Jamie Dimon, Chairman and CEO of JPMorgan Chase, discusses his Annual Letter to Shareholders on Tuesday, April 4, 2017 at the Chamber of Commerce of the United States of America in Washington, DC. (Paul Morigi/AP Images for JPMorgan Chase)
“Twenty percent more growth would have added $4 trillion to GDP, which certainly would have driven wages higher and given us the wherewithal to broadly build a better country,” Dimon wrote in his widely read annual letter released Thursday. “Key questions that keep arising – and remain unanswered are: Why have productivity and economic growth been so anemic?”
In the letter, Dimon highlighted 11 “problems” that are holding back the U.S. economy when it comes to growth and opportunity.
1. ‘Ineffective and out-of-touch education systems’
“Many of our high schools, vocational schools and community colleges do not properly prepare today’s younger generation for available professional-level jobs, many of which pay a multiple of the minimum wage. We used to be among the best in the world at training our workforce for good jobs, but now we are falling short,” Dimon wrote.
In the U.S., too many kids are living in poverty and aren’t getting access to adequate educational opportunities, Dimon noted.
“This is a huge reason for both inequality and lack of opportunity. Our inner-city high schools are failing their communities and are leaving too many behind. In some inner-city schools, fewer than 60% of students graduate, and of those who do, a significant number are not prepared for employment and are often relegated to a life of poverty,” Dimon wrote.
He argues that training and retraining can help prepare students for rapidly evolving technologies that are shaping the working landscape.
“[Skills] training has become increasingly important over time, and the negligence of our education systems to be responsive to employers’ current needs has to have reduced GDP growth,” he said.
2. ‘Soaring health care costs’
The U.S. spends more on health care than other OECD nations, about 20% of GDP, but still falls behind when it comes to outcomes, according to Dimon.
“While we have some of the best health care in the world, our outcomes are not twice as good as those of the rest of the world. Some studies say that gains in life expectancy in the last 50 years were a significant contributor to U.S. national wealth (and health), possibly equal to half of GDP growth, as people were healthier and lived longer, which generally improved the quality of the labor force and productivity. This may no longer be true,” Dimon wrote.
Health care in the U.S. is so expensive because the current system doesn't address social and environmental factors or individual behavior, according to Dimon.
“Obesity costs our country $1.4 trillion a year because it drives so many illnesses (i.e., heart disease, diabetes, cancer, stroke and depression). Even worse, 70% of today’s youth (ages 17–24) are not eligible for military service, essentially due to poor academic skills (basic reading and writing) or health issues (often obesity or diabetes). And out-of-pocket health care expenses for the average American have skyrocketed over the last 20 years, causing huge anxiety, particularly for low-income families who have been hit with the highest increases in health care costs,” Dimon wrote.
3. Excessive regulation and bureaucracy
Dimon has long argued that the reason small business formation has been so low in the U.S. is because of regulations.
“Excessive regulation for both large and small companies has reduced growth and business formation without making the economic system safer or better. The ease of starting a business in the United States has worsened, and both small business formation and employment growth have dropped to the lowest rates in 30 years,” Dimon wrote.
He noted that about $2 trillion, or $15,000 per household, is spent on federal regulations per year.
“We need good regulations, and we have to get better at effectively implementing them — accomplishing the desired good outcomes — while minimizing unnecessary costs and bad unintended consequences.”
4. Inability to plan and build infrastructure
Growth would also be stronger if infrastructure were prioritized, according to Dimon.
“It took eight years to get a man to the moon (from idea to completion), but it now can take a decade to simply get the permits to build a bridge or a new solar field,” Dimon wrote. “The country that used to have the best infrastructure on the planet by most measures is now not even ranked among the top 20 developed nations, according to the World Economic Forum’s Basic Requirement Index, which reflects infrastructure along with other criteria. We are falling behind on airports, bridges, water, highways, aviation and more.”
“One study examined the Philip K. Howard, who does some of the best academic work on America’s infrastructure, estimates it would cost $4 trillion to fix our aging infrastructure — and this is less than it would cost not to fix it,” Dimon writes. “In fact, a recent study by Business Roundtable found that every dollar spent restoring our infrastructure system to good repair and expanding its capacity would produce nearly $4 in economic benefits. What happened to that “can-do” nation of ours?”
5. Previously uncompetitive tax system for business
Dimon has also suggested that corporate tax reform could make America more competitive with other countries.
“Over the last 20 years, as the world reduced its tax rates, America did not. Our previous tax code was increasingly uncompetitive, overly complex and loaded with special-interest provisions that created winners and losers. This was driving down capital investment in the United States and giving an advantage to foreign companies, thereby reducing productivity and causing wages to remain stagnant,” Dimon wrote. “The good news is the recent changes in the U.S. tax system include many of the key ingredients to fuel economic expansion: a business tax rate that will make the United States competitive around the world along with provisions to free U.S. companies to bring back profits earned overseas.”
6. Capricious and wasteful litigation system
“Our litigation system now costs 1.6% of GDP, 1% more than what it costs in the average OECD (Organisation for Economic Co-operation and Development) nation,” he wrote.
7. Frustrating immigration policies and reform
Every year, the U.S.’s colleges and universities educate hundreds of thousands of foreign students who then have to return to their home countries upon graduating.
“Forty percent of foreign students who receive advanced degrees in science, technology and math (300,000 students annually) have no legal way of staying here, although many would choose to do so,” Dimon wrote. “Most students from countries outside the United States pay full freight to attend our universities, but many are forced to take the skills they learned here back home.”
As the CEO of the largest U.S. bank, Dimon recognizes that as a result of current policies talented people aren’t able to stay and contribute to the economy.
“From my vantage point, that means one of our largest exports is brainpower. We need more thoughtful, merit-based immigration policies,” he continued. “In addition, most Americans would like a permanent solution to DACA (Deferred Action for Childhood Arrivals) and a path to legal status for law-abiding, tax-paying undocumented immigrants — this is tearing the body politic apart. The Congressional Budget Office estimates the failure to pass immigration reform earlier this decade is costing us 0.3% of GDP a year.”
8. Inefficient mortgage markets
Elsewhere, Dimon says the U.S. “desperately needs” mortgage reform, noting that there are thousands of state and federal requirements that make the process cumbersome.
“The inability to reform mortgage markets has dramatically reduced mortgage availability. In fact, our analysis shows that, conservatively, more than $1 trillion in additional mortgage loans might have been made over a five-year period had we reformed our mortgage system. J.P. Morgan analysis indicates that the cost of not reforming the mortgage markets could be as high as 0.2% of GDP a year.”
9. Lack of proper federal government budgeting and planning
“This inevitably leads to waste, inefficiency and constraints on multi-year planning. One striking example: It may cost the military at least 20% of its spending power when budgets are not approved on time and continuous spending resolutions are imposed. And we don’t do some basic things well, like account for loans and guarantees properly and demand appropriate funding of public pension plans,” he wrote.
10. Student lending (and debt)
Young people are burdened by student loan debt and it’s beginning to affect the economy, according to Dimon.
“Irrational student lending, soaring college costs and the burden of student loans have become a significant issue. The impact of student debt is now affecting mortgage credit and household formation — a $1,000 increase in student debt reduces subsequent homeownership rates by 1.8%. Recent research shows that the burdens of student debt are now starting to affect the economy.”
11. Dramatic reduction in labor force participation
“Wages for low-skilled work are no longer a living wage — the incentives to start work have been declining over time. Add to this the education issues already mentioned above,” Dimon wrote. “Two other contributing factors are that many former felons have a hard time getting jobs, and an estimated 2 million Americans are currently addicted to opioids (in 2017, a staggering 48,000 Americans died because of opioid overdoses). Some studies show that addiction is one of the major reasons why many men ages 25–54 are permanently out of work.”
—
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.
