The rising generation is losing faith in the American dream. The prosperous middle class that many of our parents obtained is slipping away. Consider the past decade or so. Health care deductibles have risen at eight times the rate of wages. Home prices climbed more than 6% annually. Student debt totals more than credit card debt. Tuition has risen at more than twice the rate of overall inflation.
Rising costs have become a brick wall to financial freedom for this generation. Too many hardworking single parents in their late 20s face the practical impossibility of saving for a down payment. A small family’s monthly health care premiums can eclipse their housing costs. Monthly student loan payments are often double the cost of rent. If adequate health care, schooling and homes escape financial reach, what kind of life does that leave for them?
The elusiveness of the American dream is worsening. Twin maladies of unemployment and inflation are within a percentage point of the infamous “stagflation” of 1970-74. Stagflation occurs when steeply rising prices combine with high unemployment to cripple an economy. Economists at major news outlets and across the political spectrum have rightly been sounding the alarm.
As we face these sobering circumstances, we must diagnose how we’ve arrived at rising prices and higher unemployment. That helps to then prescribe solutions to address these problems. First, let’s address inflation and its causes. Inflation occurs when too many dollars chase too few goods. It’s easy to see how inflation sprung on us. Unprecedented government spending and monetary injections, paired with disincentives for working and the restrictions of the pandemic, serve as a one-two punch to pump dollars in the economy and restrict the flow of goods and services.
Washington has over-relied on government spending to help people afford health care and education where inflation runs rampant. Government spending flowing indiscriminately to our schools and hospitals generally boosts, rather than reduces, prices. School and hospital recipients simply factor the projected monetary inputs into their price hikes and collect as much or more out of students’ and patients’ own pockets as before.
Washington should promote, rather than stymie, competition and market forces to help address rising prices. For example, where prices have soared in health care, the government should mandate true price transparency and arm consumers with price and quality information to help them choose cost-efficient providers. That will generate downward cost and price pressures. When government is directly involved in selecting suppliers for public goods like infrastructure, health and education, it should do so in the same way a scrutinizing and informed consumer would. Government spending has to be tied to cost efficiency and benefits in order to push inflation down.
Paired with our efforts to reduce inflation, we should direct equal attention to reducing unemployment. Washington has, unfortunately, encouraged unemployment for far too long, often through handouts that outpaid private sector wages. Despite trillions in spending, unemployment is still far from pre-pandemic levels. And reported unemployment rates do not tell the full story. Department of Labor statistics do not account for the millions who already gave up searching.
Rather than incentivize joblessness, we should encourage work and create conditions where more Americans can qualify for available and high-paying jobs. We can do this with incentives and aid for production: lower taxes for middle-class workers and for entrepreneurs who are starting small businesses, loans to start businesses and programs to help people on unemployment find jobs.
Some of the aid that’s needed most is training. Many tech firms along the Wasatch Front want to fill computer programming and data science positions but cannot with our current labor force. We can get closer to full employment and keep our middle class strong if we encourage and incentivize training, especially in industries with worker shortages. A surefire way to boost production is to invest in a highly trained, educated and productive workforce that is ready for the jobs of the future.
Efforts to build a strong economy should empower Americans to create value in the market for goods and services. Small business owners account for nearly half of U.S. gross domestic product and employment. We will generate more growth if we lower their taxes and enable them to keep and spend their earnings and invest in job-creating initiatives.
Do not be fooled by proposals for multitrillion dollar budgetary spending bills. The only way to fund those is by raising taxes on business owners — blocking more pathways to achieve the middle-class dream.
These pro-market, pro-growth ideas mirror the successful approach to fixing stagflation in the 1970s. Nobel Prize winner Milton Friedman drew on these principles to help our leaders put the economy back on track. Implementing them now gives us the best chance to strengthen the economy, enable homeownership and soften the financial stress that affects the rising generation of American parents and their children.
America can do anything it puts its mind to. It can still harness and deploy its collective resources to preserve the strongest economy and greatest prosperity this world has seen. Prosperity derives from preserving a sound dollar and keeping our labor force gainfully employed in well-paying jobs. That’s the best way to help the largest number of people obtain the American dream.
Henry Eyring teaches at Utah State University and the London School of Economics. Douglas Hervey is a partner at Cicero and leads its health care and private equity practice.