Sunday, June 27, 2010

Ant Tribes Coming To America

China is catching up to the U.S. in many ways.  Its economy grows by leaps and bounds while its urban centers experience growing pains and its public infrastructure matures. 

There is one way that the U.S. may catch up to China.  The downward mobility of recent college graduates is becoming very pronounced in the Middle Kingdom:

The dreams of many young educated Chinese are running up against the realities of China's rapid economic ascent. Rising living costs and low salaries — the result of a surfeit of university graduates — are dashing high expectations. 

The competition for jobs is fierce. Nearly 70 percent of high school graduates are expected to enroll in university this year, according to state media, compared with 20 percent in the 1980s. There are more college graduates than readily available jobs — a once unthinkable situation.

"Ant tribes" of underemployed college graduate are pronounced in urban China thanks to a combination of an ongoing real estate bubble and low wages for educated professionals.  The popping of that bubble will help make urban life more affordable but problems will remain.  China needs another market for its goods to replace the U.S. and developing its own domestic market for goods is still a work in progress. 

I expect a similar development of ant tribes here in the good old U.S.  College graduates who counted on that four-year degree to put them on the road to the middle class are in for decades of disappointment.  Recent graduates are accordingly adjusting their employment expectations downward.  Now all they need to do is take a page from the ant tribes' playbook and live triple to a room.  The deterioration we'll see soon in suburban McMansions abandoned to foreclosure will accelerate the concentration of the underemployed in makeshift living arrangements.

It is only a matter of time before the phenomenon of stagnant living standards and reduced expectations becomes the dominant narrative in the American economy.