Rampant Youth Unemployment in the United States and Europe: How we got here and how to get out of the mess. Misleading a generation of young people. Part 2

The problem of youth unemployment, those in their 20s without jobs yet many of whom spent years and a small fortune at a traditional university, is worse than the official government statistics lead us to believe. That’s because many job-seeking young college graduates become discouraged. Then they no longer register with employment agencies. They are convinced they have no chance to become self-supporting adults. They drop out of society. (Some of this was recently documented in Charles Murray’s book, “Coming Apart”).

How did this disaster happen over the past few generations?

Besides the force of family influence, in many Western nations there is the enormous force of central governments, pushing this idea of a university for everyone.

Actually I’d say it is central governments that started it because of their enormous spending power. That was the result of their unfortunate embrace of Keynesian economics and the social engineering practices of the modern welfare state.

The latter is representative of a “Best and Brightest” scenario. This is a belief that an intellectual class knows what’s best for all of us. It is the implicit belief that a group of Platonic guardians, employing what the philosopher Montesquieu called “a dictatorship of virtue,” must save us. That, of course, triggers the problem of who will be the guardians. (Please see Note 1 below) The American guardians have been pushing higher education, regardless of whether it was good for everyone or not. This has become a larger part of our society as young people spend more and more years in school.

For example, here in the United States, for decades the federal government has pushed a policy of “everyone must go on to higher education.” Many American policy makers believe higher college graduation rates ensure progress. More government programs are always better and will produce a higher standard of living.

Often even right-wing leaders supposedly committed to smaller government tacitly accept this government will save us argument. (Conservative President Reagan, despite campaign rhetoric, never closed one cabinet level department. He also made no serious move to reduce student loans. They represented good politics, but lousy long term economics. The latter is the problem with other policies in advanced welfare state democracies). Indeed, the implication of all central government welfare programs is that more is always better in every government department. And, welfare state defenders believe, zero based budgeting, or any serious examination of the effectiveness of government spending, is a form of bad manners.

Over the last forty to fifty years U.S. governments, parents and college officials have pressured young people to attend four-year universities and take lots of student loans. That was happening as several other industrialized nations understood the importance of apprentice programs while much of America, under the spell of the education guardians, did not. (Please click here to see this data in a chart)

Many secondary school students were often discouraged from opting for trade schools and apprentice programs. That’s even though some students have no interest in going to university except as a perceived pathway to a decent, secure economic life. That has been proven by, among others, the work of jobs expert Nicholas Wyman, who we met in the first part of this series.

I saw this college for everyone policy happening in the 1960s and 1970s. Indeed, I was part of it. Some 40 years ago I was a young man graduating from high school and considering my career path. Governments, both state and local, were making it easier to pursue higher education, even for knuckleheads like me. I barely scraped through high school. Yet there were plenty of colleges that wanted me. I’m not sure why. I had disliked much of my classroom experience and only wanted to learn a trade.

This everyone must attend a university was a sea change in American society. It led us to this era of scandalously high youth unemployment rates. There were many factors that would cause these coming high youth unemployment rates.

How did we get here?

First, when I was child in the late 1950s and early 1960s, university generally was considered an experience that should be limited to students with high academic achievements in their first 12 years of schooling (Certainly not me! I was a numskull, who went to high school summer school every year). Little by little those academic standards started to drop. For example, here in New York City, the city once had a public university that charged no tuition. However, it required that incoming students have an excellent high school average.

City University of New York (CCNY) was open to anyone of any race or background. That’s provided the young person had achieved high grades prior to college. CCNY was then known as “the poor man’s Harvard.” It had been a haven for the children of many poor groups for years, including young Jews many of whom went on to accomplish great things.

But by the late 1960s, some critics said these high standards were racist. Others called CCNY elitist. Those standards ended after the riots of the 1960s. That gave us an open-enrollment standard that only required two things: the young person was a New York resident and he or she had a beating heart (Again, I was barely able to scrape by). This everyone should be admitted standard was adopted by many other universities.

The open-enrollment CCNY quickly became an institution of embarrassingly low standards. Many entering students were incapable of doing high school work, no less able to function at the university level. I attended a city university school for about six months and dropped out.

Surprisingly, for the first time, I actually achieved good grades, but just wasn’t interested. I needed a trade school that would teach me radio journalism, something that fascinated me. I suspect many other students were also bored. They sensed they were in “the wrong place at the wrong time,” to paraphrase General Omar Bradley talking about a disastrous war with China in 1950 (Please see Note 2 below).

But more young college students in the wrong place at the wrong time were right behind me. That’s because of a key second factor in the unmaking of a generation. The federal government started pushing student loan programs. And, as with all federal government programs, it seemed to start so modestly and possibly, at the outset, have reasonable goals: Making higher education available to qualified candidates.

However, as with so many other government programs, it went far beyond its original mandate. Student loans eventually became an expensive nightmare, with out of control spending. This was a pattern I would see happen time and again in the modern American welfare/warfare state that seems to know no limits (Please see Note 3 below).

The student loan programs encouraged everyone to go to college and take loans whether they needed them or not. High student loan delinquency rates ensued at many universities. Today, student loan debt even exceeds credit card debt. I had my experience with student loan debt.

I eventually returned to college by the mid 1970s. I earned my undergraduate degree at Fordham University/Lincoln Center at night between 1974 and 1976 and a graduate degree at New York University the following year. I did this while I worked at a full-time day job. That was a good experience in many ways. It was one that finally taught me to appreciate the sacrifices of my wonderful parents, who had worked hard to get us out of the South Bronx as it was crumbling.

At my first Fordham University orientation meeting in the fall of 1974, I learned about student loans. I’ll never forget a university financial aid official who was explaining them. Everyone should take these low-interest loans, he advised as wide-eyed young people couldn’t believe how fortunate they suddenly were, or appeared to be.

What, someone asked, if you didn’t need them?

Take them anyway, he replied. You can use the money, put it in the bank and make money on the float (Money market accounts, in the inflationary 1970s, were yielding higher rates than student loans, as the flawed policies of the Fed under Arthur Burns were blowing up). Others were taking the money and floating elsewhere as bars around Fordham Lincoln Center in mid-town Manhattan were booming.

Thirdly, because the federal government was virtually giving away these loans for “free” (sic), many students were becoming reckless. They were taking on more debt than they would have under normal circumstances. But something more than new red ink was going on here. The federal government, with its “generous” loan program, was engaging in a yet another kind of social engineering.

It was changing behavior under the guise of promoting higher education. The “here’s your free money” policy was about to wreck or lower the future standard of living of many young people. They would learn the spend and spend lifestyle, which is much the same as what economist John Maynard Keynes—who was everywhere in our economics texts—had advised governments in the 1930s and 1940s that feared depressions and recessions. (See Note 4)

Students would soon be hamstrung with debts for generations to come owing to bad decisions. This happened in large part because college officials and government officials weren’t thinking about the long-term consequences of social policies. They were blinded by the ultimate goal: Get young people into universities, even though many shouldn’t have been there and had little idea of the financial consequences of university education. Indeed, how many adolescents are equipped to make long term decisions about debt when they haven’t obtained their first jobs?

But who could object to more higher education? Unfortunately, the government’s college for everyone policy, on one level, became very popular. Pol after pol called for the expansion of these programs, with little worry about the damage they could do.

Students at my schools were taking out these loans as though they were free Halloween candy: the more the better. That is, of course, until they started paying the price for eating too much candy. Some students didn’t graduate, but now began life with big debts. Others graduated but had little in the way of marketable skills. They were often unemployed or underemployed; sometimes for years.

Others obtained degrees but, as with most 20-Somethings, they earned little because they were just beginning careers. These people had difficulty getting by. That’s because they were trying to establish themselves as independent adults who didn’t live in their parents’ spare rooms. That’s something a lot of young people must do today.

I was lucky. I never swallowed the offered lolly pop that looked so inviting. Since I worked full-time during the day, I was able to adopt a pay as you go system. This was a heretical concept for most Western governments today that never heard of the 19th century British prime minister Gladstone (See Note 5) and for a generation of young people who, based on popular media depictions and tax policies, think thrift is a curse word.

I never took any student loans. I never understood exactly why I should take on debts when I couldn’t be sure I would ever be making big bucks (Through my college years I was an office boy at a law firm. When I moved out of town and got my first job in small market radio, after obtaining two degrees, I was making less than my last salary as the young man in the office who made the coffee, posted the mail and delivered packages).

Thank God I didn’t become a burden to my parents. They had their own problems paying all the costs of living in New York City.

In my 20s and into my mid 30s, I worked for various small market radio stations and newspapers. I never made a lot of money in those days. Actually, I’ve never made a lot of money in any days but a big part of this website is about helping people with modest incomes follow sensible spending and investing practices that allow them to reach financial independence. (Spend rationally. Buy low-cost index funds. Stay the investing and saving course though dollar-cost averaging over the long term).

So despite the urging of that college official, student loans never ruined my life. But they could have done so. Having to make student loan payments on top of paying my rent and running a car that was required for my work would have been very difficult for me in my 20s and 30s.

Still, millions of other people of my generation, and lots more of the generations since, weren’t as lucky. For example, I had a friend who went to Fordham with me at night. He would go on to earn an MBA and to have a fairly successful business career. Even though he never lived recklessly, it took him some thirty years to pay off his student loans!

Yet there is another way; a way of avoiding many of these problems of young people in modern day indentured servitude. Go to a technical institute or a community college. Obtain a marketable skill. For example, my wife, the ever comely Suzanne Hall, by her 50s had gone through a procession of low-paying jobs throughout most of her career. That was despite two university degrees. (In the final segment, we’ll list some of today’s technical jobs). My wife changed her life when she obtained this technical education, which was achieved over about a year.

She obtained professional certificates and became a plane mechanic for a major airline. Suzanne has always had a mechanical bent (She got it from her brothers, one of whom built his house from the ground up). She now makes a much better salary and has a better compensation package than ever.

She also has a set of skills that will help her the rest of her life.

My wife’s story is one that interested job expert and corporate executive Nicholas Wyman. We’ll speak to him in the last segment on this series on youth unemployment. Please check back with GregoryBresiger.com in a few days.

__________________________

Note 1: Judge Learned Hand stated the problem of the Platonic Guardians: “For myself, it would be most irksome to be ruled by a bevy of Platonic Guardians, even if I knew how to choose them, which I assuredly do not.” See “The Bill of Rights,” by Learned Hand, p 73 (Atheneum, New York, 1979)

Note 2: For more on the horrible Korean War, please see my chapter on the Korean War in my series on Modern America at War, “What Next and Next?”
http://gregorybresiger.com/what-next-and-next-a-shorthand-history-of-america-at-war-part-v-the-korean-war-1950-53/

Note 3: Please see my history of Social Security, “The Revolution of 1935” at mises.com
http://mises.org/library/revolution-1935-secret-history-social-security

I would say that the student loan program followed the Gregory Bresiger ABC/XYZ theory of government. Even when most people agree that the government should do something, the government is given the authority to do ABC. Years later it has gone far beyond what anyone originally authorized or imagined. The government, at the prodding of a self-serving bureaucracy and special interest groups that say their program can never be reduced, is now doing XYZ. The spending burdens for the taxpayer become huge as following generations learn.

I’ll use Social Security as an example. It began as a two percent tax—-one percent for the worker and one percent for the used. Today, including Medicare, it is 15.30 percent. The taxes are split between the employer and the worker (Unless, of course, you are self-employed, then the taxes are all yours). And the system, despite frequent increases, is running in the red over the last few years. The indications are, one way or other, the payroll taxes—I will not use the word “contributions” as euphemistically used by the people who support the system as is—-will have to be raised again as they have many times since the founding of the system in 1935.

Economist Milton Friedman said of the government bureaucracy, once established, it is usually impossible to end. Friedman had first-hand experience. Working as a government economist during World War II, he invented the withholding tax as a way for the government to get money faster. It was called “the win the war tax.” It was supposed to end when the government won the war.

Of course, it never did. The U.S. income tax was passed in 1913 with the justification that it was only going to affect the five percent or so of the richest Americans—it would be the rich man’s tax—so why worry? Of course, the income tax is anything but the rich man’s tax as its touches, direct or indirect, almost everyone. These are the unintended consequences of government taxing and spending. For Friedman’s rule in the withholding tax please see “Two Lucky People,” Milton and Rose D. Friedman, p 123 (University of Chicago Press, 1998).

Note 4: In college I studied economics. I rejected the dominant Keynesian economics of endless government deficits—Keynes famously wrote in his “The General Theory” that the government had to “keep the boom going”—and happened upon the Austrian School of Economics. The latter was a marginal utility school that was born in the 1870s. It didn’t demonize savings as causing depressions. Indeed, I found that, before the triumph of Keynesian economics, a forgotten depression was ended without huge government spending. Please see my “Two Ways to Fight an Economic Depression.”
http://fff.org/explore-freedom/article/ways-fight-economic-depression/
Many of my conclusions come from Joseph Schumpeter’s brilliant work, especially his book “Business Cycles.”

Note 5: William E. Gladstone was a remarkable 19th century leader in Britain. Four times prime minister and several times Chancellor of the Exchequer. But the “Peoples William,” as he was affectionately known, could never have been a leader of a major democracy today. He had a passion for thrift and believed any excess public money should be returned to the taxpayers. Gladstone hated waste and as chancellor had tried to abolish the income tax (In part because he believed the nature of the income tax led governments to pry into people’s private affairs. “The inquisition it entails is a most serious disadvantage, and the frauds to which it leads are an evil such as it is not possible to characterize in terms too strong.” Shades of Lois Lerner of IRS fame! For the Gladstone quote see “For Good and Evil, the Impact of Taxes on the Course of Civilization,” p 355, Charles Adams).

Gladstone resigned as prime minister for the last time in 1894 after “the blubbering cabinet.” Why did he leave? He was defeated in his repeated attempts to bring home rule to Ireland—-which would have put Ireland on the same self-governing path as Canada, Australia and New Zealand—and because he was outraged by the military estimates, which he thought were ridiculous. For the blubbering cabinet, see Roy Jenkins’ “Gladstone.” Adams also writes that Gladstone saw taxes as the “Almighty’s check” on war (Adams, p355). He believed low taxes kept great military establishments at bay. Frank Chodorov, a 1940s journalist, made the point that it is the income tax that leads to leviathans. He made these points in a neglected masterpiece, “The Income Tax, Root of All Evil.”

About The Author

Gregory Bresiger

Gregory Bresiger is an independent business journalist from Queens, New York. His Personal Finance articles have appeared in publications such as The New York Post & Financial Advisor Magazine. He is the author of the eBooks “Personal Finance For People Who Hate Personal Finance” and “MoneySense”.