dailyreckoning.com / By Dan Amoss / August 13, 2012
Jacobus, Pennsylvania – It’s May 2013 on an ivy-draped college campus. You just graduated with a degree in English. In 2009, you borrowed $50,000 from the US Department of Education’s Direct Loan Program. Job searches for teaching and journalism positions have been fruitless. Within a matter of weeks, you must start making loan payments on a waiter’s wages and tips. On sleepless nights, you fear what defaulting on this loan will mean down the road.
Signing up for a huge student loan was a mistake. Both you and the lender had assumed a certain type of job market would exist four years into the future. Your lender — the US government — has long subsidized unsustainable activity. In 2009, economists encouraged politicians to promote even more nonsensical spending than usual. “Spending on something — anything — is valuable and necessary stimulus!” they said.
We got government spending in 2009 — spending that worsened imbalances. Now the gap between a self-sustaining economy and today’s stimulus-addicted economy is so wide that policy fixers must commit ever more resources to prop up past spending mistakes.
People are smart and adaptive; governments are dumb and reactive. Markets often fail. Supply and demand mismatches bring about rising and falling prices. Assuming we have flexible capital and labor markets, market failures can get corrected quickly. But in today’s bailout-heavy, politics-driven economic system, market failures are not corrected quickly, and are usually made worse. This has huge implications for the government budget — and the investing environment staring us all in the face…
Let’s return to the student loan mistake facing the English graduate and why it’s bad news for the future of many investments. According to Labor Department statistics, 1.9 million Americans between the ages of 20 and 24 not in school are officially unemployed. The size of this age group working part time is the biggest since 1985.
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