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Sclerosis?

8:41 AM, May 19, 2014 • By GEOFFREY NORMAN
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More signs that the dynamism that once characterized the American economy is waning:

This year’s college graduates will enter the work force carrying a heavy load of debt. As Phil Izzo of the Wall Street Journal reports:

The average Class of 2014 graduate with student-loan debt has to pay back some $33,000 … Even after adjusting for inflation that’s nearly double the amount borrowers had to pay back 20 years ago.

This kind of debt obviously disinclines one to a) assume more debt, even where lenders are willing, and b) take big risks.

So the indebted new grads will not be in a hurry to marry, start families, and buy homes. Assuming they could get mortgages.  So, as Andrew Flowers of Fivethirtyeight.com reports:

The share of apartments in all new residential construction has increased most dramatically since 2009, with home builders betting that people are more keen on renting apartments than buying stand-alone houses, and this shift has major repercussions for the U.S. economy.

Home building spurs more ancillary economic activity than the building of apartments. More construction jobs. More people going to Lowes for home improvement materials.  And, then, there is the imprecise but real effect of an ownership mentality. Homeowners have a greater stake in the health and growth of the economy than do renters.

And, then, there is the likelihood that this generation of debtors will be a generation of risk-avoiders, accelerating a troubling trend.  As Ben Casselman of Fivethirtyeight.com reports:

Americans started 27 percent fewer businesses in 2011 than they did five years earlier, according to data from the Census Bureau.

And:

According [a] Brookings paper, every major industrial sector, every state and nearly every large city has a lower startup rate today than it did three decades ago.

Americans started 27 percent fewer businesses in 2011 than they did five years earlier, according to data from the Census Bureau. As a share of all companies, startups have been declining for more than 30 years.

Among the theories put forth to explain this trend are

The aging of the baby boom generation ... since people are more likely to start businesses when they are younger. The U.S. economy is also increasingly dominated by large corporations, suggesting deeper structural changes working against small companies. People have pointed to other explanations, from increasing licensure requirements in many industries to high corporate tax rates to a broader decline in innovation and productivity growth.

Whatever the cause – or causes – more young people, more heavily in debt does not seem like the route to more innovation and startups.  Already in a hole, they would probably not be inclined to dig deeper.

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