Bootstraps and Muck: On College Debt

Graduation = Debt

In this little morality play staged by OWS protesters, actors parody the "Get a degree, get a good job" narrative we all grew up with. This is one of the Occupy issues that hits closest to home for me. My wife and I have had to face the harsh reality that the story we were told proved untrue: while we probably make more money than if we hadn't gone to school, we are so burdened with debt that, in terms of a simple financial cost-benefit analysis, we may as well have skipped those long years of education. It's hard to pull yourself up by the bootstraps when your soles are stuck in the muck.

Eric Hoover, in The Chronicle of Higher Education, reports on a petition going around to get 1 million students to refuse to repay their student loans. The signers are willing to accept the consequences, but also seem to be betting that their numbers will send the kind of message that will change the system first. The "system," here, means the colleges, according to Hoover. Protesters seem to be accusing colleges of operating for profit margins rather than providing an affordable degree. 

If only. Colleges probably could do more to control their costs. From what I can see, there is certainly a lot of non-academic expenditure in our colleges, but this is also part of the competition to attract and retain students. The expectations of "the market" have changed from not just getting "an education" but having all sorts of extracurricular and supplemental services and activities that provide some kind of finishing school for moral development. In our current economy, we can't continue to provide this experience at a rate students can afford - that is, given their poor job prospects on the other end.

So I'm not sure it is just, or even primarily, colleges. But it's also not "just" the students who (at least seem to) demand this experience. Expectations are probably somewhat out of whack; students are probably not as prepared for the sacrifice school may entail as they ought to be. But they are surrounded by a culture that is pushing them toward school, including a president who wants to get more people into community colleges and, by extension, to finishing four-year degrees.

Nor, I think, is it as simple as a bunch of punk, spoiled kids not wanting to "get a job" to pay back their debt. Besides the obvious "what job?" question, there is the fact of rampant underemployment. We have jobs; they just don't pay.

This is where I stick most, however. As much as I would benefit from such a systemic change, or a "student bailout" as some are calling it, I have a hard time wrapping my head around the logic. I took the loans knowing I would have to repay them. While I was assured my education was a good investment, there was no cosmic guarantee that I would get that great job that would allow me to quickly get out of debt and begin to live the high life.

If I default on my mortgage debt, the bank takes back the house and it's their problem. Maybe not the most moral decision, but economically it makes some sense. But there's nothing the government can comparably take back should I up and quit paying my student loans. The American people have invested in me and the contribution I, through my education, can make back to the community. To default would seem a betrayal of that contract.

But the point the Occupy movements are making is that the contract was broken on the other side first. That is, the government has increasingly become an extension of corporate interests that do not share the values which our education is meant to support. They permitted the creation of an economy that traded not on crop futures but on people's futures, that rewarded not the creation of goods and services but of fantasy "assets" that contributed not to the common good but to the pockets of the wealthy elite. Bankers, brokers and CEOs are getting record bonuses and we're fighting about whether teachers are getting paid too much.

We all know what is really valued, figured in terms of where we put our money - and it's not our farmers, teachers, or artists. It's not our pastors or social workers or even the people on the assembly lines making our TVs and cell phones. My wife cannot afford to provide mental health services to lower-income people because she has to earn enough to pay back her student loans. Factor in that a major health insurance provider has lowered its compensation rate and it gets even more frustrating. 

The thing I don't understand about the conservative "get a job" perspective is how big businesses are the only institutions in this country that are beyond scrutiny. They'll put up with prosecuting individual misbehavior only because it allows them to say it was only a few people. But this is not an economy that rewards pulling oneself up from one's bootstraps, anymore. It rewards gambling with other people's money and shrugging your shoulders when you drastically cut your workforce. It's a value-less muck that needs moral leadership in all areas and all at once - government, businesses, banks, colleges, students, and workers. 

Why can't we agree that some things - the poor, the widow, the orphan, but also the worker, the land, our food, our communities - and profit is not a value above all others? 

Dean Baker: Why Does Senator McCaskill Want to Bankrupt Our Children?

That is what people should be asking Missouri Senator Claire McCaskill along with her fellow senators who are advocated strict caps on government spending. The idea being pushed by Senator McCaskill, together with Tennessee Senator Bob Corker and several other prominent senators, would limit federal spending to 20.6 percent of GDP. It would require difficult-to-obtain super-majorities to exceed this cap. Spending would be cut across a variety of programs if the cap is not reached.

This proposal is hugely deserving of ridicule for a variety of reasons. First, it operates from a blatantly wrong premise -- that government spending has grown out of control.

Those familiar with arithmetic know that government spending had increased by little as a share of GDP prior to the downturn caused by the collapse of the housing bubble. In 2007, the last year before the onset of the recession, spending as a share of GDP was 19.6 percent. That is 1.1 percentage points less than the 20.7 percent share 30 years earlier in 1977. So the idea that there is a long-term trend of out-of-control spending is simply not true, or what they call outside of Washington, a "lie."

Spending has risen in the wake of the downturn, but this was not due to a flood of new and expensive government programs. It was overwhelmingly attributable to the expansion of safety-net programs like unemployment compensation and food stamps and a decline in GDP, which raises the spending-to-GDP ratio even when spending remains constant.

If McCaskill and the other senators are upset about this recent rise in spending then they should be going after the incompetents at the Fed and Treasury who somehow could not recognize the $8 trillion housing bubble whose collapse wrecked the economy. This was indeed a horrendous mistake that has been devastating to the country, but it has nothing to do with government spending.

Over the long term government spending is projected to rise, but this also has nothing to do with the profligacy of Congress. There are two reasons for the projected increases in spending. The first is an aging population. As a result, federal programs that provide for elderly like Social Security, Medicare, and Medicaid will cost more money.

The second reason is that health care costs are still rising out control. The United States already pays more than twice as much per person for health care as other wealthy countries. This disparity is projected to grow even larger in coming decades. If this proves true then it will both impose enormous costs on the private sector and lead to growing strains on the budget.

By contrast, if health care costs were brought under control we would be looking at huge budget surpluses in the decades ahead. Of course controlling costs would mean confronting the insurance and pharmaceutical industries and other powerful lobbies. Unfortunately Senator McCaskill and her colleagues lack the courage to confront such powerful elites.

In fact, McCaskill and her colleagues do not even have the courage to propose cuts for specific programs. Does McCaskill wants to cut Medicare, Social Security, Head Start, unemployment insurance? She won't tell her constituents or the country. She just wants to cut generic spending.

This one might sell well with the Wall Street crew, but it is incredibly bad policy. First off, any budget expert can quickly devise 100 ways to game spending caps, the most obvious being tax expenditures, where the government gives a tax break for items it wants to subsidize. This does not count as spending.

More importantly, a strict limit on government spending that is binding would prove enormously costly because there are some things that the government does more efficiently than the private sector.

Providing Medicare to retirees is one of the items in this category, according to the non-partisan Congressional Budget Office (CBO). CBO's analysis of Representative Ryan's plan for privatizing Medicare showed that having private insurers take over the Medicare program would add more than $34 trillion to its costs over its 75-year planning period, an amount that is almost seven times the size of the projected Social Security shortfall.

CBO's analysis implies that the Ryan plan, which was approved by the Republican House last month, would increase the cost of paying for retirement health care for someone turning 65 in 2022 (the first year the plan takes effect) by almost $170,000. This doesn't count the cost transferred from the government to beneficiaries. This is pure waste associated with using a more inefficient private system rather than the public system.

There is a similar story with Social Security. The administrative costs of privatized systems like those in the United Kingdom or Chile are 20-30 times as high as the administrative costs of the Social Security system in the United States. This would cost a typical retiree close to $40,000 in higher fees (which is income to the financial industry) that would come directly out of their retirement income.

If Senator McCaskill and her colleagues really expect their caps to be binding then they must want to privatize either Social Security or Medicare or both. Arithmetic leaves few other options. By 2030, CBO projects that spending on Social Security, Medicare and Medicaid would take up 14.5 percent of GDP. If we assume, conservatively, interest payments of 3.0 percent of GDP, this brings us to 17.5 percent of GDP against a proposed cap of 20.6 percent.

Any reasonable level of spending on the military, education, infrastructure, the environment and research and development would push the country far over the cap. This would leave little choice except to privatize Social Security and/or Medicare imposing an enormous and unnecessary burden on our children and grandchildren. The higher costs associated with privatized programs will leave all but the wealthiest workers struggling in retirement.

Of course, the senators who want to impose this enormous burden on our children and grandchildren will mostly be enjoying a comfortable retirement themselves by the time the effects of their policy are being felt. In the meantime, they will have enjoyed the praise of the Wall Street crew and the elite media for having the courage to destroy the programs that the middle class depends upon. Welcome to Washington.

via huffingtonpost.com

Another instance of someone offering a specific, human values-based argument about the economy against a vague, fear-based argument.

According to G.E., Shirking Taxes is Good for America

Allegedly, cutting taxes on corporations is good for America because it creates jobs and tax revenue. Not so for G.E., according to this New York Times report by David Kocieniewski. Over the last couple decades, G.E. has lobbied successfully to create a tax code nearly custom-fitted to itself so that it can, in effect, receive a tax benefit in the billions of dollars while posting incredible profits. As Kocieniewski puts it, G.E. has basically turned its tax department into a profit center. 


It's all legit, of course, but it's hard to see how it's "good for America." Jobs, you say. Okay, but the largest job growth in G.E. has been overseas while there has been a 1/5th reduction of workforce at home (p.4). By the nature of the tax breaks, most of the profits have been earned overseas, too. The only real growth within the U.S.? Their tax department, meaning G.E. is mostly adding American jobs designed to keep money out of circulation in the American economy. Brilliant.

One of the striking ironies of this situation is that liberals are actually appealing to Reagan - yes, Reagan - to make their case against this kind of thing:

"Cracking down on offshore profit-shifting by financial companies like G.E. was one of the important achievements of President Reagan’s 1986 Tax Reform Act,” said Robert S. McIntyre, director of the liberal group Citizens for Tax Justice.

This shows how stupid it is to say this country is leaning too far left, since we're still to the right of Ronald Reagan.

Even Mother Jones is looking to Reagan as a model for getting us back on track, such as a recent interview with former Reagan budget director David Stockman, who laments that we have forgotten how Reagan actually had to raise taxes shortly after cutting them. Granted, Stockman's point was about cutting spending at the same time, but it remains distressing that the conservative right has managed to wrench our public discourse in a direction so far from the former political center that, as John Stewart was at pains to point out, we are simultaneously lamenting "high" teacher pay (upwards of $60,000) and protesting that people earning $250,000 are really struggling and so we should both cut collective bargaining rights and renew the Bush tax cuts (the ones that gave my family a "boost" of $600).

Aiee. Aiee.

I don't claim to have all the answers to the real deficit problems we have, but I do know that we can't hope to solve them if we're not willing to talk about them intelligently and to take stock of our values, here.