The world has witnessed a number of “lost generations,” as young people have come of age during periods of economic strain that have left them underemployed or unemployed for extended periods in their 20s and 30s. Millennials are facing similar headwinds.
Employment prospects for college-educated Americans born in the 1980s and ’90s are difficult at best, as unemployment and underemployment have remained stubbornly high since the 2008–’09 financial crisis, household formation has remained stubbornly low and economic growth has remained, at best, tepid.
The situation is bleaker still for high school graduates. Why hire a high school grad when you can get a comparative literature major for the same price? The cold, hard reality in the U.S., as it is in Spain now, will be a generation largely unemployable on the books, whose lives will evolve into a hodgepodge of part-time and cash economy jobs, government- and parent-provided housing, and a sort of extended adolescence that prevents young people from taking on the rewards and responsibilities of ordinary adult life.
Economic growth cures many things — it provides an increasing pool of goods and services, as well as job expansion, rising wages and enhanced opportunities — but the U.S. is adopting policies that stifle growth. In a stagnant economy, gain comes at the expense of one’s neighbor, with no net advantage to society as a whole.
Since the financial crisis, government policy, although successful at forestalling a collapse, has hampered economic growth. The effects have been most pronounced for the banking system. The combined weight of increased capital requirements (which by definition limit lending capacity) and capital destruction through fines and other governmental exactions (aggregating well in excess of $100 billion) have eliminated approximately $2 trillion of bank lending capacity in the U.S. market.
In addition, regulatory constraints occasioned through the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Consumer Financial Protection Bureau (CFPB), combined with state and federal litigation restricting and penalizing the exercise of creditors’ rights in the consumer context, have vastly hampered the ability and willingness of the banking system to lend to any but the most creditworthy of borrowers, particularly when it comes to mortgages. The result has been a sharp contraction in home ownership and home construction, as well as a breakdown in funding for small businesses, many of which had historically relied on mortgage refinancing or home equity loans for capital.
Other policy decisions have also contributed to impeding growth. We have increased substantially the tax burden on investing. Our energy guidelines have driven up the cost of electricity. Our health policy will clearly drive up the cost of health care and significantly increase the payroll burden on employers. Our tax laws penalize operating in the U.S. and encourage offshore investment. Our regulatory environment places massive cost burdens on corporations, favoring the largest players and discouraging entrepreneurship. The consequence is a moribund economy with limited opportunity for the young.
However, all is not lost. There are certain concrete policy changes that, while politically difficult, would alleviate the pain and encourage growth. Here are the most critical changes that government should implement immediately and that would have a direct and long-lasting positive impact on the economy:
•Eliminate the CFPB and reestablish the quaint notion that borrowers are responsible for the debts they incur. Ban the U.S. housing agencies from insuring or making any housing loan that is not full recourse to the borrower.
•Eliminate the employer mandate in the Affordable Care Act. It has been delayed because even its proponents recognize the devastation it will wreck upon the employment market. Make the delay permanent.
•Reform the corporate tax code to make the U.S. at worst a neutral tax jurisdiction for corporate operations.
•Defer greenhouse gas regulation until there is a comprehensive, verifiable and enforceable global treaty on the subject. Unilateral action merely transfers emissions —and related jobs — overseas.
•Require congressional approval for any regulatory action having an estimated cost burden in excess of $100 million.
The time has come for Washington to put politicking aside and make the tough decisions necessary to jump-start this economy and get people working again. We owe it to our children and their children to do everything possible to help them avoid going down in history as a lost generation.
Richard Scott is a senior vice president and chief investment officer for Loews Corp.
