In 2008, many conservatives opposed the bank bailout. Why send $700 billion of hardworking Americans’ taxpayer dollars to banks that had failed? Some of us argued it was unfair. Some of us argued it was unnecessary. But among the strongest arguments we made was the moral-hazard argument. Bailing out reckless behavior today will only encourage reckless behavior in the future.
I continue to believe we were right to worry about the bad lesson the bank bailout would teach financial institutions. But in hindsight, we should have also focused on what it would teach others. All across the United States, in high school study halls and college dorm rooms, more than a few young Americans were watching Congress, the President, and Wall Street.
Any parent with children knows that when they are watching what you do, they are learning from what you do. If you swear, they’ll learn to swear. If you cut corners, they’ll learn to cut corners. The young learn the habits of the old – for better or worse.
Today, in part because of the bank bailout, and in part because of the promise of future bailouts, President Obama and his party are teaching millennials that actions do not have consequences. That recklessness has rewards and that they do not ever have to grow up -- at least until 26 when they are kicked off their parents’ healthcare plan.
To be sure, this Peter Pan mentality is not shared by the vast majority of millennials, let’s not forget that this is the generation that fought two wars at the same time, which lasted longer than any previous war in American history, all without a single soldier being drafted. Not bad.
But President Obama is doing his best to teach these millennials that they will be the first generation the government will take care of, from the cradle to the grave. This vision was best articulated by the Obama campaign’s depiction of the “Life of Julia” – a fictional woman whose every success, not to mention her basic survival, is the product of government regulations, interventions, and contributions. As David Harsanyi wrote at the time, this is a notion that is not only “implicitly un-American” – because it “celebrates a mindset we have … outwardly … shunned” – but also “offensively patronizing” to women. In Obamaland, “women are helpless without the guiding hand of Barack Obama.”
But elections – unlike irresponsible lending practices by sophisticated financial institutions – have consequences. And the consequence of Obama’s reelection was his assumed mandate for more government, more bailouts, and more attempts to coddle Americans in Julia’s millennial generation.
Want a new car, millennial, and don’t have the credit? No problem, thanks to the Fed’s low interest rates, banks are salivating over bonds. You can buy a car at sub prime interest rates and even finance for up to 7 years. Did you go to college at an overpriced institution but don’t have the money to make the payments? No problem, as last week it was rumored that President Obama and his top advisors were discussing a plan that might forgive student loans. It’s no wonder that, according to a poll by NBC News, about one in four millennials expects the federal government to forgive their student loans.
That is an expensive expectation. Since 1970, college tuition outpaced inflation by 275 percent. The result is that more than 70 percent of college grads are in debt the day they receive their diplomas. The total student loan debt now exceeds a trillion dollars. And more than a third of the under-30 crowd carrying a huge portion of that debt is at least 3 months behind on loan payments.
There are any number of actors and institutions one might try to blame for this predicament. They include colleges with inflated tuitions. They might also include lenders and prospective students who reward colleges for lavish spending on country-club-style dormitories and other facilities.
But if President Obama goes ahead with a drastic expansion of the government’s student-loan forgiveness program, we know who will be to blame for the perpetuation of inflated tuitions and lavish spending – the President who looks out from the windows of the White House and sees a generation of Julias, and his political party – which thinks moral hazard means nothing more than a sorority party with John Edwards and Bill Clinton on the guest list.