Two Bad Ideas on Student Loans, Part 1

There are various proposals for the federal government to deal with student debt. I’ve seen two main ones. The one I’ll deal with here is the proposal to bail out people who have student loans.

I came across this post from Justin Wolfers, written in September 2011. I debated Justin about lockdowns in Apriland We differed on that, but I agree with his bottom line here. I’ll note his thoughts in highlight and then give my comments after each.

He wrote that we should look at the issue “through five separate lenses.”

Distribution:
If we are going to give money away, why on earth would we give it to college grads? This is the one group who we know typically have high incomes, and who have enjoyed income growth over the past four decades.  The group who has been hurt over the past few decades is high school dropouts.

I agree. I would tweak the language a little. “We’re” not giving it; the federal government would be the entity that gave it and it would take from us to do so.

Macroeconomics:
This is the worst macro policy I’ve ever heard of. If you want stimulus, you get more bang-for-your-buck if you give extra dollars to folks who are most likely to spend each dollar. Imagine what would happen if you forgave $50,000 in debt. How much of that would get spent in the next month or year? Probably just a couple of grand (if that). Much of it would go into the bank. But give $1,000 to each of 50 poor people, and nearly all of it will get spent, yielding a larger stimulus. Moreover, it’s not likely that college grads are the ones who are liquidity-constrained. Most of ‘em could spend more if they wanted to; after all, they are the folks who could get a credit card or a car loan fairly easily. It’s the hand-to-mouth consumers—those who can’t get easy access to credit—who are most likely to raise their spending if they get the extra dollars.

This is Justin’s unreconstructed Keynesian perspective. His view is that one should stimulate the economy by having the government give money to people who will spend it. I think a better way, and a much cheaper way, is with monetary policy. But I agree with him that from either vantage point, this is not good macro policy.

Education Policy:
Perhaps folks think that forgiving educational loans will lead more people to get an education. No, it won’t. This is a proposal to forgive the debt of folks who already have an education. Want to increase access to education? Make loans more widely available, or subsidize those who are yet to choose whether to go to school. But this proposal is just a lump-sum transfer that won’t increase education attainment. So why transfer to these folks?

I agree. But I also think it would be a bad idea to have any level of government further subsidize college students. That’s a subsidy from a broad cross section of people to people who will be relatively wealthy. It also distorts incentives. Let people go to college by comparing the costs and benefits, not by subsidizing the costs.

Political Economy:
This is a bunch of kids who don’t want to pay their loans back. And worse: Do this once, and what will happen in the next recession? More lobbying for free money, rather than doing something socially constructive.  Moreover, if these guys succeed, others will try, too. And we’ll just get more spending in the least socially productive part of our economy—the lobbying industry.

Yes. A bunch of kids and a bunch of non-kids. There are a lot of 30-somethings with substantial student loan debt.

Politics:
Notice the political rhetoric?  Give free money to us, rather than “corporations, millionaires and billionaires.”  Opportunity cost is one of the key principles of economics. And that principle says to compare your choice with the next best alternative.  Instead, they’re comparing it with the worst alternative.  So my question for the proponents: Why give money to college grads rather than the 15% of the population in poverty?

Agreed. I don’t want the government to give it to people in poverty either, but that would be less bad.

Conclusion: Worst. Idea. Ever.

Well not literally and I’m sure Justin doesn’t mean it literally. But it is a really bad idea.

And I bet that the proponents can’t find a single economist to support this idiotic idea.

I hope he’s right. We’ll see.

Next up: Ben Shapiro’s bad idea.

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The Mob Lost and the System Won

 

On June 12, I posted briefly about the efforts of Justin Wolfers and other economists to get Harald Uhlig fired from his position as editor of the Journal of Political Economy.

Here’s what I wrote:

I don’t know if he should be fired. I don’t know enough about how good an editor he is, which, in my view, is the only thing that should matter. Justin hasn’t made a case that he’s a bad editor. Rather, Justin doesn’t like what the editor, Harald Uhlig, said about Black Lives Matter(ing).

That same day the University of Chicago placed Uhlig on leave as editor of the journal while it investigated the case. On June 22, the University announced that it had “completed a review of claims that a faculty member engaged in discriminatory conduct on the basis of race in a University classroom.  The review concluded that at this time there is not a basis for a further investigation or disciplinary proceeding.” It presumably investigated the more serious charge made  by a former student that Uhlig had engaged in inappropriate behavior in a class the student attended. The student, Bocar A. Ba, tweeted:

I sat in your class in Winter 2014: (1) You talked about scheduling a class on MLK Day (2) You made fun of Dr. King and people honoring him (3) You sarcastically asked me in front of everyone whether I was offended Here is the receipt.

That was presumably what the University investigated.

I wrote Dr. Ba on June 13 to find out more about his allegation. He did not reply.

On June 23, Alice Yin, a reporter with the Chicago Tribune, wrote a news story about the investigation’s outcome. She writes:

Ba, who previously told the Tribune he wants to focus on his work, declined an interview, as did other academics who tweeted that they witnessed the apparent incident.

So this time the mob lost and the system won. By “system won,” I mean that the University seems to have investigated the serious charge and ignored the tweets that led to the original upset of Justin Wolfers and others, and, presumably finding not a clearcut case against Professor Uhlig, returned him to his job as editor.

I emphasize that I hold no brief for Professor Uhlig. I don’t know him and I don’t even know if I would like him if I did know him. I probably would because I like most people. But that’s not the point. People should not be axed from such jobs without good reasons for doing so. Highly inappropriate comments in class might be such a reason; sarcastic tweets are not.

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Why Don’t People Speak Up?

I posted on Facebook a few days ago about the bullying that Justin Wolfers and other economists are doing to try to get an editor of the Journal of Political Economy fired. I start by saying that I don’t know if he should be fired. I don’t know enough about how good an editor he is, which, in my view, is the only thing that should matter. Justin hasn’t made a case that he’s a bad editor. Rather, Justin doesn’t like what the editor, Harald Uhlig, said about Black Lives Matter(ing). (Disclosure: I had a very civil debate with Justin about lockdowns. He seemed to be a nice guy. He is not nice on Twitter.)

At Cornell University Law School, a number of people are trying to bully the Dean into firing law professor William Jacobson over 2 of his criticisms of Black Lives Matter. (Disclosure: I read Professor Jacobson’s posts at least once a week because I find them informative.) The Dean, to his credit, defended Jacobson’s academic freedom, but to his discredit, made a nasty attack on Jacobson’s posts, managing to badly misstate the posts in the process. It’s interesting how easy it is to win an argument when you badly misstate what the person you’re arguing against says. Dean Eduardo M. Peñalver will not soon be winning any ideological Turing test awards.

Professor Jacobson appears to have received little public support from his colleagues. He writes:

None of the 21 signatories [of a public letter denouncing him], some of whom I’d worked closely with for over a decade and who I considered friends, had the common decency to approach me with any concerns. Instead they ran to the Cornell Sun while virtue signaling to students behind the scenes that this was a denunciation of me. Such is the political environment we live in now at CLS.

I’m not surprised. The reason has to do with an “aha” moment I had in the summer of 1979. I was leaving the University of Rochester’s Graduate School of Management even before my tenure clock was up. I had become friends with W. Allen Wallis, the Chancellor of the university, and he invited me to lunch in the nicer section (the part that served booze) of the faculty club, housed in the Frederick Douglass building. Early in the lunch, I realized that this wasn’t just a warm good-bye, although it was that too, but also an exit interview. So I ordered a whisky sour and loosened my tongue.

Allen wanted to know what I thought of the management school. I said that it had a lot going for it. The Dean, William H. Meckling, was great and there were a lot of strong faculty, especially in finance. But, I said, it could be so much better, even with existing faculty if there were a more open discussion and not so much kowtowing to Michael Jensen, the most prominent member of the faculty. Everyone had figured out that Michael was Bill’s buddy and so the majority were hesitant to challenge him in workshops or faculty discussions about policy issues. I said that I was one of the few willing to do this. (I didn’t name Richard Thaler, who was also one of the few, because he had left and it looked as if he wasn’t returning.)

Then I said, “My view is that in a faculty of 40 people, you should have 40 independent minds.”

Allen started laughing and I felt hurt. “Why are you laughing at me?” he asked.

He answered, “My view is that if in a faculty of 40 people you have 2 or 3 independent minds, you’re doing well.”

His insight has served me well.

So my answer to the question that’s the title of this post, “Why Don’t People Speak Up?”, is because they don’t have the courage to do so.

By the way, Wallis was a major figure in the move to abolish the draft. We had become friendly early in my time there and the friendship had strengthened after I called him up in December 1976. Incoming president Jimmy Carter had said he would grant amnesty to draft dodgers. Because Allen was the highest-ranking Republican I knew, I called him to make a pitch to his buddies in the Ford administration to steal a march on Carter by granting amnesty first. Allen didn’t agree with me but we had an interesting discussion.

In case you’re wondering about the pic at the top, it wasn’t so much to advertising co-blogger Bryan Caplan’s book, excellent as it was, as to show a picture of sheep.

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