Commentary

Subsidy Economics 101

To hear the political advocates talk about it, you’d think the economy had a sadistic grudge against twenty-somethings, torturing them with spiking college prices, burning housing markets, and crushing health care costs.

We’ve got “the worst of all worlds” for young adults, declared the moderator at a recent New America Foundation forum. “Problems in the labor market, enormous problems with paying for education, and a level of economic risk that previous generations really didn’t encounter.”

“Higher degrees mean higher salaries,” intoned American University graduate student Sui Lang Panoke in a July lament in the Washington Post. “But…it seems that graduate-level education is open only to the select few who can afford it.”

Surrounded by such injustice, only one thing seems to console oppressed young adults: their conviction that if government would just try hard enough, it could set everything right.

Panoke, for instance, suggested that “a federal need-based grant program for graduate students” could make graduate school more affordable. Similarly, a “briefing kit” on “the economic challenges facing young adults” from the left-leaning think tank Demos proposes, among other things, more generous federal aid for low- and moderate-income college students, and a dollar-for-dollar tax credit on down payments for first-time homebuyers who earn less than $50,000 a year.

At first glance, these proposals might sound reasonable; a lot of important purchases are expensive in our economy, so government should help the young pay their bills. But the problem isn’t that the economy somehow spawned these problems out of nothing, or out of some kind of cosmic spite against youth. In reality, government interference in the economy — exactly the kind of interference Demos, Panoke, and others wish to increase — is the culprit.

Look at college costs, a lightning rod for lamentations, especially with the start of a new school year upon us. According to data from the College Board, over the past 20 years, inflation-adjusted charges for tuition, fees, room, and board rose roughly 80 percent at four-year institutions. But aid per full-time-equivalent student — the majority of which came through government — rose 163 percent. Any question what enabled college prices to rise so high?

Comparable dynamics have been at work in the housing market. Mortgage tax deductions, for instance, have induced people to demand more — and more expensive — houses than they otherwise would, thus driving up prices. Similarly, while rent controls have kept apartments cheap in many cities that are attractive to young adults, it has also limited the overall supply of rental housing and made non-rent controlled apartments extremely expensive.

Finally, there is the famously skyrocketing cost of health care. Its cause is no mystery. According to the Centers for Medicare and Medicaid Services, in 2002 nearly 46 percent of personal health care expenditures were covered by the government, and after insurance only about 14 percent were covered directly by patients. That’s right: the people demanding the treatments picked up only 14 cents of every dollar spent on them. So long, economizing!

Generation X and Y spokespersons probably understand what’s going on: when government subsidizes purchases, prices go up. So why do they insist on blaming the economy for young adults’ woes rather than the government policies — and the baby boomer parents — that created them? Because twenty- and thirty-somethings want the same subsidies their parents got.

Unfortunately, politicians are hungry for new constituents, and they seem prepared to meet the demands of the young. Indeed, only a few weeks ago the Democratic Leadership Council introduced the American Dream Initiative, proposing that the federal government spend $150 billion over ten years to entice states to keep college prices down (read: dump their costs onto state taxpayers), and create a $3,000 tax credit for post-secondary training. The initiative also promises universal health care for children — a boon for young parents — and lower patient costs for prescription drugs.

Twenty-something activists, of course, want all of these benefits. But to get them, they have to blame the economy, not the government, for their troubles. Otherwise, at the very least they’d eventually have to explain to their own children why they knowingly saddled them with burdens even bigger than their own.

Neal McCluskey is a policy analyst at the Cato Institute’s Center for Educational Freedom.