Too Big to Fail: Why the American Dream Needs a Bailout, Now
On Saturday, March 1st, Andrew Ross Sorkin, New York Times columnist and author of the bestselling novel Too Big to Fail, spoke at Stanford. Mr. Sorkin explained how the phrase “too big to fail” has evolved over the years. The term was first used in 1984 and today describes the belief that some financial institutions are so large and interconnected that their failure would be catastrophic for both the financial sector and beyond, Mr. Sorkin described policymakers’ concern in September 2008 that major companies such as General Electric would have imploded if America’s financial institutions were allowed to collapse. This would have engendered a domino effect that could cripple the American economy. He described how the term has evolved since 2008 from describing individual companies to whole industries to entire countries and regions, such as the European Union during its recent debt crisis.
After listening to Mr. Sorkin’s remarks, reflecting on my own research and experiences, and speaking with my peers both at Stanford and beyond, I believe it is time to expand the term’s usage once again to an idea. Mr. Sorkin shared how the American Dream is collapsing. I agree, but I would like to take his statement one step further. As we will see, the American Dream is one of the main cohesive forces that bind our society together. It is rapidly collapsing and it is too big to fail. We must revive or “bailout” the American Dream because without it, our society will be fundamentally transformed. Before we realize why, we must understand what exactly the American Dream is.
Mr. Sorkin explained how there are two American dreams. He coined the first as “the Steve Jobs American Dream” where anyone with an idea can start a company and, if the idea is a good one, prosper. This dream is alive and well. For proof, just visit Stanford and Silicon Valley for twenty minutes where organizations such as BASES empower students to innovate. Mr. Sorkin called the second “the Leave it to Beaver American Dream”. It is the idea that through education and hard work, anyone can obtain a job with a modest salary, and they’ll make enough to purchase a decent home, raise two children, save enough to put the kids through college, and enjoy a peaceful retirement. This dream is in critical condition and this is perhaps most evident in higher education.
For decades higher education has been sold as a surefire way to increase future earnings and live the American Dream. There is no doubt that education is not as potent a catalyst for higher income as it once was. 71% of recent graduates had student loan debt averaging about $29,400. By the end of 2013, American student debt was $1.08 trillion, an increase of 300% since 2003. This debt doesn’t disappear quickly; nearly 42% of those paying back their loans are between 30 and 50 years old.
American students are willing to shoulder these massive burdens, because they subscribe to the American Dream: education and hard work will guarantee a stable income. This idea drives thousands of students to juggle college, student groups, and jobs while shouldering the burden of crippling student loans.
The unemployment rate for college graduates is around 4%, while the unemployment rate for high school graduates is even higher at 7%. However, this 7% rate doesn’t tell the whole story: about 37% of recent college graduates are in jobs that do not require a college degree. Carl Van Horn, founder of the Heldrich Center for Workforce Development at Rutgers University, described how this mal-employment “can also affect their earnings for decades, since they enter the wage ladder at a lower rung.” College graduates are taking on ever increasing levels of debt to finance a dream that in many cases will never materialize. College still has many benefits, but as student loans rise and earnings fall, the American Dream is dimming.
The “Leave it to Beaver” concept is a driving force behind Americans’ continual emphasis on a college education, but its influence extends far beyond the classroom. Many of America’s military engagements are billed as operations to protect the “American way of life.” Parents in the workforce labor so their children can enjoy as many opportunities as possible and work hard to earn a promotion so they can someday afford a bigger house, or perhaps more easily pay a medical bill. Politicians emphasize job-training programs to enable welfare recipients to enter the workforce and someday support themselves. Self-improvement books have never been more popular, and every four years, millions of Americans flock to the polls to elect a President that has promised to restore the American Dream. drives America and, in an era of foreclosures, widening inequality, declining social mobility, massive debt, unemployment, child poverty, falling infrastructure, and rising suicide rates, this dream is facing total collapse.
When Mr. Sorkin discussed the 2008 bailout of our financial institutions, he evoked an image of a precipice. Many policymakers believed that if there were no bailouts, many companies would have fallen, and unemployment would have reached 24%.
There is a difference between creative destruction and utter collapse. I do not seek to debate the merits of the government’s actions here. Instead, I want you to pause for a moment and look over the cliff. Ask yourself what will happen if the American Dream, already teetering, is allowed to go over the edge and shatter on the rocks below. Ask yourself what will happen if the very idea that drives millions of people to work and to school every day is allowed to perish. The effects would be far worse than a 24% unemployment rate. We cannot let this source of hope for an entire country die. As a conservative and a strong proponent of free markets, I never thought I would say this, but it is time to bail out an institution. Both the government and private sector have a role to play in this.
Saving the American dream will require effort from all of us. As we seek to revive the American Dream, the government certainly has a lot it can do. It must continue to invest in critical infrastructure to improve business efficiency. It must invest in scientific research and education to help fuel our economy. However, the government must also recognize that its ability to help has limits. New taxes and mandates will only hinder economic prosperity– government must immediately begin scaling itself back, freeing up capital for the private sector that can be used to create new products and, more importantly, jobs. The government must hold colleges that receive federal dollars accountable for tuition increases. President Obama has done a good job at raising this issue. The government must protect the social safety net by pursuing entitlement reform that will protect future generations and reduce the national debt that cripples economic growth. The Federal Reserve must cease its quantitative easing program and raise rates to avoid another financial bubble.
The bailout doesn’t stop with government. Wall Street must be careful to avoid risks that could endanger the entire financial sector. Unions must change their approach to education so that our best teachers are the ones in front of classrooms. Parents must teach their children the values of thrift, hard work, and compassion. If we can afford it, Americans have a duty to donate to charities and to help teach adult education classes at our local libraries to empower workers to adapt to new technologies that are transforming the workplace. As students, we must avoid unnecessary debt and dangerous spending habits and work hard in classes to improve our writing, reading, and math skills.
I was very disturbed as I exited Cubberley Auditorium after Mr. Sorkin’s speech. The collapse of the American Dream is a frightening reality and, as we teeter on the edge, I shudder as I look forward. Nevertheless, I am also filled with optimism. I know that as a country we have it in us to save the American Dream. It is time for a bailout.