The Formative Years

People born between 1963 and 1965 are less likely to drive a car to work, are more likely to commute using public transit and are even less likely to own a car than people born just before or after those years. Why? It’s a great puzzle. Give it a guess.

Severen and van Benthem have a compelling answer:

An individual’s initial experiences with a common good, such as gasoline, can shape their behavior for decades. We first show that the 1979 oil crisis had a persistent negative effect on the likelihood that individuals that came of driving age during this time drove to work in the year 2000 (i.e., in their mid 30s). The effect is stronger for those with lower incomes and those in cities. Combining data on many cohorts, we then show that large increases in gasoline prices between the ages of 15 and 18 significantly reduce both (i) the likelihood of driving a private automobile to work and (ii) total annual vehicle miles traveled later in life, while also increasing public transit use. Differences in driver license age requirements generate additional variation in the formative window. These effects cannot be explained by contemporaneous income and do not appear to be only due to increased costs from delayed driving skill acquisition. Instead, they seem to reflect the formation of preferences for driving or persistent changes in the perceived costs of driving.

Here’s a nice figure from an excellent piece covering the Severen and van Benthem paper in the Washington Post by Van Dam. Van Dam also covers a paper by Malmendier and Shen which shows how unemployment in formative years can change behavior through a lifetime even absent differences in income.

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Comments

1965 here. And I certainly do remember those high gas prices when I was in high school as a young driver. I live in a small town, so such an effect didn't hit me. One question that I have is why would there be no similar impact for those who came of age during the Nixon-era oil embargo?

Believe it or not, the economy was in such a mess in 1973-75 that the gas prices were just one part of a picture - which included the first modern impeachment inquiry. And since the oil embargo was clearly part of the Cold War, its impact was still seen as considerably less threatening than a couple of thousand Soviet nuclear warheads.

"the economy was in such a mess in 1973-75 ..."

U.S. GDP per capita in $2010:

1973 $25,800 (good year)
1974 $25,400
1975 $25,200
1976 $26,200 (good year)

1979 $28,900 (good year)
1980 $28,500
1981 $29,000
1982 $28,200
1983 $29,200

Unemployment:
1973 4.9%
1974 5.6%
1975 8.5%
1976 7.7%
1977 7.0%
------------------

1979 5.8% (good year)
1980 7.2%
1981 7.5%
1982 9.8%
1983 9.7%
1984 7.4%
1985 7.2%
1986 7.0%
1987 6.3% (good year)

Using public transportation vs driving has more to do with where you live than anything else. Could the answer simply be that the study failed to compensate for this? Where I live you cannot get anywhere in anything close to a timely manner by public transportation. This is true for anyone living West of the Mississippi and not in a big city. But East of the Mississippi public transportation is "sufficient" to get to work or shop.

It was called the Nixon Shock (apparently). And you likely have no personal memories of it. But if you wish to say that wage and price controls lead to a good economy, well, be my guest.

Nonetheless, this is the sort of economy that Americans, not numbers, experienced - 'On Aug. 15, 1971, in a nationally televised address, Nixon announced, "I am today ordering a freeze on all prices and wages throughout the United States."

After a 90-day freeze, increases would have to be approved by a "Pay Board" and a "Price Commission," with an eye toward eventually lifting controls — conveniently, after the 1972 election.

Putting the U.S. economy "into a permanent straitjacket would ... stifle the expansion of our free enterprise system," Nixon said. As President George W. Bush put it in 2008, sometimes you have to "abandon free-market principles to save the free-market system."

There was no national emergency in the summer of '71: unemployment stood at 6 percent, inflation only a point higher than it is now. Yet, after Nixon's announcement, the markets rallied, the press swooned, and, even though his speech pre-empted the popular Western Bonanza, the people loved it, too — 75 percent backed the plan in polls.

As Nobel Prize-winning economist Milton Friedman correctly predicted, however, Nixon's gambit ended "in utter failure and the emergence into the open of the suppressed inflation." The people would pay the price — but not until after he'd coasted to a landslide re-election in 1972 over Democratic Sen. George McGovern.

By the time Nixon reimposed a temporary freeze in June 1973, Daniel Yergin and Joseph Stanislaw explain in The Commanding Heights: The Battle for the World Economy, it was obvious that price controls didn't work: "Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets." https://www.cato.org/publications/commentary/remembering-nixons-wage-price-controls

I didn't write that the 1974/1975 economy was good. I just put up those numbers against a worse recession.

I think a certain point might be missed here - that is, the American economy began fracturing under the Nixon Shock, leading to idiocies like this - 'Whip Inflation Now (WIN) was a 1974 attempt to spur a grassroots movement to combat inflation in the US, by encouraging personal savings and disciplined spending habits in combination with public measures, urged by U.S. President Gerald Ford. The campaign was later described as "one of the biggest government public relations blunders ever".

People who supported the mandatory and voluntary measures were encouraged to wear "WIN" buttons, perhaps in hope of evoking in peacetime the kind of solidarity and voluntarism symbolized by the V-campaign during World War II.' https://en.wikipedia.org/wiki/Whip_inflation_now

People thought things were truly falling apart, a sense that became normalized as time has gone by, but which was extremely disturbing at the time.

Like these numbers show at https://inflationdata.com/articles/inflation-cpi-consumer-price-index-1970-1979/

Too much data to easily copy, since the rate is displayed monthly.

But at the start of the good year of 1973, the annual inflation rate was 3.65% in January - and 8.71% in December.

"I think a certain point might be missed here - that is, the American economy began fracturing under the Nixon Shock, leading to idiocies like this - 'Whip Inflation Now (WIN) was a 1974 attempt"

1973 was still a real growth year with an unemployment rate of 5% followed by recession years in 1974 and 1975.

And what else happened in 1973? Oh, the Arab oil embargo-- and the quadrupling of the price of oil.

This is the same generation that today gives too much deference to KSA and let's them get away with murdering the freedom of the press and speech just to keep the taps flowing. They were scarred by what the Arabs then did to them.

'the quadrupling of the price of oil'

See, it was not just inflation that marked 1973 as a real growth year, one that anyone who lived through it remembers as being a good economic year.

This is where the numbers simply do not reflect the actual experience of those who were living through a period where it seemed the economy was falling apart.

Thank you, Carter.

Yep, Carter should have praised the Iranian revolution, sent the criminal Shah back to Iran for trial for crimes against humanity, and welcomed the Soviet backing of the secular government of Afghanistan. Both would have suppressed the rise in support for wahhabism in Saudi Arabia, maybe keeping the Saudi women wearing bikinis.

Afghanistan was under communist occupation.

It's remarkable how we become prisoners of experiences during our formative years. The depression era generation is a perfect example, frugal for their entire lives as they awaited the next economic catastrophe. In the case of my generation, it's the experience with a dismal stock market: no, it was not a boom and bust market, but a sideways market. The generation after mine and before the millennial generation experienced both rising inequality and rising asset prices, each feeding off the other. Sure, the financial crisis interrupted both, but the Fed continued the policy of monetary stimulus, once again fueling both, with each feeding off the other. I would think the millennial generation would be expecting the next financial crisis and long recession but it may not affect their investment behavior since they have few assets to invest.

Same thing applies to those of us who lived and worked through the high-inflation, high-interest rate (stagflation) environment of the late 1970's and 1980's.

From, say, 1946 through 1981, we had rising rates. Now, we have multi-generational low inflation and low interest rates.

I will not put money out for long terms at these miserable rates.

To wit, this week's Barron's has a piece on US "century" (100-year term, fixed-rate) municipal bonds. I would not buy one unless it is adjustable-rate, tied to a rational index.

I think that's an awareness, or internalization, of risk. I remember a variable rate mortgage reseting to 12%. I'd never again commit to a variable rate debt larger than I could immediately pay off.

A common comment from older bankers and brokers is "these young guys have never seen X", where X is some adverse factor that the more experienced guys include in their risk analysis, but is entirely theoretical to the young guys.

I sometimes wonder about this with regard to public health policy. Current policy makers haven't seen smallpox, polio, cholera, etc. and don't really believe these things are real.

Current policy makers and activists alike haven't seen a Carrington-event solar flare. We're quite likely to get one within the next hundred years. But no one talks about it.

When electrical systems go out there will be a much bigger impact and death toll and existential threat to civilization than anything climate change could cause within that equivalent time frame.

I see. Shylock wants his pound of flesh. Human flesh!!

Utterly pointless, unless we're talking high-demand organs for transplant.

I am talking about money.

I wonder if politics dominated by cartoonishly despicable characters like Trump or H. Clinton will equally traumatize the youth so enough of them will understand that whoever among the sociopaths wins, we free individuals lose.

I'm struck by the displayed 4 digit precision of the chart data - it bespeaks a remarkable degree of confidence in the data, and implies the ability to detect very small changes in the signal from the noise.

Not to mention that the y-axes are blown up to so that a 2 percentage point difference takes up the entire range. Also, there is a clear trend downward in both graphs and the purported 63-65 effect is a small wrinkle within that much larger trend.

Oil prices must have been really cheap for those born in '59 and '73-'74.

I agree with both Engineer and BC.... what looks like a 1.5% decline in Share Driving to Work over what looks like (the chart doesn't seem to label the year of the first data point) a 25 year span of birth years? Small change over a big span. Huh.

My thoughts, too. Molehill, meet mountain.

Fourthed. It might be statistically significant, but it looks like a blip in the direction of a trend.

That's because you cucks don't understand statistics to the level of rigor we have in the field of economics.

Really, it looks like just a bump within the larger trend. What's crazy is this: https://www.usinflationcalculator.com/gasoline-prices-adjusted-for-inflation/

Year Average Annual Gas Prices (In Dollars)* Average Annual CPI for Gasoline** Gas Prices Adjusted for Inflation (In 2017 Dollars)
1978 0.652 51.900 2.659
1979 0.882 70.200 2.660
1980 1.221 97.500 2.653
1981 1.353 108.500 2.640
1982 1.281 102.800 2.638
1983 1.225 99.400 2.609

Gas prices double, but the inflation adjusted price barely moves.

** Adjusted for CPI for Gas, not CPI

Isn't that expected? The price of gas, adjusted for CPI of gas, should be constant..

> "People born between 1963 and 1965 are less likely to drive a car..."

Nonsense. There is no factual proof whatsoever that above assertion is true for the general population. But creative strory telling is such fun?

Remember the Golden Rule of MR: If it sounds interesting to them, they will post it, no matter how laughably false it obviously is.

"The Oil Crisis" happened in 1973, not 1979, but that doesn't matter to dear old Alex. Never mind the hilarious Y-axis that ranges from 92.61 to 94.81. How does this guy have a job?

Timeout. The article does seem to make a lot out of a possibly(!) statistically significant blip, and the Y-axis is ridiculous. But get your facts straight before you start to bitch. Crude most certainly did spike in 1979, and finding that doesn't take more than 5 seconds worth of googling, even if you're not familiar with the history of it in the first place. https://www.macrotrends.net/1369/crude-oil-price-history-chart

Yup, there were two oil crises during the 1970s -- and two recessions (technically the second one was 1980). "Stagflation" entered the national vocabulary. They were followed by the really deep 1981 recession that was the US's worst since the Great Depression, but that broke the US economy out of its inflation spiral.

Someone commented that the supply shock was not that large, but it used to be standard practice in Econ 101 to talk about how the gasoline shortages of the 1970s were caused by price ceilings leading to artificial shortages. I.e. well-known, standard stuff.

The decline in share driving to work from birth year 1965 to 1975 is, according to the grossly distorted graph, .70%, an amount that is unlikely to be accurately ascertained by any known method. This is simply propaganda.

https://www.npr.org/sections/pictureshow/2012/11/10/164792293/gas-lines-evoke-memories-oil-crises-in-the-1970s

During two separate oil crises in the 1970s, Americans from coast to coast faced persistent gas shortages as the Organization of Petroleum Exporting Countries, or OPEC, flexed its muscles and disrupted oil supplies.

In 1973 and again in 1979, drivers frequently faced around-the-block lines when they tried to fill up.

Drivers would go to stations before dawn or late at night, hoping to avoid the lines.

Odd-even rationing was introduced — meaning that if the last digit on your license plate was odd, you could get gas only on odd-numbered days. New Jersey and New York have just reintroduced the system.

Back in the '70s, some gas stations took to posting flags — green if they had gas, yellow if rationing was in effect and red if they were out of gas.

To conserve gas, the maximum speed limit was cut to 55 miles per hour. To cut energy consumption in the broader economy, daylight saving time was introduced year-round at the beginning of 1974, facing criticism from parents whose kids had to go to school before sunrise in the winter months.

When the second crisis hit in 1979-80, President Carter described combating it as the "moral equivalent of war," and many Americans feared that oil shocks would be a recurring nightmare.

Since that crisis, gas prices have surged or fallen, but U.S. oil supplies have been relatively stable, and lines at the pump have, with rare exceptions, remained mercifully short.
---
Nothing likes to wait in line, the Theory of Everything

For humans it is the principal of economics, the very definition, we do not like long queues, it is traumatic, we remember it for years. Poor people get bottle=necked, one of the causes of drug abuse. Shrinks need to understand this, trauma is the helplessness of being bottle necked.

1979 Iranian Hostage Crisis. 444 days.
President Malaise -it’s your fault!

If you make $25k and over, you’re rich! I think he decreed that.

For those of us who lived thru it, it was just the way it was.

"People born between 1963 and 1965": it would be simpler to say 'People born in 1964.' If you want to say what you presumably meant to say, how about 'People born in 1963-65'?

"or OPEC, flexed its muscles and disrupted oil supplies."

The amount of supply disruption was very small.

I've never been influenced by the cost of motor fuel because (i) I cycled to work for 25 years, (ii) I took the bus for one year, (iii) In some of the other years I commuted on a motorbike, (iv) In almost all the remaining years I shared the car with another commuter, (v) In a few remaining gaps in my record I walked to work, and (vi) I almost always succeeded in living reasonably near work.

I commend these policies to the world at large.

I prefer to live relatively far from work and have a much larger home. I'm not influenced by the cost of motor fuel, either.

I can see this.

FWIW, I was just reading something about brains. The claim was that young brains have few long distance connections, but are very malleable. Order brains have longer connections, and are less malleable.

I'm sure I'm abusing the neuroscience, but in a rough sense, why not.

Those brains learned that gasoline has a price risk. Now that is a fairly fixed belief.

I'm sure you could do similar on all sorts of formed-beliefs.

Maybe libertarians had overly strict parents.

Millennials favor cities, cities with transit. Indeed, the percentage of people in all age cohorts has been falling since 1983: "[T]he percentage of people with a driver’s license decreased between 2011 and 2014, across all age groups. For people aged 16 to 44, that percentage has been decreasing steadily since 1983. It’s especially pronounced for the teens—in 2014, just 24.5 percent of 16-year-olds had a license, a 47-percent decrease from 1983, when 46.2 percent did. And at the tail end of the teen years, 69 percent of 19-year-olds had licenses in 2014, compared to 87.3 percent in 1983, a 21-percent decrease. Among young adults, the declines are smaller but still significant—16.4 percent fewer 20-to-24-year-olds had licenses in 2014 than in 1983, 11 percent fewer 25-to-29-year-olds, 10.3 percent fewer 30-to-34-year-olds, and 7.4 percent fewer 35-to-39-year-olds. For people between 40 and 54, the declines were small, less than 5 percent." https://www.theatlantic.com/technology/archive/2016/01/the-decline-of-the-drivers-license/425169/

What this signals is a bias in favor of transit, and public policies that promote transit. There's hope for the future.

Or reduced ability to afford private transit, or increased residence in cities that are otherwise hostile enough to private transit to make it not worthwhile.

What other historical situations affect various age cohorts long into the future?

The penny-pinching characteristics of those whose formative years were the Great Depression are well known. What else has resulted/might result in a change of character for a generation?

That was my parents, and I inherited it a bit, just by growing up in that lifestyle.

My guess for explaining this tiny difference is that older people have different jobs and different types of housing than younger people and that the location of the jobs relative to the housing is also different between the old and the young. Severen's thesis feels like a stretch.

Not sure I find the steepness of the curves for birth years 1963-1965 as significant as do the authors.

The same trends are seen over the relevant range - after those born in 1965, there is no rebound - the share driving continues to go down, an so forth in the other 2 graphs.
Notice the steepness of the curves for those born in 1973 - almost as severely steep for 2 out of 3 curves, and actually more severe for access to a vehicle.
Those born in 1973 came of age for driving roughly 1989 - 1991, years with relatively attractive gas prices.

Also, let's not ignore the overall steepness of the trend lines. The total change in those driving to work over the entire 20 years is less than 2%. Is that a little or a lot?
I do not dispute that the measured effect is real, but the takeaway from this might not be how MUCH the change in gasoline prices affected the perceptions of those born 1963-1965, but rather how LITTLE it did.
I am not sure how this last part is judged; seems interesting.

Amazing when you read stories about the oil crisis that OPEC created.

Except, the crisis was created in Washington DC by Nixon and continued by Carter.

Say what you will about Reagan, but he ended the so-called crisis with his very first executive order. Yet, few people understand why it happened and why it ended.

Which means that we'll do something stupid like that again and again.

It wasn’t as big of a shock (no shortage, just high prices) but can someone recreate this data with people who came of age during - what was it? - 2004-2006? When gas topped $4 per gallon regularly, before coming back down to the mid-low $1 range before/during the Great Recession? So this would be people born between 1990-1992?

At least in Florida where I lived gasoline prices started to go up in early 2005 and topped out over 4$ a gallon in early summer 2008. Then they sank like a rock in the fall as the Great Recession hit like a sledgehammmer.

The claim may be true, but those graphs certainly don't provide much evidence for the hypothesis

Given the minute effect size and the number of things you could come up with to explain any observed difference, I doubt you can do anything useful with this information, supposing it’s true in the first place.

Exactly, the graphs are misleading in that they are made to emphasize any differences. Those differences pale compared to other causes of choosing public transportation. Shame on Marginal Revolution.

Here's an alternate hypothesis.

The increase was entirely driven by improvements in public safety in NYC. This cohort came into their working years when it was safe to use the subway in NYC.

This is a perfect setting for comparing across states. The effect should depend on the minimum driving age in each state. That would convince me. (Otherwise, the effect is just too small.)

"Millennials favor cities, cities with transit."

Yet the technology of urban transit has been remarkably stagnant for at least a century: bus, subway, elevated train, commuter rail. Plus the occasional car service/taxi/Uber for when you're in a hurry or don't want to deal with transit.

Are todays buses, subways and trains better than those of 1919? Well, yes, but only marginally so: they're air conditioned, they have electronic signboards, some have apps that tell you how long you'll have to wait. On the other hand, in 1919 these vehicles had cushioned seats instead of hard plastic, and they didn't have blaring on-board TVs advertising at you. Oh, and the driver could and would make change.

The root problem of urban transit remains that it seldom goes from where you are to where you want to be. Even when there's a fast train available it's often a walk to a bus to the train to another bus and another walk. Which makes it take too long because there are too many between-vehicle waits. And traveling with packages on urban transit remains unpleasant.

That, and the cost of building rail transit seems to be so much higher now than it was a century ago that little if any actually gets built anymore.

Then again, perhaps technology will yet free us from these ancient, inflexible, costly systems into a new era of small, intelligent vehicles that can actually offer rapid, convenient transit and takes you where you want to go when you want to go there?

When I took Baltimore' sole Metro line out to Owings Mills to work, I rode to the station on my bike, brought the bike on the train, and then rode to the office. And visa versa coming home. This was made more feasible by the fact that I was reverse commuting (leaving the city in the morning) so the train was seldom very full. Many cities however do not allow bikes to be brought on their trains, at least not during rush hour times.
The other workable transit setup involves express buses. My older sister near Minneapolis used to drive to a nearby express bus stop, leave her car (parking was free-- this was in suburbia) and ride an express bus downtown. It made the trip there with no stops until it git there, where it looped around dropping people at several point downtown.

Nov ‘63 here....most of above works...advent of driving(79-81) with volatile, if available, gasoline, changing license plates to purchase gas, routine shootings/violence re gas lines, volatile interest rates, counting hostage crisis daily, urban flight , mothers against drunk driving...important consideration of people my age was raising children in cities to avoid cars/car culture...as people aged they viewed cities as safer places....I never bought “cultural/artistic amenities” argument re urban living....they’re just safer places to live

>routine shootings/violence re gas lines

Goodbye, dope.

So the theory seems to be that one-off events in our 'formative years' has a lasting impact on our choices.

There should be many other such examples that could be used to test the robustness of this theory. Or, the theory must believe that there is something very unique about the price of gasoline.

We have the (anecdotal) evidence that people who grew up in the depression were more frugal and saved more money, but I have jo idea if that is true,. Perhaps money saving just increases with age.

There are other short-term shocks that society has undergone in the past 50 years. If people are that sensitive to shocks when young, there should be a lot of examples of behavioral patterns later in life related to those early shocks. Are there?

I've read of research that claims that people's youthful political stances tend to stay the same throughout life. By itself, that's trivially unsurprising, people believe in what they believe in.

But the corresponding point is that young people are less locked in or anchored.

So a wave of political views that can persist for generations as a cohort ages. If a bunch of 18-year olds get swept up with JFK idealism, Reagan morning in America, Obama hope and change, or Trump MAGA, those attitudes will tend to stay with them for the rest of their lives.

That's what the researchers claim. I haven't read deeply to see how plausible or careful their research is.

The Great Depression changed a lot of people.

Sir, im not an expert on this topic or any topic to be honest. But why cant it be a coincidence and all the data supporting it is just in favor of that coincidence and that the phenomenon has not actually occured.

Statistically significant/insignificant right? The gist is is whether or not end of boomer gen was was somehow unique and maybe why......no more/less.....you guys r wrecking baseball

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