Thursday, May 11, 2017

Five Ways In Which Government Policy Screws Over Millennials

I was talking with a friend yesterday, and she brought up how "our generation makes a lot less than our parents." It is true that we Millennials are making less than our parents, the Baby Boomers, made. A 2017 report from Young Invincibles used Federal Reserve data to find that while Millennials made $40,581 on average in 2013, the Baby Boomers were making about $50,910 at the same age in 1989. That means that Millennials are making about 20 percent less than the Baby Boomers did at the same stage of life. This wage disparity helps put off other major life events for Millennials, including getting married, buying a house, and having children.

There are those who think the problems are inherent within the Millennial generation. Some stereotypes include Millennials being lazy, self-entitled, narcissistic, and spoiled. I know plenty of Baby Boomers who fit that description, as well as plenty of Millennials who do not. Millennials aren't making less because we aren't trying hard enough. Millennials are more educated than previous generations, not to mention that Millennials are working more hours. While people of all ages who were alive during the Great Recession were hit, Millennials also had to deal with more because being young adults with little to no wealth makes it challenging to withstand the greatest financial crisis since the Great Depression.

I have another theory of what is screwing over the Millennial generation, and it's not culture or even a financial crisis, the latter of which can have its causes debated heavily. Looking at the situation, a major culprit is the government. Don't believe me? Let's list off a few ways in which government policy has presented Millennials with challenges that are not what their parents faced.

1. Government Debt. As the debt-to-GDP ratio rises (see below), economic growth lags. The economy is not some abstract concept, but a system in which each of us interacts. When we spend more money adding to the debt and paying off federal government debt, it means that money is worth less and that there are fewer opportunities than previous generations had.

Source: CBO

Since Millennials are the younger generation, what this means is that Millennials will disproportionately shoulder that debt because we'll be around longer. Government debt might not be a policy per se, but is rather the accumulation of past generations' poor fiscal planning and results of poor government policy. Millennials will be around to pay not only the higher interest on the debt, but also for all the wars fought by previous generations, all the Medicare and Medicaid, and all the Social Security consumed by previous generations. Speaking of Social Security.......

2. Social Security. Social Security is a pay-as-you-go system, which means that you don't have a retirement account with your money in it collecting interest so you have a nest egg. What it means is that those of us currently working are paying for benefits of current beneficiaries. This matters because in order to keep the system going, you need enough money to go into Social Security to keep it solvent.

When Social Security first started, there were 159.4 workers for each beneficiary. Now, there are only 2.8 workers for each beneficiary (Social Security Administration). With the Baby Boomers retiring, the worker-to beneficiary ratio will decrease, which will put strain on the system. The Social Security Trust Fund is supposed to be depleted by 2030, but let there be no mistake that Baby Boomers will receive more money while Millennials end up paying more into the system while getting little benefit.  That makes sense because a) Social Security taxes have increased over time, b) the retirement of Baby Boomers will leave less employers in the workforce, and c) once the Social Security Trust Fund runs out of money [in 2030], there is an automatic 21 percent reduction in benefits that takes place.

Millennials are helping to pay for Baby Boomers' retirement. Social Security doesn't help Millennials, but rather screws over Millennials.

3. Federal Subsidies for College Loans. Looking at data from the National Center of Education Statistics, Baby Boomers were less likely to go to college than Millennials, which means they were less likely to deal with college debt. I can hear some Baby Boomer saying, "I went to college, and I paid off my debt just fine." Fortunately for you, federal subsidies for loans were not as prevalent. You might think to yourself that subsidies are good because they provide money to those who need it. What people don't mention is that low-cost, low-interest federal subsidies have driven up the price of college tuition since federal subsidies really made their mark in the 1980s. A study from the National Economic Bureau of Research estimates that 78 percent of the tuition increase from 1987 to 2010 was due to federal subsidies.

The United States has also developed a cultural stance that everyone should go to a four-year college, and that anything less is unsatisfactory. This cultural expectation, combined with federal subsidies, has driven up both the price and the fact that 42 percent of students drop out of college. Millennials have dealt with certain pressures in postsecondary education that previous generations simply did not face.

4. Health Care Policy. Ballooning health care costs are nothing new. They date back at least to 1965 when Medicare and Medicaid came on the scene (read this fascinating piece on the history of government policy and healthcare here). Medicare and Medicaid are two examples of how healthcare costs ballooned. Those two programs, which are driving the federal budget in an unfortunate, upward fashion, are combined with the WWII-era relic of the employer-sponsored health insurance tax credit, which exacerbates healthcare costs and income inequality. And in the event that those policies were not enough, then there's Obamacare.

Obamacare puts a cap on age rating, which means that insurance companies can only charge three times more for the more elderly than the young. I understand that there is a mere correlation between age and health (e.g., not all young people are healthy, and vice versa). At the same time, it plays a role because means is that Millennials are paying a disproportionate amount under Obamacare. This creates what is known as an adverse selection, which means that Millennials are more likely to go without insurance (Census, 2016, p. 9) or take on the cost of paying skyrocketing premiums that Obamacare has wrought.

Who knows what will happen as Congress dukes it out with attempts to replace Obamacare? What I do know is that Obamacare has made healthcare more expensive for Millennials relative to other generations, and I know that much like with Social Security, Millennials will foot more and more of the bill for Medicare as Baby Boomers enter retirement. Another way of phrasing this sub-section is the culmination of healthcare policy over the years has screwed Millennials over in a way that their parents never experienced.

5. Occupational Licensing. Occupational licensing causes harm by making consumer prices to increase and making it more difficult to enter a certain profession. Occupational licensing generally hurts young adults the most, but wait, there's more. The rate at which occupational licensing is required has nearly quintupled since the 1950s. In 1950, only 5 percent of jobs required occupational licensing. In the late 1980s and into the early 1990s, this figure was less than 20 percent (Kleiner and Kruger, 2008, p. 10). Most recent estimates put that figure at 29 percent. Occupational licensing is more likely to screw over a Millennial than it did a Baby Boomer or a Gen-Xer.

Conclusion: There are more than five types of government policy that have screwed over Millennials in a general sense or have done so in a worse fashion than it has done to previous generations. I can go into further detail about the ones I have covered, and I can extend this list (for example, add housing and mortgage policy or how public-sector pensions are driving state-level debt). What I can conclude with is that Millennials are having a harder time succeeding not because they are supposedly whiny or fainthearted. They are having a harder time in no small part due to government policy. I don't know whether the Trump administration or the current Congress will enact laws that will help Millennials with these obstacles. However, I will say that Trump should do whatever he can to help Big Government get out of the way so that Millennials, and indeed all Americans, can live the American dream.

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