Unintended Consequences and Resulting Burdens
on the Young
We often are reading today about
what are labeled as misleading and false news and we are also seeing a growing
recognition that such ‘false’ news may in fact be based on subliminal and
generally unrecognized inherent biases.
An example of such biases might
be the desire, acceptance and/or failure to explore logical (to some)
unintended
consequences of what otherwise are seen as very positive actions and
policies, which, without clear intent to do so, have some very negative
consequences. These are what will be highlighted below through some examples of
liberal policy agendas, which have had a very major negative impact on the
young people of the United States.
Single unintended consequences
can often concatenate and create even more severe consequences. In the
following I’ll take a brief look at some unintended consequences that have
driven the dilemma of high student loan debt.
The Unintended Jobs and Salary Issues
A separate issue, which will not
be discussed are the obvious implications on family formation, careers and
salaries for people with both high school and college degrees for recent
graduates versus similar graduates, on an inflation adjusted basis, in the
1980s and 90s.
“Being young and
having no job remains stubbornly common. Wages for young people fortunate
enough to get a job have gone down. Inflation-adjusted wages for young high
school graduates were 11 percent higher in 2000 than they were more than a
decade later, and inflation-adjusted wages of young college graduates (four
years only) have fallen by more than 5 percent. Unemployment rates for young
college graduates have been running for years now in the neighborhood of 10
percent and underemployment rates near 20 percent. The sorry truth is that a
lot of young people are facing diminished job opportunities, even several years
after the formal end of the recession in 2009, when the economy began to once
again expand after a historic contraction.”
The following will look at
certain policy actions and issues, which are not new and which are ongoing, all
of which place an ‘apparently unintended’ growing burden on the young.
Education Funding – The Problem
In states such as California,
there used to be an extensive 3-tier range of government-supported higher
educational institutions. These included Community Colleges with more
vocationally targeted training and retraining, an extensive range of general
Colleges and more comprehensive universities like Berkeley and UCLA.
As the government has increased the
amount of tax money devoted to non-educational programs, higher education has
had no choice but to raise tuition and fees for students.
Tuition Increases - Other (Bader, 2011)
Regulatory issues have also
contributed to tuition cost increases and the actual numbers are mind-boggling.
These cost drivers include unnecessary state licensing requirements for, at
best questionable, paper credentials and the related increases in administrative
(and not teaching) staff.
For example, since 1960, the
median annual tuition at private law schools was $475 (inflation adjusted to
2011 = $3,419) and even lower at $204 for public law schools and, as of 2009, median
private law school tuition costs had risen to $36,000 (public = $16,546).
Education Loans
In order to go to school,
students have had to take out loans to pay these higher fee and tuition costs.
Federal policies to make such
loans more easily available and to prevent such loans from being discharged in
bankruptcy have had the feedback loop of assuring schools of student funding
for higher fees and tuition and this has, in many reported studies, further encouraged
schools to add to these increases. This student loan feedback loop is not the
subject of this analysis.
Where has State Money gone if not to higher educational institutions?
Let’s just look at 2 of the main
programs starving higher education:
1) Public Pensions
2) Medicaid
This
paper isn’t impugning the value or importance of either of the above funded
budgetary items; but, with respect to both, I’d suggest that the unintended
consequences of adding to the debt burdens on the young, through the need for
loans to pay for what in the 1960s would have been non-loan-requiring, affordable
tuition costs, is significant and deleterious to the overall future and current
health of the economy.
It is
my bias to recognize and try to raise this issue.
Public Pensions
Here
there is a dilemma – promises were made but sufficient funding wasn’t provided.
Years ago, politicians agreed to provide public employee unions with defined
benefit retirement pensions as part of collective bargaining agreements. It was
cheaper for politicians to promise a future benefit (pensions) rather than give
an immediate salary increase. The post 2008 economic crisis and low interest
rates have only further exacerbated this public pension funding shortfall
across much of this country with the resulting lower-than-expected returns on
accumulated assets.
Wisconsin
got the public sector union ball rolling by being the first U.S. state to
permit collective bargaining by its employees in 1959. Through the 1960s and
1970s, public-sector unions expanded rapidly and, as with any collective
bargaining situation, unions wanted to provide additional benefits to justify
the union dues; and, by making promises to be paid for in the future, the
politicians were able to keep costs down.
What
could be better – focus on the future and pensions. These have little or no
significant immediate budgetary impact and current taxes don’t need to be
raised! Can we blame just the politicians, or the union leadership or members?
I’d suggest ‘no’! Everyone knew this was going to be a problem but, like
ostriches, heads-in-sand won the day.
There have
been some moves in states such as Rhode Island and in California to try and
roll back or limit promised pension benefits, but in general public employees
want their promised benefits and want taxes raised-and-raised (look at Chicago
and the state of Illinois). A 2016 article in Forbes (Andrzejew, 2016) highlights some numbers: there were 21,862 public
employee retirees being paid by the California Public Employee Pension Plan
(CalPERS) over $100,000 per year. Of the six-figure pension retirees from the
California Highway Patrol (CHP), the average pension was $10,192 per month. In
California, these benefits include significant healthcare benefits in retirement
and inflation protections.
Forbes
went on to report that the 6,350 active CHP employees, the average pay of
$115,000 plus $48,300 in pension contributions came to a total cost to
taxpayers of $163,000 per year.
An
even more egregious example is a retiring assistant sheriff in Riverside
County, CA who received $653,025 by cashing in banks of unused leave and other
benefits.
Medicaid
Recent
reports on the Republican Obamacare replacement legislation point to the fact
that 75% of state Medicaid expenses are going for nursing home costs.
Now,
who wants to kick the elderly to the street or onto the shoulders of relatives?
So, let the taxpayers fund this care. Why not?
Here
again, money that could have gone to schools and reduce tuition and fees has
gone to the elderly. This elderly funding isn’t coming out of the savings of
those needing this care, it is coming from the taxpayer (directly) and young
college graduates (both directly and indirectly through student loan
repayments).
Obamacare
Just a
bit more punishment of the young was in the Obamacare individual mandate.
Strapped with student loan payments and taxes for public pensions and funding
for Medicaid for the elderly in nursing homes, young people are now asked to
spend (a young friend in his 20s in California pays in the range of $300 per
month for his individual plan) to support older, sicker people who need
unlimited coverage with no preconditions.
Is
this fair to place one more burden on the young? Well, I guess bias has a big
role to play here.
And,
oh yes, under Obamacare, lifestyle could not be considered in determining
higher or lower insurance premiums.
Do / did the young have a right to be asked?
This
is the proposition. I have a bias that socially conscious and well-intended
policies to support public sector employees and the elderly have caused
distinct disadvantages to the young by forcing them to, among other things,
take out loans to permit them to get an education.
It is
widely recognized in the US that student loans are in crisis mode and are equal
to a staggering $1.3 trillion (Pianin). “Borrowers
now leave school owing on average about $34,000” with 5% owning more than
$100,000.
I
don’t recall any debate in the past, or currently, with the spring 2017
Obamacare replacement, that puts student debt versus Medicaid funding on the
same page.
My
bias is that this is wrong.
Moreover,
the added debt on students with all of the implications on home ownership,
peace-of-mind and motivations, expectations for the future, family formation,
etc. does have major implications for the economy and demographics. Again, this
is not really being correlated in any analysis. These are all unintended
consequences of decades old public employee pension and benefit promises and
public funding of medical care.
Implications
As noted in the introduction,
young people have less desirable job prospects today than in earlier
generations. There are large numbers of unfilled jobs requiring skills that the
labor force (read: both younger and older potential workers) don’t have. Labor
force participation rates are significantly down. Do we have slack in our labor
force or not? What has happened to productivity growth?
One could go on-and-on. There
are many unintended consequences and stepping back to look at some of them can
be very difficult and consternating. But were the students and young people
asked whether they wanted a student loan burden in order to have public
employees get a plush pension that is basically pay-as-you-go when they can’t
afford to save for a house or retirement?
Do they want to support elderly
who didn’t take out or couldn’t afford nursing home insurance by perhaps
foregoing having a home of their own, which the elderly bought in lower tax
years?
Correlations and Entitlements
As with any investment decision,
economic tradeoffs can be treated as ‘correlated’ or ‘non-correlated’. I’d
suggest that we need a more balanced analysis of unintended consequences that
challenge accepted biases. There is a cost to the economy and the young of
living in a world of broad-based social entitlements that sap young people’s
hope for the future.
You can ask whether all of the
above is just intellectual blah, blah. Sadly, the facts are documented and also
come from first-hand conversations with the young.
Andrzejew, A. (2016, November 26). Mapping The $100,000+
California Public Employee Pensions At CalPERS Costing Taxpayers $3.0B. Retrieved
from Forbes:
https://www.forbes.com/sites/adamandrzejewski/2016/11/26/mapping-the-100000-california-public-employee-pensions-at-calpers-costing-taxpayers-3-0b/#ab6446394511
Bader, H. (2011, May 25). Mind-boggling Increase in Tuition
Since 1960 Even as Students Learn Less and Less. Retrieved from Competitive
Enterprise Institute:
https://cei.org/blog/mind-boggling-increase-tuition-1960-even-students-learn-less-and-less
Pianin, E. (n.d.). Business Insider. Retrieved July 12,
2017, from
http://www.businessinsider.com/americas-student-loan-debt-facts-2017-4:
http://www.businessinsider.com/americas-student-loan-debt-facts-2017-4
