you say, there's no way of capturing that.

• 30:09Speaker 00

  The term nepo baby is a popular word in the Gen Z discourse.

• 30:14Speaker 02

  I know, I know. Okay, so I mean, as you say, there's no way of systematically capturing this. Again, there's no doubt that America is a starkly unequal society. And that means that, that the kids of the very wealthy can indulge in the kinds of things you describe. I don't know if I would generalize from that, though. I mean, it's like, on a frequency distribution, like, what is the share of what you refer to as nepo babies in the population? It's not going to sort of, you know, shift these curves around single handedly. You know what I mean? It's like, the bulk of, the bulk of the young are not that, right? And their numbers are overwhelmingly large, who are not described by such terms.

• 30:52Speaker 00

  Yeah, and again, we're in the land of anecdotes here, and you guys have done a great job focusing on the data. We do kind of live in what feels like a winner take all marketplace, in a winner take all economy. And social media amplifies people's awareness of the bimodal nature of the distribution. And so I think because there are so many kids that do have supplemental income from their parents and because there is a chasm of wealth and income disparity in the country overall, especially wealth, it seems reasonable to believe that, to some degree, the concentration of wealth within the hands of older generations

• 31:33Speaker 00

  has some impact on the lifestyles of younger generations, which receive supplemental income. And social media amplifies those perceptions and then can sort of become a self fulfilling prophecy.

• 31:46Speaker 02

  Yeah, I mean, I don't doubt that there is intergenerational support and quite significant support, particularly when it comes to housing. I think there's probably has always been true to some extent, and it's quite likely that it's much greater today. Again, I don't have data on that. I'm not sure anyone does. I don't think it changes the macro story that today's young are making socioeconomic progress. Do you know what I mean? I can only go by their incomes, and I can go by their wealth, and I can go by their homeownership rates. And yes, these are somewhat delayed because they spend more time in school and they have different paths through their careers. But the data show that they're catching up, and the data show that they're catching up somewhat later on the homeownership side.

• 32:27Speaker 02

  Is that influenced by, you know, crypto, parents supporting, et cetera? I'm sure it is, but I don't think it changes the bulk of the experiences. I don't think it moves the curves around that you see in the data in a material way.

• 32:42Speaker 01

  Phil, I'm curious to this, and I want to come on to, while we're on the subject of the disparity, I want to come on to the K-shaped economy in a second, because I found what you had to say about that fascinating. And Dmitry and I, our mutual friend Peter Atwater is the guy who coined that phrase. I'm curious to get into this with you, but just before we get there, just coming back to this idea that the Gen Z catch up to homeowners when they're in their, I think, 42. And this idea of catching up was something that I found interesting, because obviously, once you get to 42, you can kind of look back and go, oh, well, it all kind of worked out. Okay, in the end, I got my house, I got everything that I needed. But obviously, those years from 22 to 42, when it feels like you're

• 33:23Speaker 01

  never going to get there, it's curious to me how that drives behavior, how that drives mood, how that drives all the things that, you know, we kind of see anecdotally, again, coming back to this anecdotal stuff.

• 33:37Speaker 02

  Okay, I mean, since you mentioned New York City before, Dmitry, I mean, I'll stick with that example. I think somebody who's 42 today and 15 years ago wasn't able to buy in New York City, I don't think this is bad for them financially at all. Like, you would not have seen appreciation in your New York City apartment over the last 15 years, and you would have had, you know, property tax and maintenance bills for your apartment, and you would have made likely a flat or negative return. There are tons of apartments in the New York City market that over 10, 15 years have negative real returns, or worse, negative nominal returns. And after calculating leverage and maintenance fees and carry costs, often these are total loss makers. So, you know, is it a blessing

• 34:20Speaker 02

  or is it a curse that a today 42-year-old 15 years ago wasn't able to buy in New York City? My hunch is it may well be a blessing in many cases, right?

• 34:29Speaker 01

  Yeah, absolutely, yeah.

• 34:30Speaker 02

  You know, I'm saying, I'm not sure what this aversion to renting necessarily is. I get the idea that homeownership holds a special place in people's hearts and minds, and I understand that, and I personally understand that. But from a financial and economic perspective, there are many ways of demonstrating that renting in a place like New York City is better for wealth building than pouring your money into one of those apartments that will never turn a profit, right?

• 34:55Speaker 01

  Yeah, I agree on this 100%. But again, I go back to when my kids were little, you know, they really wanted to, you know, eat candy for dinner every night, right? And I knew that in years to come, that was not going to be a great idea. But it didn't stop them wanting at the time, and it didn't stop them being, you know, upset and angry that they couldn't have candy for dinner every night. I keep trying to understand the mindset more nears, because when I read the paper, I found it truly fascinating, given what I'd experienced, both in my immersion in that world such as it is, and to Dmitry's point, anecdotally, because you're right, the data doesn't bear a lot of it out, and yet, that anger's still there, that sentiment is still there.

• 35:35Speaker 02

  Put another way, I think 42 is a great age to be owning a home. You know, I'm not sure when all this was accelerated to mean that everyone who's graduated college plus three, five, seven years of work experience must own their steady state final home in which they will grow old. I mean, since when were careers one and done? I mean, careers were always accelerations, and you build over time, and it's often hard, and there are setbacks, and people have to pick themselves up again. And over time, you get on a track, and you build a career that allows you to then grow into the kind of home that will be your final home that you grow old in. I mean, the idea that by 42, it's too late to own a home, and it's a failure if you don't have it, I just don't share it, you know? I think it's actually a reasonable age to say this is when people have their

• 36:20Speaker 02

  steady home that they will be in for many years.

• 36:23Speaker 00

  Also, a lot of the folks sharing those memes don't necessarily want to own a home and aren't old enough to need one. They're young. So it does serve a particular narrative. And on that point, I do wonder how much of this is being driven by whatever is leading to people feeling stressed out. Stressed out at work, stressed out in the dating pool. I mean, younger people are, they approach that with a much higher level of stress. Finding a mate is much more contingent now on how you appear on quantifiable metrics, one of the most important of which is net worth, income, social media. Are you, are you flying on a private plane? Or are you?

• 37:02Speaker 01

  Or pretending to.

• 37:03Speaker 00

  Or did you buy a coach? And so, how do you think about that? Because so much of what defines success when you're young is whether, if you're a man, it's about attracting female attention. That is a huge heuristic for success. It's a huge benchmark for success. And if dating is so tied up in things like wealth, and that is increasingly becomes an important factor for female, for females selecting mates, how do we, and again, this is a heterogeneous dating pool we're describing here, but I'm curious how you think that factors in.

• 37:36Speaker 02

  No, totally. Look, I think, I mean, A, we're straying somewhat outside of an economics conversation, but that's fine. I just wanted to say this. My bigger point is, your point about appearances and private jet versus flying coach, the number of people flying private is negligible compared to everyone else who still travels in coach, including myself, when I go somewhere. Okay, I mean, it's social media that has created in our minds the idea that the private jet is the, you know, aspiration and the attainable standard. Okay, I mean, I, outside of social media, I'm not really sure who thinks this is a baseline for anything. And if, if young people generically believe it's the private jet or nothing, then, you know, generally, it's an expectations problem. We're back

• 38:21Speaker 02

  to where we started. It's an expectations problem because, let's say, the median consumer will never fly private. It's not going to happen. And I don't think it needs to happen at all. It's, there's nothing wrong with if the median consumer doesn't fly private, okay? It's fine. I view these things as, as social media-driven distortions of what's attainable. It's not attainable for everyone.

• 38:43Speaker 00

  So I have another sociological question that falls perhaps outside the quantifiable dataset. Traditionally, it's older people who are the most pessimistic. Today, it feels like it's the younger people who are affectionately described as doomers, you know, people that are in their twenties. How much have you dug into this exactly? First of all, how much of this is just a feeling that I'm anecdotally witnessing, and how much is it actually borne out by survey data?

• 39:12Speaker 02

  Yeah, yeah, yeah. So two thoughts come to mind. So I have in the appendix, and I'm looking at it on my screen here. So we have a chart that shows youth minus old generations and their pessimism. And for the first time recently, the young are overwhelmingly more pessimistic than the old. Exactly as you said, it used to be the old who were pessimistic, and now it's the young. Apart from the stuff we already discussed, you know, the unattainable benchmarks that social media suggests, the benchmarks for success, the $600,000, you know, yearly income to be financially successful and all that, that very exalted expectations we already discussed. If you look at the chart, there are two moments when the time

• 39:53Speaker 02

  series falls off a cliff, and that's 2016, and that's 2024/5. Both of these are the elections of Donald Trump. And it appears that the young do translate that into their subjective preference or subjective view of optimism and pessimism. And so, all I can say in terms of these data moving around a lot, they do coincide with, with election cycles, and the two times when they fell off a cliff was when Republicans won. Whatever you want to read into this, I mean, I'm, for me, there's no value judgment of any sort. I'm just saying, it lines up with the electoral cycle. This extreme pessimism of the young lines up with the electoral cycle.

• 40:32Speaker 01

  Phil, what I found really interesting about when I read this paper, I'm always someone who, who believes that the data will always win out, that, show me the data, and if they don't corroborate that, I think over time, the data's going to win out. With this particular one, I really found myself struggling or wondering if that holds this time around, because it's, the feelings are so strong, and it feels as though there's nothing you can show these generational cohorts in the data that's going to disarm of that pessimism in the chart. As you say, the chart is a really interesting one. I'm just, as I read the paper, as I dug more into it, I just couldn't reconcile which

• 41:14Speaker 01

  way this ultimately swings, because you can make the argument that the mindset of the generation will catch up with the data and all will be well, but you can also make the mindset that the mindset will torpedo the data and pull defeat from the jaws of victory.

• 41:29Speaker 02

  Yeah, I mean, Grant, I think, you know, this is why we opened the paper with a quote, we're springing a surprise on the reader. The quote is, and I quote, "It requires a little fortune now to buy a house, and every article of furniture costs about three times as much as it did 10 years ago." And then we proceed to ask the reader, when is this quote from? And it's from 1866.

• 41:53Speaker 01

  Right.

• 41:54Speaker 02

  All right, it's 160 years old, this quote, which is to say, this angst about generational progress is perennial, it's maybe hardwired into our evolutionary biology, I don't know. You know, making it in life, and I don't want to get too philosophical or personal, but of course, there's a lot of anxiety with graduating from college and finding a career and building initial wealth. I mean, it's never easy, it's never been easy for anyone. So it's natural that whichever is the youngest generation is anxious about that. And I guess it's also natural for parents to worry about their children, right? Are they going to make it? How fast? You know, it's natural. And I think, in that sense, this perception that this is very hard, that the playing field is stacked against them, I guess it's never

• 42:39Speaker 02

  going to go away. It's always been there. As we show in the paper, it's been there for at least 160 years. My hunch is it's going to be there for another 160 years. That doesn't make it true, right?

• 42:48Speaker 01

  Right. Yeah, I just, I never had that sense. You know, talking to my friends of my, I'm Gen X, I don't feel like this was something, maybe it just skipped a generation, maybe it has been there for 160 years and Gen X somehow avoided it because we were left alone to play out in the woods on our own. I don't know, maybe we just missed all that. But it's weird, because it's just alien to me.

• 43:08Speaker 02

  Well, maybe it's particularly stark now, but I think Gen X too was in the shadow of baby boomers. And we remind readers of that in the paper as well. Baby boomers had a structural tailwind to their income and wealth generation, because that is the generation when women joined the labor force. So suddenly you had double income households who earn double incomes, and that translates into fast wealth accumulation, right? But that's a shift that can only happen once. You can't repeat that. So the generation that came after the boomers already didn't have that tailwind to the same extent. And the generation that comes after that, millennials, don't have any of it, because, you know, most women have already joined, or actually, we've topped out in terms of that structural shift. So,

• 43:51Speaker 02

  you know, I think there was always a bit of a narrative of, okay, you know, we didn't have it as good as the post-war generation, which also, by the way, was a decade of enormously fast growth, the 1960s.

• 44:01Speaker 01

  Yeah.

• 44:01Speaker 02

  It was the post-war period, and it contrasts extremely well with the pre-war decade of the Great Depression, right? A lot of this is expectations and what's our baseline of comparison. Well, if for boomers, the baseline was a pre-war Great Depression decade, and then the war economy, well, then of course, the 60s were an enormous progress and enormous creation of wealth. And so I do think that Gen X grew up under a similar shadow of, oh, we're never going to have it as good. Maybe the narrative is starker today than it was with Gen X, but I think it's always been there a little bit, is my recollection of it.

• 44:34Speaker 00

  That raises a question for me. So, and I'm glad you pointed out the rise of the dual income household.

• 44:39Speaker 02

  Mm-hmm.

• 44:40Speaker 00

  Am I correct in assuming that baby boomer couples, where both the wife and the husband were going to work, were more likely to obtain childcare and help from their familial network than their analogous cohort is today, who has to hire help to come stay at home or childcare out in the world somewhere?

• 45:02Speaker 02

  Probably. I don't know, but it sounds likely to me.

• 45:06Speaker 00

  So it seems to me that, when I read your paper, and when I think about this, because so much of what you write resonates with me, and I'm skeptical of these broad narratives. But at the same time, I'm trying to also hold myself accountable to what I see. It seems also that there is a distinction to be made between Gen Z or young millennials who are single and in their twenties, versus those who are married, have kids, and are in their late 30s or 40s. Because the costs associated with raising a family are very different than those associated with, you know, going out, partying, attracting mates, having a great lifestyle, renting an apartment, et cetera. Not only are housing costs important, but childcare is important, education is important. Obviously, education matters too

• 45:50Speaker 00

  when you're taking out debt when you're younger, but the effects of that, that can be compounding if you don't have an analogous income stream to offset it. And also, you've got your kids' educations to pay for and to save for, and also healthcare. So is there an important distinction to draw between what the data tells us about Gen Z writ large, and what it tells us about those cohorts specifically that are raising families or trying to raise families?

• 46:16Speaker 02

  Yeah, I don't, I don't know. I mentioned earlier, there are some limitations to the granularity of the data. For example, if you wanted to go within Gen Z or millennials, and you want to look at inequality or subgroups, I guess there are people out there who collect, create, otherwise approximate these types of questions with data. I haven't, I don't know. I'm sensing where maybe we're talking past each other a little bit. And I went to some links in the paper to call that out in the beginning and the end. I'm not saying everyone's doing great, right? This is, this is not the claim. It's not that everyone's having a great time and accumulating a ton of wealth in Gen Z or millennials. I'm absolutely

• 46:59Speaker 02

  aware of the distribution that includes those who are not making progress, and that was true in prior generations as well, by the way, right? We also have data in there that shows that a quarter of all wage earners in a given year is seeing negative real wage growth. A quarter, okay? A quarter of all employees in a given year has negative real wage growth. But guess what? That's also true of 2015, and that's also true of 2005. It's not a new thing, all right? And so I think, you know, if we want to go more granular and, you know, peel the layers of individual generations, I haven't looked at that. In fact, this isn't like an area that I research day in, day out. It's something that over

• 47:41Speaker 02

  time, I've built a view, and we wrote this paper to put together some data points and some arguments. And I'm sure there's, there's very valuable additional insight from sociological research and other sources, but I'm not aware of how to peel back additional layers within these generations. I don't know.

• 47:57Speaker 00

  I have a sense that some of this is a derivative of the breakdown of community, and specifically, local communal ties. I think people, younger generations, feel more at risk, more on their own, and more, therefore, more vulnerable. And I think that speaks to the broad perceptions of insecurity, not just financial insecurity, but insecurity overall, and the doomerism. So I think I am inclined to buy the social media argument as being the primary explanatory driver. And when I say social media, I just want to throw in, you know, platform media, writ large, algorithmic media, and the algorithmic targeting

• 48:41Speaker 00

  of individuals. I think that is, and Jean Twenge, who also had been on the Hidden Force podcast, wrote a book about this called I Gen, where she described some of these dynamics in these younger cohorts. So I'm sure there are probably some interesting surveys that are being done here to ask people, and I actually think I've read about them, to ask younger generations how they feel about the world where they are, how alone they are, how on their own they are, how vulnerable they are relative to previous ones. But I think that's a huge structural driver here.

• 49:13Speaker 02

  That sounds very realistic to me. In a way, what you're describing, the breakdown of old support networks, or, you know, just community, what has come in its stead is social media, sort of, you know, two sides of the same process, and then comes in that problem of expectations that are formed on social media. What does it mean to be successful? What does it mean to be financially secure and things like that? To me, this is all very credible. The reason why I was somewhat optimistic, actually, is quite possibly, we've seen peak social media and peak smartphone culture. So, you know, my kids, who are, you know, a little younger, they're in their early teens, they're not going to school with smartphones because they're not allowed to. I mean, there's also a, you know, a parental layer of, I

• 49:58Speaker 02

  don't want them to use smartphones, for sure. But even if I gave them smartphones, they wouldn't have them in school, right? And this is what I'm saying about Gen Z. The oldest Gen Z'ers are 28 now. They're exactly the ones who grew up with all this unfettered and unfiltered. They were not taught, they had no support, they had no guardrails, to successfully and easily differentiate between, you know, TikTok and IRL on the other side, right? There was no awareness, and there was no real debate, and educators did not help them come to terms with that. But I think there is a turning point. There has already been a turning point. Policy has caught up with some of these problems. The smartphones are disappearing from the hallways, you know, writing, handwriting comes back.

• 50:43Speaker 02

  A lot of these things are going in reverse, not to at all, you know, take it to zero. We want young people to use AI, we want them to engage with modern technology and be digital, but the sense that this was overdone, and that we're currently experiencing the consequences of a guinea pig generation, Gen Z, who was, who was basically, you know, an experiment of social media and smartphones, I think that, to me, remains true, and therefore, I'm somewhat optimistic that we're actually past the worst.

• 51:14Speaker 01

  Boy, do I hope you're right, Philip. Boy, do I hope you're right. Can we take the subject back to this disparity in the K-shaped economy? Peter, at all, if you're listening, cover your ears. Yeah, you had some fascinating research on the K-shaped economy. And again, this is the overarching theme of this discussion to me, is this disconnect between the data and the narrative, if you like, that has pervaded everywhere. You know, the K-shaped economy has become such a ubiquitous term. I see it everywhere now, and it's used, and everyone is supposed to know exactly what it means. But the data in your paper, I found fascinating. So perhaps you could walk us through what you found with that, and then we could maybe kick it around, the three of us.

• 51:51Speaker 02

  Yeah, totally. I mean, as a little preface, you know, I said this before, there is enormous inequality in America, and there has always been enormous inequality in America. And from a personal point of view, I don't like that. I think it'd be better if it was very different, and much less inequality. But I can't let that wish guide my research. I can only go by what I see in the facts and in the data. All right. And so K-shaped is a particular bugbear for me, because, you know, the letter K is very clear what it insinuates, or what it claims. It claims that there is a successful branch slanting up from the middle of the K, the vertical part of the K slanting up, the richer getting richer, and then there is the part of the K that is

• 52:36Speaker 02

  slanting down, the poorer getting poorer. Now, only half of that is true. The richer getting richer, the poorer not getting poorer. There is no data to support that. I'm sorry. There's no official data that you can show that with. And so what we do, we index both the incomes and the balance sheets of the different quintiles and quartiles of the income and wealth distributions. We index them in 2020. And then we show how they have progressed since 2020 to the present day, or as far as the data take us. And there you see that it doesn't look like a K. It looks like, you know, the rich are certainly getting richer, and in dollar terms, they're getting enormously richer. But the bottom of the distribution is also making progress. So their

• 53:20Speaker 02

  balance sheets have strengthened since 2020, and their incomes have strengthened since 2020. And so what you end up with is a series of shapes that don't look like Ks. They look like Ks that you would write if you don't know how to write a K, because the downward slanting part of the K is just not there, right? And so, you know, again, this is not to say that everyone's doing great. And I'm also fully aware that the bottom of the distribution that is making progress, in dollar terms, that can be very little. All right. Somebody who's growing their income 20% and makes $20,000, they're not growing rich overnight. That's totally understood. But for a macroeconomic

• 54:02Speaker 02

  assessment, it's hugely consequential, whether we think, you know, 30, 40% of the population are growing poorer, when in fact, they're actually making progress, however small it may be. But they're making progress, right? And so this is the story of the K-shaped economy that we've actually told for quite a while. So that wasn't new in this paper. We've recycled that for the point of explaining the gap between expectations and reality for Gen Zers and millennials. I think a lot of people just take the K-shaped economy as a given. They don't really ask, is there evidence to back it up with? As you say, it's taken as an article of faith that it is like that. But if we can't show it with the data, I'd be very careful about using it.

• 54:44Speaker 01

  Well, this is the fascinating thing, you know, and it tags with what we've been talking about in the first part of the conversation, in that you're absolutely right. People have taken the K-shaped narrative to be true. And there are plenty of data points, anecdotally, once again, there's that word, that people will point to to say, well, it's obvious. But again, you know, I don't know if you had a lot of pushback with this, but it'd be curious, because it feels as though, don't tell me what the data says. I know the K-shaped economy. I'm on the bottom rung, and I don't take your data away.

• 55:17Speaker 02

  So on pushback, look, I'll tell you this, when we first talked and published on this a few years ago, a lot of clients, a lot of big firms that care about the consumer economy specifically, they're all suspicious, and is that true? And that's not what we're hearing and seeing. But I mean, look at what has happened in the last three, four years. Consumption's only grown. You know, I mentioned this earlier, the consumer economy is pretty robust. If you look at the earnings picture, the last earnings season, it's not that earnings were like really strong because of a few tech firms. Earnings were strong across the board, in virtually all subsectors of the economy. That doesn't happen if there isn't broad progress in consumption, and that can't be done by just a few rich. It's broad-based consumption. Again, that doesn't mean

• 56:02Speaker 02

  that everyone's making progress. As I mentioned this earlier, a quarter of all people see falling real wages. And that was true 20 years ago, and it was true 10 years ago. So it's not new. But in aggregate, and see, this is the thing about macroeconomics. Macroeconomics is looking at the aggregates. It also looks at the distribution where it can. But in aggregate, the economy has held up well. There was no recession, even though it was described as inevitable multiple times, right? The economy has held together because, one reason, one big reason, is because consumers were able to spend, and they were willing to spend. Where price growth was too rapid, they turned away. So you saw there was a slump in fast food restaurants, quick-service

• 56:43Speaker 02

  restaurants. Why? Because they're taking too much price too fast, and so consumers turned away, and they spent it on other things. But they kept spending.

• 56:52Speaker 00

  So have you thought about or applied your thesis to politics, to see, to try and understand what is driving the appeal of democratic socialism and candidates like Mandami in New York City, given that people seem to be doing so well?

• 57:11Speaker 02

  I have not. I have not looked at that at all. I mentioned earlier that the consumer feature is fairly large in my research overall, given how important consumption is to the overall economy. But this type of research is more of a tangent of what I do day in, day out. I'd have to guess and speculate, but honestly, I just haven't looked at that, Dmitry.

• 57:33Speaker 00

  Again, I'm trying to put forward alternative arguments, not necessarily because I believe them. And I think in the mayor's case, I think his appeal stems from a broad range of factors, many of which are social and cultural, and have nothing to do with how people are doing economically. But I ask it because we're heading into the midterms. It seems, at least from reporting, that democratic socialism and democratic socialist candidates are getting a bit of a bump in the polls, and that appeal is being largely driven or disproportionately driven by younger voters. So I thought I would ask the question.

• 58:15Speaker 02

  Yeah. I mean, look, I think the awareness of inflation is very large. It continues to be very large. I think in the last election, the presidential election, the argument that prices had gone up very fast was correct. What was not talked about was that wages had also gone up very fast. So actually, if you do the ratio of price change and wage change, there was slightly better affordability at the end of the Biden administration at the beginning, right? And this is, by the way, the reason why we haven't seen a faltering economy now. I mean, come on, between tariffs and Iran and the energy shock.

• 58:54Speaker 00

  And interest rate raises.

• 58:56Speaker 02

  Yeah, interest rate raises. If the economy in January 2025 had been so brittle that it's just like an inch away from collapse, then I don't think we would have survived all these extra headwinds. So clearly, the economy was in a reasonable shape. But the awareness of prices and inflation is just very, very strong. It continues to be very strong. Look, I think, and we're straying outside of economics a little again, but let's do it. I think there is psychology involved, which is, you know, inflation is a silent thief. It's something unjust that happens to you. And a promotion at work is something that you earn because it's your own merit, and because you're great, right? And we don't offset these two things in our heads. So when

• 59:39Speaker 02

  the price level rises 20%, then that's particularly painful, and that's the silent thief. And when wages have gone up 20%, which they have actually by more than prices, then we're not offsetting that sort of as a calculation. And so there is this remaining gap and frustration about that. And that's understandable, and that's human. And by the way, I don't want to exclude myself from that at all. I often find myself fuming about this and that. And I even go back and look at my own price and wage history to see if this doesn't make sense. But I think, you know, this is not something that you can solve. You know, we have price increases that are fast, and we have wage increases that are also fast. Real wage growth has slowed in the last, like,

• 1:00:21Speaker 02

  year or so, because nominal wage growth isn't super high, and then inflation has bounced back. So the real wage growth picture is not great, and I think this is felt by consumers. That's correct. And then you always have those segments in the consumer distribution that are actually struggling. And I'm not at all here to belittle that. There's always a segment in the consumer population that is struggling, and that was true before COVID as well.

• 1:00:46Speaker 01

  Yeah, Philip, one of the charts in the appendix really jumped out at me. I'd love to talk about with you for a second, because, and again, it comes back to this, this financial nihilism idea of Dmitry's that's been buzzing around my head for years now. Thanks for that, Dee. But the chart you had of youth net worth, which is the under 35, I think, households, their net worth, it went back all the way to the late 80s, or 1990, or somewhere around there. And it's an extraordinary chart, because it basically goes sideways to down for 30 years, and then post-pandemic, it just jumps up almost at, you know, 90 degrees. It's an extraordinary chart, and goes from $16,000 to $39,000, $40,000.

• 1:01:30Speaker 01

  And

• 1:01:30Speaker 02

  You know which one you mean, yeah.

• 1:01:31Speaker 01

  Yeah, and to have that happen against this backdrop of 2021, 2022, where we saw this whole YOLO culture, I just found that that chart just hit me like a ton of bricks.

• 1:01:43Speaker 02

  Yeah, so I think partly what's happening there is, you know, a lot of stimulus checks were sent.

• 1:01:50Speaker 01

  Yeah.

• 1:01:51Speaker 02

  And so so the surge lines up with the stimulus effort that the government undertook rightly. Like you wouldn't have wanted to let COVID deliver even worse damage by not doing that. And then at the same time, while receiving stimulus checks, people were constrained in what they could do or wanted to do. So they had fewer expenses. And between the two, I think you see this bump in the net worth picture that that you refer to. I think there is an impending or just released iteration of the data. So this comes from the Federal Reserve Board. It's a not very frequent data series. I believe one's coming this fall or may have recently dropped in the last few days or a week or so. I don't know what it looks like now. It may well have come down again a little, but yeah, I think this is mostly a COVID story.

• 1:02:36Speaker 01

  Yeah, no, obviously the dates line up, but I'd say the thing that struck me was not the chart itself, but I'd say the backdrop. Because it was soaring right through that period of kind of peak nihilism, it seemed to me.

• 1:02:48Speaker 02

  Oh, yes.

• 1:02:50Speaker 01

  I just found that a remarkable divergence.

• 1:02:53Speaker 02

  That's true. That's true. I mean, Dimitri, let me ask you, the financial nihilism and peak nihilism, how do you? How do you measure that or what's the quantitative foundation of that?

• 1:03:04Speaker 00

  I mean, I don't have a quantitative foundation. This was a theory that I developed as a result of being a millennial and being immersed in social circles where these types of narratives carried a lot of cultural resonance. And also from watching the total contempt for fundamental analysis and the part of many younger investors in the years leading up to the pandemic. And that was really informed by what was going on in crypto. I mean, crypto was patient zero for financial nihilism. And it wasn't just a financial story. In fact, I made the point at the time that the thirst for community and for a sense of purpose and mission was an even bigger driver of the price moves we saw in crypto than was the individual's desire to obtain

• 1:03:48Speaker 00

  exit velocity type wealth. And I think that this thesis was further borne out in equity markets as well, like with Tesla and GameStop and AMC, where it wasn't just about people wanting to make a bunch of money. But it was also about people wanting to have a communal experience and to develop relationships within tribal units, which is why you might recall that there were people posting screenshots of their wrecked Robin Hood accounts as a kind of social proof that they were indeed fervent believers in the project of, in the case of GameStop, taking down the shorts and the villainous Melvin Capital. I mean, there's more to the thesis than just that. I think narratives themselves are very powerful in the world today

• 1:04:32Speaker 00

  because of some of the things that we've talked about, like social media. But also because of younger people's higher degree of awareness and self-awareness around the power of narrative and our ability to create new realities out of thin air simply by deciding to believe in them, which is what we saw during both the ICO craze and subsequently during DeFi summer in 2020. I also think that systematic passive flows are a big part of the story. As were central banks' responses to the great financial crisis, which furthered this narrative that fiat currency is basically toilet paper. And you're better off YOLOing into meme stocks or crypto

• 1:05:14Speaker 00

  than putting your money in a savings account or doing a DFC analysis and prudently backing your way into evaluation. You know, at the end of the day, I don't know if what we're seeing is a fundamentally new paradigm or if it's just an extreme iteration of what we've always known to be true, which is that prices diverge from fundamentals, sometimes to extremis, but that they eventually reconcile.

• 1:05:40Speaker 02

  Okay, yeah, I mean, I think I get I get what you're what you're doing with this concept. And probably you'd agree that the way we consume media and social media and technology is a big part of this, right?

• 1:05:54Speaker 00

  Yeah, I mean, if you remember during the pandemic, David Portnoy became famous by day trading the stock market from his apartment on a live stream, claiming that stocks only go up. And he actually used the word stonks to describe them because the essence was that they stink, that they're garbage, that everything's a scam. And that what drives prices is not fundamentals, but money printing and regulatory capture. And I think that this spoke to a real contempt that millennials had for the system that ties all the way back to the 2008 financial crisis. So essentially, yes, I think that social media and technology are central to the story. But the story itself has resonance, I think,

• 1:06:37Speaker 00

  because of some of these important cultural and economic drivers rooted in the real world. Now, I also think it's important to note that this latest capex cycle with AI is not, I think, indicative of this dynamic as it is rooted much more in what we would traditionally think of as exuberance about the future rather than an embrace of pure Ponzi's. But to the extent that we've seen evidence of financial nihilism, I do think that social media and technology have a very important role to play.

• 1:07:06Speaker 02

  Okay.

• 1:07:07Speaker 00

  I don't know, Grant, if you have anything else to add, but I feel like I've exhausted our guest here. I'm concerned that Phil's not going to come back on the podcast anytime soon because I've tried to have as many devil's advocate type questions as possible.

• 1:07:20Speaker 01

  No, it's been great. And as I say, I found the data truly fascinating, Philip, because, you know, this is something Dimitri and I have been talking about this for years now. And everywhere we've been and every conversation we've had has essentially backed it up. And then this data came along and says, you know, here's someone else to think about. And it's not as straightforward as it was. And that, the thing I found so interesting is as I look at the data, I'm surprised at a lot of it. And I'm also surprised that my brain, which is very used to taking data and saying, okay, always trust the data, is really struggling with this one because of there's so much anecdotal evidence I see in so many conversations I have with

• 1:08:04Speaker 01

  with people of different generations and different wealth brackets and stuff, who all seem to be reinforcing a story that is not just different to the data, but diametrically opposed to it. So I find the whole thing really, really fascinating. So I'm very grateful that you've actually had this conversation with us.

• 1:08:18Speaker 02

  No, no, thank you, Grant. I mean, look, maybe I want to make another push with this particular argument about macroeconomics. It is by definition, the aggregate. Macroeconomics is the aggregate. And I think often what doesn't translate well from macro insight is that it collides with, as you say, the anecdotal evidence or maybe a wealth of anecdotal evidence. And yet it's super treacherous to be extrapolating from anecdotal evidence. We're all aware of that. But particularly in public discourse, that's what we do. I mean, the financial press does that day in, day out. Nobody clicks on pieces that are balanced and rational. People click on pieces that are outrageous and sound like a scandal. And that's why you see this tilt into doom and gloom.

• 1:09:03Speaker 02

  And I mean, that was the theme and the thesis of our book, Dimitri, you'll recall. You know, in the book, and you know, the book came out in 2024, so we're actually missing two years and a half additional doom and gloom that we've also never came through, right?

• 1:09:16Speaker 01

  We've kept it going for you. Don't worry.

• 1:09:18Speaker 02

  No, I mean, like there was, we iterate all these stories of how we're falling apart tomorrow. And all that stuff didn't happen. I mean, I mean, just on the most basic level, the inevitable recession, which graced the cover of The Economist at least once, it didn't happen. There was no, there was no recession, right? And then there are many other false alarms there. So I think where does that stem from? It often stems from an aggregate that in totality is actually pretty robust and resilient. And then you have a distributions, a distribution. Under the distribution, you have winners, losers, good, bad, you know, better, worse. And then we tend to in public discourse to go to that one side of the distribution and pick examples and socialize and advertise those worst examples.

• 1:10:01Speaker 02

  Which is not to say they don't exist. They do exist. They always have existed. There was always a part of the distribution that didn't do well. And the evidence that it is much, much bigger today, that part of the distribution isn't really there.

• 1:10:13Speaker 00

  It also makes sense in that those who are losers are more motivated. We see that in voting, for example, those who are dissatisfied with the status quo are going to be more motivated to go out and vote for, quote, the other guy. So I feel like there's some degree in which that's true also when it comes to social media and public perception.

• 1:10:30Speaker 02

  I agree.

• 1:10:32Speaker 01

  Well, Philip, it's been fascinating. And again, I'm very grateful that you've been willing to to have this conversation right on the fringes of your work and stray outside it every now and again and indulge Dimitri and I. It's been really, really enjoyable. We're very grateful to you for doing it. And we will make sure that we share this paper with people because it'd be much easier for them to understand the conversation once they've seen the data.

• 1:10:50Speaker 00

  And again, the book is titled, Shocks, Crises and False Alarms. And most importantly, it's a very small book. In a world where people are daunted by very big books, it's a small and manageable book. You can read it over the weekend, so I highly recommend it.

• 1:11:03Speaker 02

  Thanks for having me, both.

• 1:11:05Speaker 01

  Philip, thank you so much.

• 1:11:06Speaker 02

  Thank you.

• 1:11:08Speaker 01

  Dee, thank you, mate, for arranging that. That was fascinating, just such an interesting conversation. And as I said to Philip, you know, I've found this to be a really challenging reconciliation between that data. When you sent the paper to me, I was like, man, this doesn't line up with everything that I'm being told, everything I'm experiencing. And yet the data's there. It paints a very different story. So it was great to get a chance to talk to Philip about it.

• 1:11:32Speaker 00

  Yeah, as I think I said during the interview, I am inclined to believe a lot of what's in there. It wasn't necessarily that I went into the paper with a strong opposite view. I think it's a muddled picture. I do think that one area where the paper maybe is a bit weak, or weak's not quite the right term, but where maybe it doesn't explore as much of an alternative narrative is when it comes to family formation and the cost of raising a family for younger people. Mike Green, who has been on both of our podcasts before and who we know, wrote a two-part piece a while ago, even over a year ago, where he addressed this. And he also brought into public programs or other things that are

• 1:12:15Speaker 00

  no longer available to you, the further you go up the cohort, the further you go up the wealth distribution. And I think that's another area where I think I may have disagreed with Phil, which is that, you know, we're talking about the K-shaped economy, and I can't wait till we talk to Peter Atwater about this. But, you know, when you're talking about the K-shaped economy and you're looking at the upper bracket and you're treating the lower bracket as poor people, what's missing there is the middle of the distribution. And I think I'm inclined to believe that people somewhere in the middle of the income distribution are the ones who have fared the worst. And for some of the reasons that Mike talks about in his paper.

• 1:12:52Speaker 01

  Yeah. So the bottom leg of the K is not the very worst off. It's the middle class, basically, that seem to be maybe not going straight down, but trending either lower in relative terms.

• 1:13:02Speaker 00

  Right. Because they're also not able to access the benefits that poor people are.

• 1:13:08Speaker 01

  Well, as I read the paper, I just kept thinking to myself, this could be one of those rare moments where both sides are actually true in reality, right? The data is the data and it's there and it's verifiable. But people are doing worse. They feel they're doing worse. They're angrier. They're more upset. They don't feel like they're getting a fair shake. All that stuff is going on. And of course, you can't point to the data and say, you're wrong. You know, this is their lived experience. And they are, they are out spending money and not saving money to form families, to buy houses, to all that stuff. Because everywhere you go, they go, it's just out of my reach. Why would I save money for a house that I'll never be able to afford? And yes, once they get to 42 and go, hey,

• 1:13:51Speaker 01

  I can afford a house. Well, no, because you spunked it all up the wall on $7 cappuccinos, right? It's such an interesting topic. It's so not straightforward. And I'm deeply fascinated by what the reality of it is. And I cannot, for the life of me, pin it down and nail my colors to a particular mast.

• 1:14:12Speaker 00

  You know, it's interesting, because in some ways, this seemed so predictable after the great financial crisis, and we took rates down to zero and blew out the Fed's balance sheet, because we made the value of the present greater than the future. But at the same time, we've raised, we've gone through now one, and now we're in the midst of a second hiking cycle. And we actually haven't seen that have a material impact on the economy or on spending or on consumer behavior. So while as a narrative, I'm inclined to believe it, I feel like some of the data is beginning to spoil that thesis.

• 1:14:48Speaker 01

  Yeah, no, maybe so. Maybe so. It is, man, it's fascinating. It's fascinating. I love these shows. I love getting a chance to do these with you. And I love talking to Philip. That was a really, really interesting conversation.

• 1:14:58Speaker 00

  Yeah, no, I love doing this also, Grant. And people love them. People have been, have you been getting these emails? I've been getting them. I was getting them until like, maybe a month ago or a couple of weeks ago, where I feel like people gave up hope that we're going to do this again.

• 1:15:10Speaker 01

  Yeah, it's just been a crazy summer for both of us, right? But now, hopefully, the winter, all those long nights, we get a chance to spend more time doing these, which I hope. So listen, for those of you listening outside, let's talk about Philip's book first. The book is called Shocks, Crises and False Alarms: How to Assess True Macroeconomic Risk. It's by Philip Carlsen Szlezak, and you spell that Carlsen with two S's, the Swedish way, and then Szlezak, S-Z-L-E-Z-A-K. It's on Amazon and all the other usual places. And this paper, which I'm sure Dimitri and I will both link to in our show notes and transcripts, is again, a fantastic piece of work. The title of the paper is The Kids Are All Right: The Timeless Angst Over Young People and Money. And as I say, it's riveting,

• 1:15:53Speaker 01

  really. Dee, that was great fun, my friend. Before we go, let people know where they can follow all your brilliant work, because there's a lot of it, and it's all fantastic.

• 1:16:01Speaker 00

  You're so nice. Hiddenforces.io is the best way to follow me, because you'll find access to everything related to the podcast. And you can also follow me on X, which I used to call Twitter for a long time, but now I started calling it X. And that is @Kofinus, with a K, K-O-F as in Frank, I-N as in Nancy, A-S as in Sam.

• 1:16:22Speaker 01

  I am the last holdout. I'm the last holdout, calling it Twitter, obviously. You've finally capitulated. By the way, I saw that Musk documentary. I went to the premiere of the Musk documentary. It's, it's very, very interesting, I have to say. Very interesting. I went with a friend whose only understanding of Elon Musk was the public version of him that they'd been fed relentlessly over the years. So it was very interesting to go with someone that didn't know any of this stuff. And their reaction coming out was, oh, man, you've got to be kidding me.

• 1:16:51Speaker 00

  Wow, I really want to see this. Have you spoken to Lawrence about this?

• 1:16:54Speaker 01

  No, not yet. Not yet. Not yet. Maybe we should have him come on, because that'd be another great show.

• 1:16:59Speaker 00

  Oh, boy. Oh, boy.

• 1:17:01Speaker 01

  He looks good. He looks really good on the thing, though. He looks, he looks happy and healthy.

• 1:17:05Speaker 00

  I gotta speak to him about it. So it's only open, it's only in theaters?

• 1:17:09Speaker 01

  Yeah, for now. I don't think it'll have a long theatrical release, because it's four hours long. So they can only get two shows a day in.

• 1:17:15Speaker 00

  Wow.

• 1:17:15Speaker 01

  So it's four hours long with a 10-minute intermission in the middle. And it'll lend itself much better to watching on HBO at home, I think, because you can, you know, take a break and whatever. But it's a comprehensive piece of work and very well done by Alex Gibney, I have to say. Anyway, my man, good to see you. We shall do this again sooner rather than later. Thanks to you out there for listening. And thanks to Philip for joining us. And until next time, Dee.

• 1:17:37Speaker 00

  If you want to listen in on the rest of today's conversation, head over to hiddenforces.io/subscribe and join our premium feed. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, you can also do that through our subscriber page. Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter, @Kofinus, and you can email me at [email protected]. As always, thanks for listening. We'll see you next time.