Q&A: Disinherited

Acclaimed author Diana Furchtgott-Roth explains how liberal policies betray America’s young

Q. You have said that dissatisfaction over the government’s systematic bias against young people might constitute one reason behind Donald Trump’s victory. How so?

A. People just aren’t happy with the way the economy is going. The condition of young Americans is one component of it—something that made Donald Trump the winner in the election. Children are not making the progress that their parents made at the same age. They can’t get jobs, they don’t have the resources to buy houses, and some of them are burdened with undue amounts of debt. People wanted something better for their children and grandchildren.

Younger people are having trouble finding jobs, then dropping out of the labor force, leading to delayed life milestones. It’s eight years into the economic recovery, and the unemployment rate for young people aged 20 to 24 is twice the rate of the unemployment rate for people 25 years and older. The teenage unemployment rate is 15 percent. The rate for African-Americans is 27 percent. The share of teens and young people who are employed or looking for work, known as the labor participation rate, is at the lowest level since the government began keeping records in 1948. The share of young people living with their parents from 1968 to 2007 was around 32 percent. Now it’s well over half—it’s about 56 percent, an historic high.

It doesn’t have to be that way. With a few changes, these young people could all move out of their parents’ basements into homes of their own; they could get summer jobs, then get other jobs; they could graduate without debt and have great careers.

Your book lays a lot of responsibility for this on the American system of education. Why?

We all know how a school experience is improved with good teachers. We all know that unqualified teachers don’t get fired, and kids receive a worse education. The question is, why can’t unqualified teachers get fired? In New York City and Chicago, barely one in a thousand teachers is fired for poor performance. In Los Angeles, fewer than two percent of teachers are denied tenure. Only a quarter of a percent of teachers who had tenure— that’s one out of every 400—were actually fired.

We must give parents more school choice so that bad schools that hire bad teachers go out of business. If a restaurant prepares bad food, it’s gradually going to go out of business. It should be that way with schools. If parents find that their kids are in bad schools, they should be able to move their kids to another school.

We hope that Secretary of Education Betsy DeVos is going to allow more school choice by expanding the possibilities, not just for charter schools but among existing public schools, too. The public favors charter schools two to one. African-Americans favor charter schools by three to one. When New York City Mayor Bill de Blasio closed Harlem’s Success Academies—charter schools in New York City–there were protests from African-American parents. Governor Andrew Cuomo had to overrule de Blasio and allow those schools to stay open. They are still open today.

How do policy-makers address this? It seems like the solution is less of a policy discussion than a strategy to deal with powerful and hardnosed union interests.

Nearly 70 percent of college graduates last year needed loans. Young people today are graduating from college with an average of $30,000 in debt and few opportunities to pay it off, because economic growth hasn’t been much above two percent. The number of student-loan borrowers who owe between $50,000 and $75,000 has doubled since 2004. The number who owe more than $200,000 has tripled. Overall student loan debt has increased by 325 percent, whereas other categories of non-housing debt have decreased by five percent.

Most people think it is natural to need loans to go to college. They don’t see that the federal government policies are forcing this on them. The federal government took over the student-loan portfolio in 2010 to help pay for the Affordable Care Act. When the federal government lends money for kids to go to school, no one really looks into who it goes to. The government just automatically gives it out. This means colleges can raise tuition, and kids just get student loans—and bigger loans. The schools see that the federal government is going to continue to raise the amount given out in loans, so they just raise tuition some more.

That might be fine for the federal government; it might be fine for the school. It’s not fine for parents and students, because they have to pay it off after graduation. That is not fair. It’s another example of how policy is biased in favor of entrenched interests—in this case, the universities and the federal government—and against young people. Paying off a $30,000 student loan can be pretty tough. If you’re an engineer or financier, you can go right into a job with maybe one of these Wall Street banks. It does not seem so difficult. If you’re just a normal person, and you graduate with maybe a degree in biology or English literature, and you have a hard time landing your first job, $30,000 is overwhelming.

We must detach the student loan function from the federal government. The federal government does not oversee auto loans, and you find it’s not difficult to get an auto loan. The number of automobile loans has not increased as much as student loan debt.

Private lending institutions would not automatically give out the amounts that the federal government is giving out. The banker might say, “What kind of grades did you get in high school?” If you were a C student, and you wanted to major in something like women’s studies, they might say, “This is not such a good idea. You’re not going to be able to get a job to pay off our loan,” because of course, private institutions are interested in getting back their loans. They’re going to make sure that you take a course of study that’s going to enable you to pay off the loan—and also make sure you enroll in an institution where tuition is not overwhelming.

American Experiment is launching a major effort to study the underutilized benefits of postsecondary education beyond the four-year degree. What is your view of the value of those opportunities?

A good education does not have to involve an expensive four-year college. There are great community colleges where people can focus on getting high-return degrees in one of the health care professions, such as occupational therapy, physical therapy, computer programming, or computer coding. Graduates can go out to work, getting a job earning $45,000 a year on average from one of these high-return professions; or they can transfer to a four-year institution, getting a liberal arts degree at about half the price. Community college on average is just $3,000 a year. Guidance counselors should be steering people more towards these opportunities. Not all young people should be going to a four-year college, especially if they might not graduate.

There are also people who incur debt and then don’t graduate. Unfortunately, the debt is not waived when you drop out. The U.S. Treasury Department has concluded that for every dollar provided in tax-based aid, scholarships fell a dollar. The New York Federal Reserve concluded that 65 percent of the increase in subsidized loans was passed on through increased tuition. This is just another example of where entrenched interests win. Young people lose.

Okay, they are through college—or not—and entering the job market. How does the bias continue?

Let’s look at entering the job market. The way the minimum wage is going up, it makes it difficult for any teen to get into the job market. Advocates for the Fight for Fifteen—the $15-an-hour minimum wage—say it doesn’t hurt that many people. Yet the people it does hurt are teens and low-skilled workers. It makes it difficult to get a first job.

Many states have raised their minimum wages. There’s a federal teen exemption of $4.25. Thus, according to federal law, an employer can hire a teen for $4.25 an hour, but many states have not adopted the teen exemption. This discriminates against younger people, because if employers have to pay $15 an hour, they’re going to hire a different person than they would at $4.25 an hour.

Another thing the Labor Department did during the Obama Era—something I hope is going to be rolled back when Alexander Acosta is confirmed as labor secretary—is make rules against unpaid internships in for-profit companies. Funnily enough, you can have an unpaid internship on Capitol Hill. You can have one at the White House. You can have one at the AFL-CIO. You can have one at the Manhattan Institute. Yet if CBS News or Fox News or Bank of American wants to offer an unpaid internship, the Labor Department regulations make it so difficult that these unpaid internships have disappeared.

All these rules have been passed with the intention of being kind. They don’t want young people exploited. In practice, it doesn’t work that way. You can’t force an employer to pay someone more than they’re worth. We actually called Capitol Hill, and we said, “Why don’t you pay your interns?” Some of the congressmen who favor raising the minimum wage don’t pay their interns. Their interns get zero. They replied, “Well, we couldn’t offer as many internships if we had to pay.” That’s the same as in the private sector. Again, it’s something that benefits all the people and yet cuts out younger people from the labor market.

You also talk about how licensing requirements sometimes impose an impediment to getting a job. …

Licensing requirements are state policy, which means they must be changed on the state level. One-third of occupations require a government license or certification, and nearly 40 percent of workers need some kind of government permission in order to work. Some certifications are important. You don’t want an unlicensed brain surgeon, nurse, or emergency medical technician. Some people wouldn’t even want an unlicensed lawyer, although I don’t really see the difference between a licensed and unlicensed lawyer. Yet what about licensing interior designers? You cannot die from the mismatched couch. Or tree trimmers? You cannot see, in the states where tree trimmers are licensed, that those trees are trimmed any better that the trees in the states without licensing.

These rules are put in place by entrenched interests. The interior design companies don’t want you starting your own interior design firm. Many people could go around to the neighbors and give them advice on what couches, rugs, and drapes. It’s very easy to get into because it doesn’t need a lot of startup capital. You don’t even have to own your own car to start your own interior design company. This is purely a matter of all the entrenched interests trying to keep out the competition.

Where does the cost of health care fit into this equation?

It used to be that premiums for people like me were five times as much as for young people. Now, it’s three to one. It’s not that young people have suddenly gotten unhealthier or that I have suddenly gotten healthier. The Affordable Care Act mandated this difference in premiums— that you couldn’t charge old people like me more than three times as much as young people. Again, it is unfair, because it’s not that my premiums went down. It’s that the premiums for young people went up.

That’s not right, especially since higher premiums have resulted in some young people choosing to go uninsured. Health insurance should be something that people want. There should be low-priced options as well as high-priced options so people can pick what they want to do— just the same way as with auto insurance. Other kinds of insurance markets work just fine without government intervention. Health insurance will also.

We have to hope that this whole system is going to be dismantled under President Trump. It’s already starting. The Internal Revenue Service announced that it was going to accept income tax returns that did not have proof of insurance on them. If they accept returns without this information, then they don’t know who has health insurance and who hasn’t, so they cannot levy the fine. That’s step one to dismantling it.

Step two is that they’re going to waive any penalties caused by the Affordable Care Act in terms of health insurance policies. That means health insurance companies can start to design policies that are not Obamacare compliant. Then you could buy a basic policy. Right now, even if you don’t have any children, you have to buy a policy that includes maternity care, pediatric dental care, mental health coverage, and drug abuse coverage. If penalties were being waived, insurance companies could start designing simple policies where you’re covered if you get cancer or have a heart attack or if you fall off your bike in traffic. That will be a simpler, much lower-cost policy. That would be a policy that people would want to buy rather than be forced to buy.

What’s the bottom line message of your book?

The message is that a country that betrays its youth is not going to survive. We have seen cases in Europe where unemployment rates are about 40 percent. This is not does not work economically or socially. The government must cease its betrayal of youth and figure out exactly how its policies can be more oriented towards young people. Congress should vote on every dollar spent in every year, rather than have these entitlements grow on automatic pilot. They must adjust Social Security and Medicare policies to keep them in balance as people live longer. Pensions should be transformed from defined-benefit to defined-contribution to bring them more actuarially into balance.

Washington has consciously made decisions that disadvantage young people and advantage old people like me. Just getting the unemployment rate of young Americans down would be very beneficial in terms of their future progress. There is a lot, especially with the election of Donald Trump—I’m not ashamed to say that. I want that it be on the record—that young people have a lot to be happy about.

We have to keep the pressure on the new administration and on Congress. We must roll back the Affordable Care Act. We need to have more choice in schools. We must make sure the federal government does not pass an increase in the minimum wage. On the state level, we must roll back some of these occupational licensing requirements. We should make it easy for people to get a good education and get into the workforce. We shouldn’t burden them with unnecessary taxes for programs that are not going to be there when they retire.

Diana Furchtgott-Roth is a senior fellow at the Manhattan Institute, director of the Economics21 program, and a columnist for MarketWatch. com. She has deep experience as a senior economic advisor to president’s Ronald Reagan, George H.W. Bush and George W. Bush. In addition, Furchtgott-Roth served on the transition team for President Donald J. Trump. She is coauthor, with Jared Meyer, of Disinherited: How Washington Is Betraying America’s Young (2015).