Do College Grads who Move Back in with mom and dad “deprived the economy of a lot of potential activity”?

November 17th, 2011

The TImes says yes:

Like most of her friends, Hollis Romanelli graduated from college last May and promptly moved back in with her parents. As a result, she didn’t pay rent — or a broker’s fee or renters’ insurance, for that matter. She also didn’t buy a bed, desk, couch, doormat, mop or new crockery set. Nor did she pay the cable company to send a worker to set up her TV and Internet, or a handyman to hang a newly framed diploma. She didn’t even buy drinks and snacks for a housewarming party.

I’ll wager she does not have a boyfriend who wants to spend the night. But is this bad?

In other words, Ms. Romanelli, 22, saved a lot of money. But she deprived the economy of a lot of potential activity, too.

Every year, young adults leave the nest, couples divorce, foreigners immigrate and roommates separate, all helping drive economic growth when they furnish and refurbish their new homes. Under normal circumstances, each time a household is formed it adds about $145,000 to output that year as the spending ripples through the economy, estimates Mark Zandi, chief economist at Moody’sAnalytics.

But with the poor job market and uncertain recovery, hundreds of thousands of Americans like Ms. Romanelli (and her boyfriend, who also lives with his parents) have tabled their moves. Even before the recession began, young people were leaving home later; now the bad economy has tethered them there indefinitely. Last year, just 950,000 new households were created. By comparison, about 1.3 million new households were formed in 2007, the year the recession began, according to Mr. Zandi. Ms. Romanelli, who lives in the room where she grew up in Branford, Conn., said, “I don’t really have much of a choice,” adding, “I don’t have the means to move out.”

This is serious broken window fallacy. They even cite Keynes!

By not paying rent, of course, he has deprived a local landlord and a host of other local companies of some income, as well as whatever businesses those purveyors might have patronized further down the line. It’s a phenomenon that John Maynard Keynes referred to as the “paradox of thrift”: Saving is good for the individual, but en masse can hurt the economy by reducing demand.

I’m sure people redecorate their homes when a hurricane destroy them. Does this mean that hurricanes are better for the economy than letting people stay in their homes?

If these college students are able to stay home, save money, pay of their debt, and can put themselves in a position to do something good with their lives, how can this possibly be a bad thing?

Granted, people who stay at home aren’t likely to start families and socialize, which may be a negative externality–though not the cost the TImes focuses on.