I have to say that while I am no big fan of Elizabeth Warren and most of her left-wing policies, there is one plank that resonates with me, and it’s her ambitious strategy to offer a one-time clearance of student debt for 75% of the borrowers — providing much-needed relief for 42 million debtors.
And the associated plan to make university tuition more affordable, even if this means playing the role of Robin Hood in the tax system, is another good idea that will have huge long-term benefits to the economy. It is absolutely criminal that the things we need the most, health care and education, are the ones where the cost structures have spun out of control, for many years now.
Let’s look at the situation. There is now $1.6 trillion of outstanding student loans, a number that has soared close to 40% in the past five years and by more than 130% over the past decade. The late-payment rate is well above 10%, and there is no way to restructure this debt in today’s environment. If you are in arrears on this type of debt, forget getting a FICO score and forget having the leeway to secure any sort of loan for years after missing a payment.
This is one reason why we never did have a normal housing market cycle beyond the “buy for rent” investor craze that begun nearly a decade ago. The home sales share in this economic expansion represented by the first-time buyer rarely got above 30%, whereas a typical bull market in residential real estate sees this share hovering between 40% and 50% in any given month.
The situation is without precedence, and has posed some serious socio-economic challenges along the way — and is acting as a serious constraint to economic growth.
First off, the cost of education and the burden of taking on so much debt has coincided with a precipitous decline in post-secondary school enrollment — which has shrunk in five of the past six years to near-decade lows (down 10% over this period).
The lack of opportunity has, in turn, led to the share of ‘kids’ between the ages of 25 and 34 that are living at home rising to 17% from 12% a decade ago. A long cycle of monetary and fiscal policy juice and the asset inflation that followed didn’t end up easing this burden.
For males in that age cohort, well, for the first time since the Great Depression, we have more than one-in-five living at home right now. That is incredible as it is sad, though on the bright side these boomerangs get to go back to a life of mom doing the cooking and the laundry.
And in no small part from this development — living in the parents’ basement and playing Smash Bros. all day long — relationships (or at least serious ones) with the opposite sex just aren’t happening like they used to. The median age of first marriage by a male is now 30 years, which is off the charts. In the early 1970s it was early 20s and even in the early 1990s was mid-20s.
For women, it is 28 years, which again is unprecedented. So what has happened is that the U.S. birth rate has dropped below 12% for the first time in recorded history; it was over 13% a decade ago and 16% two decades ago.
The fertility rate was as high as 64% when the economic expansion began in 2010, and is now down to a record low of 60%.
Who wants to start a family when you’re either saddled with debt at a young age or can’t get a loan because you’re not current on your existing student financing? The average family size is now down to just 3 people — so we didn’t have to have a Chinese mandated ‘one child’ policy to actually follow on this same course…a course that China is now paying the price for.
Demographically, combined with a restrictive immigration policy stance, the fact that American parents are not ‘replacing themselves’ comes at the cost of lost future potential economic growth. Not even the power of the stock market can change this negative demographic dynamic.
One key issue that certainly needs to be addressed alongside student loan relief (perhaps this is the type of ‘infrastructure’, as in education, that MMT, if it ever comes to pass, should probably focus its attention on), is improving the quality. It’s a shame that to this day, we have a near-record level of job openings not getting filled and small businesses, month after month, are stating that their number-one constraint on their growth is a chronic lack of skilled labor.
This shows up most in the real median income of people in that 25-to-34 year age group. At just over $35k, it is no higher than it was fifteen years ago. And the problem with that is skills, and perhaps the education, that young people are getting aren’t worth the cost or the debt they took on — which may be one key reason why school enrollment, in Wall Street parlance, is in a bear market.
This is the future, and I will tip my hat to Ms. Warren for at least thinking creatively out of the box. After all, real wage growth inevitably moves in relation to the marginalchange in productivity — which the data suggest is stagnant, at best. Get this particular dynamic moving in the other direction, these people are the future, and the economic benefits will flow much more freely than the types of fiscal and monetary policy measures we have seen this cycle. After all, these measures did more to exacerbate income and wealth disparities than they did to promote sustainable economic growth.