Reading this popular post from my PJM colleague Rick Moran regarding a move by President Obama to forgive a significant portion of student loan debt, I find myself torn both personally and politically. It directly affects my life because I have student loans. But I’m also sensitive to the political effect of brushing off young people’s fears regarding their economic future.
Let’s start with the personal. It’s difficult for me to approach the topic of student loans objectively. My wife and I have both racked up a tremendous amount of student loan debt obtaining educations which have proven economically worthless. Neither of us hold jobs that require the degrees we obtained, and the path to entering those careers proves elusive. That’s our fault, as Rick points out. But it’s not solely our fault.
The market works when people are free to interact by consent, dealing with each other through reason. When lots of people do that, all holding different pieces to an informational puzzle, the resulting prices signal to producers and consumers what they ought to do. I may feel like I need an Xbox One, and Microsoft may feel like selling it to me. But the market price of $399.99, considered in the broader context of my household’s financial circumstance, signals that I ought to hold off on the purchase.[audio:http://www.hipcast.com/export/Pf068c89c4fe0c382bb7cbab21ae9f741ZVl/RnxuY2F0Wg.mp3]
(Today’s Fightin Words podcast on this topic. 14:45 minutes long; 14.23MB file size. Want to download instead of streaming? Right click here to download this show to your hard drive. Subscribe through iTunes or RSS feed.)
When force intrudes upon the market, whether in the form of criminal activity or state decree, that dynamic shifts. If the government decided to subsidize Xbox Ones to the tune of $300 per unit, the new sticker price of $99.99 sends a completely different signal. Now, I would buy. But the economic reality which commanded $399.99 in a free market would not have changed. That would foster long-term consequences if maintained. Supply problems would emerge. Production quality would drop. Demand would surge artificially high, and so forth.
This is essentially what has happened in education, and it has affected how people consume the product. Rick asks a vital question:
Why not work for three or four years [before college], start a little later, and take on less debt? This was not an uncommon option before government got into the student loan business.
Why indeed? Were students like my wife and I stupid when we took out debt to go to school instead of following Rick’s advice? Or were we acting rationally in response to the market signals we received? Certainly, the argument could be made that we should have known better. But millions upon millions of students are in the same boat. Are they all idiots? Are they all rash, immature, knuckleheads who couldn’t make it in a tougher world? Or should we recognize that a degree of victimization has taken place?
Consider, when you entertain the notion of going to school without the ability to pay for it out-of-pocket, you have a handful of options at your disposal. You can secure scholarships. You can win grants. Or you can take out loans. In any of those cases, you must convince a third-party to invest in your education. In a true free market, the judgment of that third party will be tempered by nimble market signals. However, if government intrudes upon the process and distorts the signals, lender judgment will distort as well.
Loan officers acting without government guarantees would not likely grant tens of thousands of dollars in student loans for degrees in “bowling management or puppetry.” While it remains true that students probably aren’t demonstrating the best judgment when they take out such loans, it’s also true that a free market would check their poor judgment against that of others. By removing the market risk, government has unbalanced the market judgment.
Which leads us to my political concern. Conservative response to Obama’s executive order forgiving a significant portion of student loan debt feeds right into the boilerplate dichotomy between compassionate Democrats and hateful Republicans. No doubt, that factors into why Obama is doing it. When you’re picking plays, it helps to know how your opponent will react. See what you will about him, Obama knows his opponents.
While the executive order proves inappropriate for any number of reasons, why not roll with it and turn the momentum against him? That can be done by embracing the move as a correction to a government induced problem. Ask the public to consider why students took on this debt to begin with, and offer a solution that prevent future students from falling into same trap by restoring market discipline.
Bring in celebrity labor expert Mike Rowe to talk about matching training to the job market. Highlight the extravagance and ostentation of the higher education ivory tower. Borrow a chapter from the class warfare playbook and figure out where university presidents sit on the wealthy inequality spectrum. Thus win people over who would not traditionally agree with conservatives.
We have nothing to lose with that kind of counter-intuitive strategy. Obama’s going to do what Obama’s going to do, no matter how we object. So why not frame the issue in a way that threads the needle between sympathy and principle?