The Pandering Continues

One friend on Facebook commented that the last Democrat debate looked like an auction to see who could give away more of other people’s money. We have a debt problem in America. So far, neither the Democrats or the establishment Republicans have been willing to address Washington’s addiction to spending. However, based on the Democrat debates, the Democrats would increase the debt rapidly. The Republicans are only leading us off the cliff slowly.

The Federalist posted an article today about the Democrat plans to forgive all student loans.

The article reports:

Of all the pandering showcased during Democrats’ attempts to win back the presidency, wiping out student debt ranked at or near the top.

“I believe that education is the future for this country,” socialist Sen. Bernie Sanders barked during the first round of Democratic primary debates, explaining that’s why we must “eliminate student debt and we do that by placing a tax on Wall Street.” Sen. Amy Klobuchar spoke similarly. “I can tell you this,” the Minnesota senator demagogued, “if billionaires can pay off their yachts, students should be able to pay off their student loans.”

There can be no serious discussion of this issue, however, in 60-second sound bites. So, beyond the soak-the-rich shtick that shades every Democratic economic debate point, the candidates resorted to two tactics: shock and sob stories.

The article reminds us of some basic reality that reveals the absurdity of the sob stories:

There are many ways to counter these arguments, based on both economics and equity. But it’s hard to counter soundbites with sense, so instead, here are my inquiries for these politicians, the press, and all the students demanding relief from the burdens of their debt: Tell me your sob stories from age 12 on, not what you can’t do now, but what you couldn’t do then. Tell what you had to do then and through college to avoid what is now, to you, crushing student debt.

What time did you get up to deliver papers in junior high? How many hours a week did you work since 14 to save for college? How many toilets did you scrub? How many high school football games did you miss because you were working? What dream college did you forgo to avoid taking out student loans?

Which 8 a.m. class did you take so you could complete your major’s requirements and still work in the afternoon? Which bus line did you take to get to your job because you didn’t borrow to buy a car? What job did you work full-time while completing your MBA at night?

What did you do to afford college? What didn’t you do because of the cost of college? Were you getting tattoos and traveling your way through college? Were you pledging and partying? Did you go to your top-choice university? Maybe an out-of-state public university with higher tuition rates? Which spring break and study abroad destinations did you visit along the way?

The article concludes:

Did you splurge on your fairytale wedding instead of paying down your student loans? What cars did you buy or lease? Where did you live? What electronics did you own? What clothing and other personal expenditures did you have? In short, show me the money and how you spent it!

None of my business? You’re right. Nor is your student debt my business or my problem.

Putting Your Money Where Your Mouth Is

The New York Post reported yesterday that in a commencement speech at Morehouse College in Atlanta, Georgia, billionaire tech investor Robert F. Smith promised to pay off the student loans of the graduating class. Wow.

The article reports:

Billionaire tech investor Robert F. Smith stunned college graduates on Sunday as he gave their commencement speech — offering to pay their student debts despite it costing an estimated $40 million.

“On behalf of the eight generations of my family that have been in this country, we’re gonna put a little fuel in your bus,” Smith told the 400 graduating seniors at the all-male Morehouse College in Atlanta.

“This is my class, 2019. And my family is making a grant to eliminate their student loans.”

The announcement was initially met with stunned looks — before the graduates broke into cheers and tears at the largest gift ever given to the historically black college.

This is brilliant. The students were graduating–they had completed their studies–they had not dropped out. Now the students were faced with serious debt that they had accumulated in order to pay for their college education. Now they are free to pursue whatever career they choose without having that debt hanging over their heads. Paying off these debts not only helps the students, it helps America by making sure those student loans were quickly paid off. Wow.

The Latest Economic Numbers

On Friday, Market Watch reported that the U.S. economy did better than expected during the first three months of 2019.

The article reports:

Reports of the demise of the U.S. economy proved unfounded as first-quarter activity showed surprising strength. The U.S. economy expanded at a 3.2% annual pace in the first three months of 2019, the government said Friday.

The gain was well above forecasts. Economists polled by MarketWatch had forecast a 2.3% increase in gross domestic product. The economy grew at a 2.2% rate in the final three months of 2018.

Inflation moderated a bit in the first quarter.

The article includes other good economic news:

Final sales to domestic purchasers, which excludes trade and inventory behavior, rose 2.3% in the first quarter, the smallest gain in three years, but still well above what economists were expecting.

The value of inventories increased to $128.4 billion from $96.8 billion, adding to GDP.

The trade sector added a little more than 1% to growth in the first quarter. Exports rose 3.7%, while imports dropped by the same amount, leading to a smaller trade deficit.

Offsetting these gains, consumer spending decelerated to a 1.2% gain, the slowest increase in a year.

Business fixed investment decelerated to a relatively slow 2.7% gain, down from a 5.4% gain in the prior quarter. Investment in structures fell 0.8%, the third straight decline.

Investment in new housing was another weak spot. Residential investment dropped 2.8%, the fifth straight quarterly decline.

I believe that the weakness in the housing market is being caused by a number of things. The millennials, the generation that would currently be entering the housing market, are weighed down by student debt. There is also a different attitude among young Americans about owning a house that there was a few generations ago. In the past, many Americans looked at their home as an investment–something that would grow in value over the years. Many older people began with a ‘starter house’–a small house that allowed them to enter into the housing market. Today, couples are having children later than previous generations. Their first house is paid for by two incomes, and they are not dealing with the expense of having children. The concept of a ‘starter house’ is no longer with us. Those facts, along with the price of the home most young people want to own are working to slow down the housing market. I am not convinced any of those factors are going to change.

Bad Policies Have Consequences

On Friday, Investor’s Business Daily posted an article about the results of the government’s takeover of the student loan program. The results of that takeover have not been good.

The article reports:

A report from the Department of Education notes that the net cost of the federal government‘s direct loan program is quickly heading into the red. This program, mind you, was supposed to be a moneymaker for the government, as students paid back federal loans with interest.

But as it turns out, borrowers have been flocking toward various loan forgiveness programs, by which the government will lose money, erasing gains from other loans. The report shows that the direct loan program went from a $25 billion surplus in 2012 to less than $5 billion by 2015.

A separate report says that this program ran a $36 billion deficit last year, up from $8.4 billion in 2016.

One of the problems with the government’s takeover of the student loan program is that the government did not have any interest in limiting the loans to people who might be willing and able to pay them back. When the program was privately granted, banks had an incentive to use good business practices in granting student loans–in order to stay in business, the banks needed the people borrowing the money to pay it back. This is another example of the private sector being able to do something better than the government.

The article concludes:

One program, called “income-driven repayment,” lets borrowers avoid payments if their income falls below a certain threshold, and then caps payments as a percentage of total family income. Any debt left over at the end of 25 years is forgiven.

Not surprisingly, students flocked to these and other programs that let them avoid paying back all their loans, even though the interest rates they had to pay were already subsidized.

Between 2011 and 2015, the portion of loans being repaid through these IDR plans shot up 625%, according to the report.

The direct lending program even earned the nickname “Obama Student Loan Forgiveness,” and surveys of student borrowers by LendEDU found that half of them don’t expect to have to pay back all their debts because the federal government would forgive them.

The rising expectation that loans wouldn’t have to be paid back in full also had the perverse effect of making students increasingly indifferent to college costs, thereby fueling tuition inflation.

As the Education report says, “Decision makers and others may not be aware of the growth in the participation in these IDR plans and loan forgiveness programs and the resulting additional costs.”

Given the $1 trillion in loan debt on the federal books, one hopes that awareness comes soon. Otherwise, the student loan program will quickly turn into one of the most regressive taxes on the books.

This is one example of the need to shrink the government. Taking over a program that has been run successfully in the private sector and moving it to government control is simply not wise. Free market capitalism is always the best way to run anything.