Critic – or hypocritical – of Biden’s student debt plan? – Twin towns

Ed Lotterman

Joe Biden’s action last month to cancel some student debt represents bad economics and bad public policy.

Many public criticisms are justified. Yet almost all of the reviews are deeply hypocritical for one reason or another.

A myriad of existing government actions mimic the flaws of student debt forgiveness in one way or another, but are either deeply popular with the general public or cherished by a specific group of beneficiaries and ignored by the public. all of our citizens.

Despite the illusions of many economists over two centuries, humans are not coldly rational. And their irrationality allows them to weave selfish myths to justify their own advantage.

Seeing our own actions in the best possible light is a deeply human impulse. But to the extent that we collectively refuse to see the realities of national politics, we create injustices and make our economy less efficient. We maximize our own present well-being, but we harm others, very often our own children, grandchildren, or great-grandchildren.

So what are the critiques of Biden’s action? Let’s review:

• Debt cancellation is unfair to those who have worked hard to pay off their loans or who have chosen a cheaper and possibly lower quality education to avoid heavy debt.

• Cancellation is a one-time stopgap that does nothing to correct the fundamental underlying problem of the huge increase in the cost of post-secondary education.

• “Changing the rules of the game” after the fact is a long-recognized factor of economic inefficiency.

• It is a simple purchase of votes for a political party using public funds.

• As with various amnesties, this creates expectations of similar actions in the future and thus distorts personal decision-making.

• Statutory authority to effectively spend so much money by decree is sketchy at best.

All of these reviews are true to one degree or another. But various sets of them are also true for some of the most popular government programs now embedded in our culture.

Start with the injustice to those who have already repaid their loans. This happens every time a new perk is introduced.

Someone who left the military in November 1941, just before Pearl Harbor, was not eligible for GI Bill benefits. Someone who came out six weeks later, possibly with a medical condition, got a subsidized mortgage and four years of college. A worker who retired a week before the Social Security law was passed may have lived into the 1970s, but never received a dime in benefits. People who graduated from college in the spring before the Pell Grants kicked in have seen young friends sail effortlessly. Reservists who served decades before Tricare was introduced for reservists did not receive a dime in medical benefits. Millions of retirees spent billions on prescription drugs before the Medicare Part D benefit was enacted in 2007. You get the idea.

And yes, Biden’s debt cancellation does nothing to address the larger problem: reducing the excessive costs of higher education. But consider that many health measures over the past 20 years have done nothing to reduce excessive medical costs. Part D and the authorization of this session of Congress for the negotiation of Social Security prices on a handful of drugs do nothing to reduce the abusive monopoly pricing power of the pharmaceutical industry.

Naked Voice Buy? See Donald Trump’s 2017 executive order, also without congressional action, of payments to corn and soybean growers who could be harmed by the trade war he initiated with China. Other sectors were also harmed, but received no compensation.

Biden’s plan has limits on amounts for any individual of $20,000 and an income cap for eligibility. The “Trump kickback payments,” as some called them, had an income cap of $900,000 and a maximum payout of $125,000 per “legal entity.” A farmer can be a legal entity for the purposes of the agricultural program, his spouse another, and adult children working in towns who are the nominal owners of even more plots of land. Canceling Biden will benefit some 60 million people over 10 years at a cost of around $500 billion. Trump China-trade payments have passed some $36 billion to less than 300,000 farmers in two years. And the actual declines in commodity prices they were meant to offset turned out to be negligible – a real win-win, especially for those who played with the system.

Lack of statutory authority? It’s real and embarrassing to me. The US Constitution requires both “authorization” and “appropriation” of Congress for the money to be spent. There may be broad and unclear “authorization” in COVID emergency legislation and past education bills. Legally, debt cancellation is not an “expenditure” of Treasury money, so no appropriation is necessary. There was also no real legal authority for payments from Trump AG. The money came from the Commodity Credit Corp., a slush fund for falsifying farm subsidies dating back to the FDR administration. Congress just completes this after the fact and without debate. Both of these cases, both student loan relief and corn-soy payments, call for congressional reform.

Changing the rules of the game and expectations for the future? Yes, it does both and also creates perverse incentives for actions that cause inefficiencies. It is, however, a very broad subject.

The fundamental issue here is the very confused public attitude we have towards government redistribution of income. It’s huge, but if it’s done for the benefit of “good” people, worker bees, like in Social Security or Medicare, it’s wonderful. Beneficiaries “only get their own money back,” even for those who paid minor sums — of the $830 billion in Medicare spending this year, about a third is the actuarial value of FICA paid by current beneficiaries; the other two-thirds come from younger age cohorts, who many seniors would turn down $10,000 in student loan relief. To use a biblical phrase, “it shouldn’t be,” anti-tax rhetoric has frozen FICA rates for nearly 40 years, and baby boomers are well on their way to passing without a hitch.

Meanwhile, people on Medicaid or Supplemental Security Income or receiving unemployment benefits are “bad” people: lazy “takers” who are parasites on us “makers.” And what about recent college graduates in debt? Are they “takers” if they work at Starbucks? Or “makers” if they invent the next Google? You decide.

St. Paul economist and writer Edward Lotterman can be reached at [email protected]

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