President Obama’s promise “to rescue the economy” and “[lay] a new foundation for lasting economic growth” in 2009 has rung hollow for the millions of young Americans still struggling five years into the economic recovery. Millennials are the first modern generation to have their potential for success obstructed by government policies, a little-discussed topic analyzed in “Disinherited: How Washington Is Betraying America’s Young,” a forthcoming book by the Manhattan Institute’s Diana Furchtgott-Roth and Jared Meyer.
The authors credit the bleak prospects of millennials to the decades-long trend in Washington of expanding regulations and benefits that favor older generations while disregarding the needs for those just entering the workforce. Young Americans are responsible for paying down the $18 trillion in federal debt accrued by older generations, but are receiving a substandard education at secondary schools. Students graduate college swamped in debt, only to enter an over-regulated job market. Disinherited outlines the unintended hardships caused by entitlement programs, higher education, and overregulation, complimented by interviews with affected millennials.
The book begins by introducing August Meyer, Meyer’s grandfather, who the authors label an “unintended winner” in terms of government spending. August, along with roughly 60 million other retirees, paid payroll taxes for decades with the false promise the funds would be safeguarded by Capitol Hill for retirement. Instead of keeping Social Security solvent, Congress used it as a pay-as-you-go slush fund—payments into the Social Security Trust Fund are immediately paid out to current beneficiaries instead of being saved for future retirees. Surpluses in earlier years were squandered on other federal programs.
The system worked for decades as enough people paid into the system to cover beneficiaries’ checks. But the retirement of the Boomer generation and rising longevity has pushed the program to the brink of insolvency. Retirees are now receiving more benefits than they paid into the system. The lifetime Social Security and Medicare payments made to a single earner-couple retiring in 2015 will be almost $1 million—over $500,000 more than the taxes they paid into the trust funds.
The Social Security Trust Fund is scheduled to be depleted within two decades, at which point there will either be a large cut to current retirees’ benefits, or, more likely, a large hike in payroll taxes on Americans in the workforce. Millennials, including this author, are skeptical that the programs they’re paying thousands of dollars into will still exist when they retire. A recent college graduate, Geoffrey Levesque, told the authors “I don’t know if the baby boomer generation will receive all of its Social Security, so I can’t even imagine what it will be for my generation. With how this government spends money, it will be unlikely.”
After critiquing America’s many “Unfunded Promises,” the authors then move to a discussion on our complacent primary and secondary education system. America had the highest high school graduation rate in the world immediately after World War II, but we have now dropped to 22nd out of 27 countries. U.S. students’ math scores are now lower than students in Vietnam, China, and most of Europe. But it’s not as if we’re shortchanging students, as K-12 spending has risen to $13,000 per student per year—an inflation-adjusted increase of 239 percent since the 1950s.
The authors argue that union influence at public schools rewards and protects older teachers over both students and younger employees. Union members’ pay and job security are predicated off of age and tenure, not merit. If funding-related staff cuts need to be made, the most recent additions to the office are the first to be fired, regardless of how talented and enthusiastic newcomers may be.
The public school system’s flawed hiring and firing policies may leave children unprepared for higher education, but Furchtgott-Roth and Meyer highlight a more surreptitious problem permeating high school guidance departments: guidance counselors have been pushing most students to apply to four-year universities, regardless of whether they may be better served by community colleges or trade schools, which, incidentally, could leave them better equipped for the job market come graduation. Four-year completion rates at colleges remain low and student loans are indebting millennials. Total student loan debt ballooned from $250 million in 2003 to $1.2 trillion in 2014.
Why have costs risen so rapidly? The authors cited a study claiming the liberal distribution of federal student loans incentivized colleges to reduce scholarship funding—for every dollar received by a student in tax-based aid, scholarships at the university were reduced a dollar. As college tuition increased by 1,180 percent since 1978, the burden has been shifted from universities to the taxpayer.
Annie Johnson, a graduate of a liberal arts college, told the authors “It’s both absurd and terrifying how the costs of college have shot up. The way we price education is bloated – meaning we are paying for things that have no value to us.” Questionable tuition-funded expenditures include millions spent on college presidents’ salaries, nearly half a billion spent on just 40 collegiate athletic programs, and decadent amenities—including a lazy river at Boston University (tuition and expenses in 2015: $62,956). While universities have to attract and retain students, they leave with an average an average of $25,000 in debt.
Optimistic entrepreneurs and recent graduates looking forward to paying off their debt face a foreboding job market and an artificially restricted workforce. Furchtgott-Roth and Meyer’s third section, “Regulations that Cripple the Young,” discusses excessive government-mandated restrictions on starting new businesses and entering an occupation.
Occupational licensing, or government approval to work in certain professions, safeguards established industries and older workers by preventing would-be entrepreneurs from entering the market. Certification and licensing regulations to work certain jobs were rare up until the mid-20th century.
While in the 1950s less than 5 percent of all jobs required certification, licensing requirements have now expanded to cover 1 in 3 workers and include occupations unrelated to the health of the general public—florists, cosmetologists, and yoga instructors now all require certification to operate a business in some states.
The requirements, the authors note, are designed to reduce competition by shutting out newcomers. This not only raises the cost of the services, but inhibits innovation. Unsurprisingly, the unemployment rate for 16- to 19-year-olds was 8 percent higher in states with strict licensing requirements in 2012; for 20-24 year olds, it was 3 percent higher.
Furchtgott-Roth and Meyer offer numerous solutions to improve millennials’ academic, financial, and employment prospects with two overarching principles: reduce regulation to boost economic growth, and tame exploding entitlement spending to lessen millennials’ debt burden. Ending the concept of ‘entitlements’ by requiring a congressional vote and spending authorization every year would end the autopilot spending of the programs scheduled to bankrupt the Treasury.
The only way to fully utilize skills and facilitate entrepreneurship of America’s youth is to roll back excessive regulations and repeal occupational licensing requirements. The success of ridesharing companies, including Uber, Lyft, and Sidecar, in overcoming intense opposition from the taxi industry illustrates how innovation can overcome the expensive and complex hurdles placed by entrenched special interests.
The most important contribution of “Disinherited” to existing literature on regulatory reform is humanizing the meticulous analysis and data by including interviews of those who have been directly harmed by the discussed policies. Their stories serve as a reminder that the topics are not simply abstract economic and employment debates, but the harms to young Americans are unacceptable. Seventy-five million millennials are negatively affected by these policies. It is a moral issue that policymakers can’t afford to ignore.