Unintended Consequences and Resulting Burdens on the Young

Unintended Consequences and Resulting Burdens on the Young

Consequences and Bias

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.”

(Tyler Cowen, Average Is Over, 2013)

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