No, You Don't Need a $200K College Degree

No, You Don't Need a $200K College Degree

02/26/2019Ryan McMaken

A female supporter of Bernie Sanders is advertising on Twitter the fact that she went 226,000 in debt to get a college degree in speech pathology.

Those who posted the video apparently believe that this ought to be interpreted as a convincing example of how hard it is to pay for college these days.

There is no doubt that a college education is not free. But publicly admitting that one owes nearly a quarter of a million dollars for (apparently) just a four year degree will hardly be convincing for anyone familiar with the actual cost of attaining a college degree.

After all, according to the US Department of Education, "annual current dollar prices for undergraduate tuition, fees, room, and board were estimated to be $16,757 at public institutions."

That's an annual amount. So, rounding up to $17,000 and multiplying by four, we get $68,000. This, mind you, includes tuition, fees, room, and board. It's an all inclusive package. So, assuming a student does virtually no outside wage work at all during his or her college career, the student would still get fed, and still have a place to live, while attending school full time.

But, let's say that this amount is low for many areas. Let's look at a higher-cost region of the country. According to the institution's website, an education at the University of Colorado at Boulder is estimate to cost $28,750 for a year's worth of tuition, room, board, books, and fees. Over four years, that's $115,000. (CNN estimates a four-year degree, plus room and board, costs $105,000.)

As most people know, however, paying for on-campus room and board is often more expensive than living with roommates off campus. And it's certainly far more expensive than living at home and commuting to work. But, since living at home isn't an option for everyone, many people share housing and take on part time work to off-set the cost of school.

In other words, a $115,000 price tag (and resulting debt) for an all-inclusive education is at the high end of what a total debt load would be for a reasonable person. It also reflects a situation in which a person spends all four years at a costly four-year institution.

In real life, of course, a college education doesn't require four years in cases outside the most difficult degrees. Many states employ "guaranteed" transfer programs which enable secondary students to take basic courses at community colleges at lower tuition rates. Freshmen can also knock out 30 or so credit hours and enter the more expensive four-year school as a sophomore. (In-state community college tuition is around half the price of tuition at a public research university.) And, of course, there are numerous programs which allow students to test out of courses through AP credit, CLEP exams, and more.

Some critics of my analysis here might say "Well, what if I want to go to a private school? Won't that cost more?" It certainly will.

According to the Department of Education, an all-inclusive year of (a non-profit) private school costs $43,065. (For-profit institutions are cheaper.) A full four years at one of these places is likely to cost over $170,000. Tuition alone at a posh second-tear private college like Bowdoin College is a whopping $50,000 per year. (Note the case of this woman who has 100K of debt for her women's studies degree at NYU.)

Indeed, the private school option appears to be the only way one might end up with $226,000 in student loans. Either that, or a student transfers around to various schools, starting from scratch each time.

But why should those people be taken seriously when they complain about their tuition and debt? People who attend private school already have countless tax-subsidized options available to them. Instead, they choose to attend a private school, and want the taxpayers to subsidize their debt instead. (Most private schools are also subsidized with a variety of grants, but that's another issue.) And then we're supposed to feel sorry for them when they end up with a lot of debt.

This is especially unconvincing when we consider that the data on college degrees and earnings shows that where one attains a degree has little effect on earnings. In other words, the extra expense incurred to attend Picturesque University in some charming Midwest town does nothing to actually increase earning potential.

The educational benefits of taking on these additional costs, however, are negligible.

Meanwhile, of course, more responsible consumers attend what the Europeans call a "polytechnic" where students attend to get degrees and quickly and painlessly as possible. The publicly subsidized versions of these schools exist to allow students with real responsibilities to get degrees and get on with their lives at a manageable cost. In other words, taxpayers are already paying for the college educations of students at public universities. They don't need to be lectured on how they ought to pay even more so little Johnny or little Susie can also get a designer education at a private school as well.

There are real reasons to be concerned about the cost of higher education. Student loans have actually been a significant part of the problem by making students less price sensitive, thus pushing up prices for everyone.

It might also be helpful to weigh the costs and benefits of cost-saving measures used by Europeans, such as larger class sizes, longer wait times, and fewer amenities at colleges.

But it's not at all convincing when we're told that we ought to be subsidizing higher education even more for those students who choose to spend far and above what the average cost of what is an already-subsidized higher education.

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For Bernie Sanders, Union Bosses Matter More than Poor Kids

Bernie Sanders is a delusional hard-core statist, but that’s part of what makes him attractive for some voters.

Simply stated, they think he’s authentic rather than a finger-in-the-wind politician.

Related: Public School Teachers Are Not Underpaid by Zach Garris 

But I’m not so sure that’s true.

pointed out in 2015 that he’s not even true to his socialist ideology. Rather than promoting government ownershipcentral planning, and price controls, he has behaved like a conventional left-wing politician. Indeed, there was almost no difference between his voting record and those of Barack Obama and Hillary Clinton.

Whether that’s good or bad is a matter of judgement, of course.

Today, though, I want to highlight something that’s unambiguously bad. He’s decided that currying favor with union bosses at the National Education Association is so important that it’s okay to trap kids from poor families in failing schools. And that, to me, makes him a political hack rather than an honest leftist.

Check out these excerpts from a story in the New York Times.

Senator Bernie Sanders took aim at charter schools on Saturday… In a 10-point plan, Mr. Sanders…said that, if elected, he would…forbid…federal spending on new charter schools as well as…ban…for-profit charter schools — which account for a small proportion of existing charters. “The proliferation of charter schools has disproportionately affected communities of color,” Mr. Sanders wrote… Mr. Sanders of Vermont would also require that charter schools be subject to the same oversight as public schools… Parts of the plan focused on educators, declaring Mr. Sanders’s support for a $60,000 baseline for teachers’ starting salaries as well as unionization efforts by charter schoolteachers.

By the way, I’m not a big fan of charter schools. It would be far better to have true school choice and allow parents to pick high-performing private schools.

Related: We Need More Tax Breaks for Education by Ron Paul

But charter schools are definitely a better option if the only other choice is a failing government school. Especially since pouring more money into a broken system doesn’t work. Regardless of whether it’s a Democrat plan to waste money or a Republican plan to waste money.

This assumes, however, that the goal is to help children get a good education so they have a better chance for a good life.

That’s not what motivates Bernie Sanders. Like many Democrats, his main goal is to appease the teacher unions. And that means protecting and preserving the privileges and perks of union members and the government’s education monopoly.

Disgusting.

P.S. It’s even more nauseating that the NAACP has betrayed the interests of black people by rejecting school choice (I much prefer the views of Walter Williams and Thomas Sowell).

P.P.S. Just like it’s disgusting that Obama’s Secretary of Education chose private schools for his kids (as did Obama) while fighting against school choice for poor families.

P.P.S. On an uplifting note, Fran Tarkenton, the former Georgia Bulldog (he also played a bit in the NFL) used a sports analogy to explain the benefits of school choice.

P.P.P.S. It’s also uplifting to see very successful school choice systems operate in nations such as CanadaSwedenChile, and the Netherlands. And India doesn’t have school choice, but it’s a remarkable example of how private schools are the only good option for poor families that want upward mobility.

P.P.P.P.S. The Washington Post provides an example of honest and decent leftism, having editorialized in favor of poor children over teacher unions.

Originally published at International Liberty
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MMT "Qualifies as the Financial Equivalent to Weapons of Mass Destruction"

The biggest threat to our prosperity, to your pension and to the prospects of your children and grandchildren is in all likelihood something that you’ve never heard of. Yet Modern Monetary Theory (MMT), which ironically is neither modern nor a monetary theory, has been setting alight debate on the Left and looks set to form a substantial role in Labour’s interventionist power grab over the economy.

MMT is utopian in the extreme. It provides justification for policies like Jeremy Corbyn’s “People’s Quantitative Easing”, which would require the Bank of England to print money to fund infrastructure and apprenticeships. An important basis of the “Green New Deal” being demanded by socialists in the American Democrat party, MMT has also been used to justify the Bank of England channelling billions into green investment – that is, to use the capacity of the bank to create cash for explicitly ideological investment purposes. American proponents of the idea say that in this way they could slash greenhouse emissions, create cushy taxpayer-funded jobs and offer free healthcare for all without bothering about who would pick up the bill. They claim that since the US government is the issuer of the nation’s currency, it cannot go bankrupt, but instead just keep creating and printing money.

For the adherents of MMT, all public expenditure can thus be financed by public debt – because the bonds of the government are as good as the money that the sovereign state issues. Public debt is no problem because it has its balance in financial wealth in the private sector.

Read more from Dr. Mueller on MMT with his new paper from the Adam Smith Institute, "The Magic Money Tree: The Case Against Modern Monetary Theory"

Unsurprisingly, the idea has found a receptive audience among the Corbynistas that head up the Labour Party. If there is no fiscal restraint for public spending, opposition to huge public expenditure programmes loses its legitimacy and projects like free university for all, renationalisation of services and a comprehensive upgrading of the country’s infrastructure can be launched with gusto. MMT provides the sales pitch for the agenda of socialists who hope scarcity can be abolished with the right policy.

You can see why the Left likes it. Instead of having to think like a household, needing income before it can spend and having to balance its books, they get to say that they can spend with impunity. In their dreams, government spends without hitting your savings, creating income and activity in the private sector instead. A Labour government could spend and have huge deficits without destroying private investment – and could then walk away from the huge piles of public debt they’ve put on the shoulders of future generations. Their argument, though, is that government could always be free of any fiscal restraint because it can always create as much money as is needed.

The problem is, this is all theoretical nonsense. The inflationary consequences of substantially increasing government spending are an economic reality. Promising to spend wisely assumes a knowledge of the economy that we all know politicians don’t have – let alone the current Marxist front bench.

Devotees of MMT assume a one-sector economy with an unlimited supply of capital whose only constraint is labour. Such a view of the modern economy is wholly unrealistic. The real capitalist economy is the one we all live in, where entrepreneurs must incessantly arrange and rearrange to make a profit, and provide goods and services we actually want.

In purely academic terms, the belief that you can spend and spend without any consequence would deserve no further analysis. As a political contrivance, with far-Left populism on the rise in Britain and the USA, MMT is presently one of the most dangerous economic ideas out there, and should consequently attract our utmost attention.

The lessons of history are clear: endless spending brought down the Spanish Empire with the inflow of gold and silver from the American colonies. The massive expansion of the money supply during and after the First World War led to the German hyperinflation that wiped out its middle class.

As John Maynard Keynes rightly observed, inflation brings all the dark forces in a society to work. Modern Monetary Theory qualifies as the financial equivalent to weapons of mass destruction. Politicians who believe in liberty must speak out against something that so threatens our way of life.

Reprinted from The Telegraph with permission of the author.
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"Free" College Won't Improve Education

05/17/2019Paul Boyce

You're a twenty-something student and have recently graduated. You're excited to go and take on the world. However, you owe over $50,000. All you wanted to do is gain an education. This massive debt now looms over you. How can the world be so unfair? Why shouldn't this education be free like the other forms are? Shouldn't education be a right? Step in, Democratic Presidential nominee, Elizabeth Warren. She recently set out her plan to cancel student debt and abolish tuition fees. Her plan offers free tuition, as well as eliminating existing debt of up to $50,000. Each household with income below $100,000 would have up to $50,000 of debt wiped out.

What's There Not To Like?

Surely free higher-education, is beneficial to society as a whole? If smarter people are coming out of colleges, greater value will be created in the economy. The trouble with this is that far too many degrees are not aligned to market demand. Religious Studies may be of interest to the student, but there aren’t many businesses or jobs that require such degrees. There is a case for creating a well-educated workforce, but this has turned into educating for educating's sake.

The System Is Not Aligned With The Market

Too many students are coming out of the educational system and not utilising their degree. Whilst unemployment rates are low among graduates, many find themselves in jobs that don't require a degree. From Starbucks baristas to Wal-Mart assistants — many now have a degree.

Some majors are more prone to underemployment than others. Performing arts graduates for example have an underemployment rate of 65.7% . Graduates in Leisure and Hospitality don't favour much better, with an underemployment rate of 63%. By contrast, engineering and educational graduates score favourably on underemployment measures. The difference is that there is demand for engineers and educators, but not so much for performing arts.

There is a clear disconnect between the market and the educational system. Whilst the market demands graduates in science and engineering, the educational system provides graduates in arts and media.

"Free" College Wont Re-align The Market

Making college education free is not going to resolve the disconnect between the market and colleges. If college education is free, there is no downside of coming out underemployed. The risk associated is almost eradicated. One of the crucial parts of college education is determining whether it's of value. It's an investment. An investment that future earnings will be enhanced as a result. Will the enhanced earnings be worth more than the $50,000+ spent on education? By removing the cost, Warren's proposal changes the incentives. The cost-benefit is changed. There is a significant benefit, but little cost. This incentivises greater participation. When the price of any good is removed, the demand for it will increase. College will be no exception.

More students going to college may seem like a good thing. However, what will they be going to study and what value will that degree have? Based on existing statistics, many will continue to come out underemployed. If we are educating millions of individuals that are not utilising that education, resources are wasted. Those same resources could be used to invest in capital equipment and increase productivity.

The Mess that Is American Public Secondary and Primary Education

Elizabeth Warren justifies her plan as part of an effort to help racial and ethnic minorities get into college. However, given how little government schools at the primary and secondary levels do for students who are low-income or non-white, it’s hard to have confidence in just another government education scheme. After all, at lower levels of public education, instruction and outcomes are notoriously poor for just the sorts of students Warren says she can help. What reason do we have to believe that universal government education at the college level will finally get it right?

If Warren wants to expand college access, she’s be more worried about ensuring schools provide the skills necessary to enter and thrive at higher education institutions. Right now, that simply isn’t happening.

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Thomas DiLorenzo Discusses Socialism and CEO Salaries on Fox Business

Thomas DiLorenzo Discusses Socialism and CEO Salaries on Fox Business

Thomas DiLorenzo on CEO Salaries (Fox Business Network, 5.15.19)

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Social Security is Broke, Any "Fix" is a Joke

05/16/2019Alice Salles

Social Security is going bust, a report released by trustees of the federal government’s entitlement programs claims. And without more money being poured into the system, the report argues, tens of millions of Americans will receive only three-quarters of their Social Security benefits in the near future. But even if trustees hadn’t figured that out by now, you would have known this was bound to happen. Unless you never heard any Austrian economist explain why Social Security is nothing but a Ponzi scheme.

According to the trustees, Social Security’s funds will be tapped out by 2035, meaning that this generation of working men and women may never see a dollar from what they “invested,” forcefully, over the years. In order to fix this problem and make Social Security solvent again, the report urges lawmakers to act.

“Lawmakers have a broad continuum of policy options that would close or reduce the long-term financing shortfall of” Social Security and Medicare, Treasury Secretary Steven Mnuchin, Health and Human Services Secretary Alex Azar, and other trustees wrote in their report to Congress.

Options include hiking up taxes and slashing benefits, two policies that seldom find any support from elected officials on both sides of the aisle. As such, it’s clearly impossible to work on any Social Security “reform” that will actually help to prevent it from falling apart.

But is there any way that Social Security can be actually saved?

Abolish Social Security

President Trump thought he wouldn’t have to do anything to the entitlement program. As a matter of fact, he claimed that his plans were going to boost the economy enough that Social Security’s problems would be easily solved.

But the U.S. government has long been in debt. Quite deeply, as a matter of fact. As a result, money is not being put aside in some special fund for Social Security. What the government runs on is borrowed and printed cash, as the Federal Reserve keeps postponing its plan to slow down on the expansion of its balance sheets. But as the number of Americans who are 65 or older is expected to grow by a third between now and 2040, the cost of Social Security will continue to rise.

Considering that the program both undermines economic prosperity and damages the average American’s relationship with money by giving beneficiaries incentives to remain dependent on the government, ending it shouldn’t be a tough call. Especially knowing it will no longer be capable of fulfilling its obligations in the coming future.

But Social Security still has friends in high places.

It is thanks to big businesses and their connection with the government that we have the program in the first place. After all, if President Franklin D. Roosevelt hadn’t listened to hot shots at the time, who were upset smaller businesses were not giving employees retiree pensions, the federal government may have not been used to force everyone to pay for similar programs.

As Murray Rothbard put it, Social Security didn’t hurt big, established firms but their competitors, as the program “penalizes the lower cost, ‘unprogressive’ employer and cripples him by artificially raising his costs compared by the larger employer.” Unfortunately, not many Americans see the program this way.

With generations relying on the failed system over the years, it is certain we won’t see any politicians doing much to gut it. But hopefully, Americans will finally refuse the system once they learn it is both ineffective and based on policies that benefit big corporations on the expense of the little guy.

What’s not to hate about such a dysfunctional scheme?

Originally published at theadvocates.org.

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The Fallacy of Identity Economics

05/15/2019David Gordon

The economist Alex Tabarrok in a post today criticizes what he calls ”identity economics”. Tabarrok says: “Identity economics is bad economics”. By “identity economics,” he means a theory that jumps from an accounting identity to a claim about causation. Keynesian economics is a prime example of this fallacy, as Tabarrok’s quotation from Nick Rowe illustrates:

1. Y = C + I + G + X – M. Therefore an increase in Government spending will increase GDP.

2. Y = C + S + T. Therefore an increase in Taxes will increase GDP.

Takarrok  summarizes:

My guess is that you are much more uncomfortable with the second of those two examples than the first. You have probably seen the first argument before, but have probably not seen the second. But they are both equally correct accounting identities and are both equally rubbish arguments.

Murray Rothbard long ago in Man, Economy, and State made the same point. He offered a reductio ad absurdum of the Keynesian multiplier

"Social Income =Income of (insert name of any person, say the reader) + Income of everyone else, Let us use symbols:

Social income =Y

Income of the Reader=R

Income of everyone else =V

We find that V is a completely stable function of Y. . . .Let us say the equation arrived at is: V =.99999 Y Then, Y =.99999Y +R

.00001Y =R

Y=100,000 R.

This is the reader’s own personal multiplier, a far more powerful one than the investment multiplier. To increase social income and thereby cure depression and unemployment, it is only necessary for the government to print a certain number of dollars and give them to the reader of these lines.

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A Study in Willful Blindness

05/13/2019David Gordon

Herbert Aptheker: Studies in Willful Blindness. By Anthony Flood. Independently published, 2019. I +93 pages.

Anthony Flood tells that in “the early 1970s, I was an acolyte of Herbert Aptheker(1915-2003). Known mainly for his writings on African-American history he was also, during the Cold War and even after, a theoretician of the Communist Party USA (CP).” (p.1) Flood became Aptheker’s research assistant and friend, but he eventually turned in disgust from his mentor, repulsed by Communist tyranny and atrocities.

Flood has documented a striking example of the way Aptheker’s rigid adherence to the Stalinist line corrupted his historical writing. Aptheker is best known as a historian for his American Negro Slave Revolts, his doctoral dissertation, published in 1943. In that book, he never cites the West Indian Marxist C.L.R. James’s Black Jacobins (1938), a study of the San Domingo Revolution of 1791 that overthrew the slave regime and established the Haitian Republic. Aptheker fully recognized the significance of the event; why then does he ignore James’s book? “What scholars virtually never even mention. . .is Aptheker’s life-long practice of rendering James invisible.”(p.15)

The answer, Flood suggests, is that James was a follower of Leon Trotsky. “Aptheker could not have missed the reviews it garnered in scholarly journals and the mainstream press. And yet in the few pages he devoted to that revolt in American Negro Slave Revolts, he neither cited Black Jacobins nor even listed it in his bibliography. For a card-carrying Stalinist like Aptheker, however, there was no lower form of life than a Trotskyist. “(p.80)

By no means did James ignore Aptheker. To the contrary, he attacked Aptheker for downplaying the role of blacks in abolitionist organizations. The Stalinists, James claimed, viewed blacks as subordinate shock troops of a prospective revolution rather than independent actors, and this  Stalinist line Aptheker faithfully followed. True to his policy of treating James as an invisible man, Aptheker never responded to James’s criticism.

Flood discusses a number of other examples  of the corrupting effects of Aptheker’s Communist bias, such as his tendentious The Truth about Hungary, approving the Soviet suppression of the Hungarian Revolution of 1956, and his claim in a newspaper article written in 1950 that the lack of revolts in North Korea showed that the Communist regime in power had popular approval.

Flood’s book is enlivened by stories of his conversations with Aptheker and Aptheker’s bitter enemy, the philosopher Sidney Hook, who was one of Flood’s professors. His careful account of the “invisible man” in Aptheker’s historiography is a valuable contribution.

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Canada's Export Guarantee Program: More Risk for the Taxpayer

05/11/2019Eddie Fizor

The CBC (Canadian Broadcasting Corporation) broadcasts select NHL games on Hockey Night in Canada. These are "free” to watch on TV or stream online. "Free" is placed in quotations because the CBC’s advertises that their content services can be streamed for “free” by the public. It is worth noting that the CBC's annual share of revenue for 2018 was roughly 1.2 billion. Hockey fans may attempt to recuperate their tax dollars by watching as much hockey as possible.

The aforementioned gives context, but it is not the CBC which is the main focus of this article, but a commercial advertisement which is played during CBC’s Hockey Night in Canada.

The advertisement is for Export Development Canada (which is also funded by tax dollars).

A quote from the EDC website:

Our Export Guarantee Program can help your bank provide you with additional access to financing. We share the risk with your bank by providing a guarantee on the money you borrow, encouraging them to increase your access to working capital.

export.PNG

The Future is Uncertain

When an entrepreneur identifies a market in which they believe a profitable enterprise can be undertaken, the entrepreneur will invest their available funds. If the entrepreneur possesses insufficient funds, then a bank may choose to act as lender and direct additional funds toward what they may also believe to be a profitable endeavour.

[RELATED: "Mises Explains The Aggravating Role of Export Credit Agencies" by

In this instance, it is both the entrepreneur and the bank who will bear the risk. If the risk is too high, then the bank may choose not to loan funds to the entrepreneur.

What happens when Export Development Canada steps in to "de-risk" the project? EDC is funded by taxpayers. This means that projects will be undertaken with someone else’s money (the tax payer). Neither the entrepreneur nor the bank will fully bear the risk involved. What if the venture turns sour? EDC explains, "we share the risk with your bank by providing a guarantee on the money you borrow."

In the end, someone must bear the risk. So, who will it be?

If the entrepreneur utilizes his own funds, then he has a vested interest. This also would apply to a bank acting as lender. The claim that “risk doesn’t stop you,” identifies the  EDC not as “ risk experts,” but as “experts” in promoting risky ventures, underwritten with tax dollars.

Here's the advertisement which is aired during Hockey Night in Canada:

Risk Doesn’t Stop You When You’re With EDC

None of the entrepreneurs in this commercial appear to be concerned with risk. This should be a reason for concern on the part of the viewer. Such ads are misleading and promote a false of reality. The bearing of risk is unavoidable in any entrepreneurial endeavor. Future is uncertain. Resources are scarce.

Man shrugs his shoulders, "30,000 brake pads NO DEPOSIT. I said, why put the brakes on now?"

Indeed, why not? Why demand a deposit for surety? If the deal goes sour, someone else is left paying for your losses. It is easy to make risky decisions when the error of your way does not return upon your own head.

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Bernie and Ocasio-Cortez Declare War on the Poor With Anti-Credit-Card Law

05/09/2019Ryan McMaken

Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez unveiled sweeping new legislation on Thursday that would impose a federal cap of 15% on credit-card interest rates.

The bill would also allow state governments to set interest-rate ceilings even lower than the federal mandate.

Naturally, Sanders and Ocasio-Cortez are framing the bill as something designed to help "ordinary people." But in reality, the legislation will only act as to reduce access to credit for low-income and other high-risk borrowers.

Credit card companies don't attach high interest rates to credit cards because they are mean and cruel. Credit cards with especially high interest are that way because the borrowers have been determined to be an especially high credit risk. Credit card companies want people to borrow money from them, so if they can make loans at lower rates, they will, in order to undercut the competition. But these companies also must make sure they're likely to cover their costs. Thus, the high interest rate exists to ensure the lender can make consumer loans while still accounting for the high risk of default by borrowers based on a risk profile.

Given that interest rates are similar to a "price of money," if Sanders and Ocasio-Cortez manage to slap a new limit on credit card interest rates, they will be essentially imposing a price ceiling on credit cards.

And price ceilings are sure to lead to shortages.

That is, they'll lead to shortages in consumer credit for high risk borrowers — many of whom will be low-income borrowers.

If lenders cannot price their product in a way that allows them to recover costs, they'll simply stop providing that service. Rather than face lower interest rates on credit cards — as Sanders and Ocasio-Cortez imagine will happen — high-risk borrowers are more likely to not be able to borrow using credit cards at all. Given that default rates are generally higher for low-income borrowers, the cost of collecting payments is higher. Lending to high-risk groups then is only possible if the price of those loans is higher. Without the higher price, the service will go away.

Cutting Poor People Off — "For Their Own Good"

On the other hand, maybe this is exactly what Sanders and Ocasio-Cortez want. One way to claim to have "done something" about high levels of debt is to simply cut off potential borrowers from credit.

After all, there is an implicit paternalism in efforts to place roadblocks between low-income/high-risk consumers and the products those consumers may wish to purchase. In the minds of a government planner, the solution to the problem of people borrowing "too much" money is to pass a law preventing them from doing so.

This, of course, is inherently unfair to those people who are — for now — in the high risk category, but who do pay their bills most of the time. (They might simply be in their category because they are young and have never established much of a credit history.) Moreover, many people who missed payment in the past may now be much more reliable and less prone to default. As people who fit a certain high-risk profile at first, they're likely to face high rates. One of the best ways these people can build good credit, though, is to first gain access to credit at high interest rates. Over time, they will increasingly gain more access to credit on better terms. Should these people then be punished and cut off from credit because they can't qualify for more moderate interest rates right away? The effect of the Sanders and Ocasio-Cortez legislation would be to do exactly that.

Meanwhile, lenders who offer loans to high-risk groups are themselves being blamed for the proliferation of credit card debt among American consumers of all types.

In his essay on payday lending — an issue very similar to that of high-interest credit cards — Tom Lehman analyzes the accuracy of these sorts of claims:

Finally, the allegation that payday lending "causes" chronic or habitual borrowing may ignore the old adage that "correlation does not equal causation." As indicated above, it is a well-known fact that payday loans appeal to a clientele that face numerous financial difficulties (many of them self-induced), quite independent of the payday lending industry itself. Most of these households have failed to establish good credit, have poor credit histories, are not known for their timely bill-paying habits, frequently bounce checks, frequently change jobs, and may relocate often. In short, they are the type of people who are going to be frequently short of cash and who will borrow "chronically" when given the opportunity. Because payday lending institutions provide them with this opportunity to borrow when other institutions will not does not mean that payday lenders cause this behavior. They simply provide an opportunity for this behavior to be exhibited more often than otherwise.

As is so typical of politicians, the answer offered by this new legislation is to limit the options available to the most at-risk populations.

A better approach is to allow freedom for both borrowers and lenders, to treat borrowers like adults, and to not assume they are incapable of managing their own money.

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As Fed Founders, Get Ready for More Radical Monetary Policy

05/09/2019Ryan McMaken

Last week, the the Federal Reserve left unchanged its benchmark federal funds rate, with Fed Chairman Jerome Powell declaring the US economy to be "on a good path."

In a unanimous vote, the Fed kept the rate in a range of 2.25% to 2.5%.

ffr1_0.png
 

The Fed's reluctance to allow interest rates to return to what would be considered a more normal rate historically continues to spur speculation about what the Fed should do in case of a recession.

The media narratives from "experts" and policymakers we're now hearing suggests three takeaways from last weeks' developments from both the Fed board and at the Stanford monetary policy conference last Friday.

1. The Fed Fears the Economy Remains Fragile

For eight years, the federal funds rate remained near zero, and all the while, we were told the Fed was "cautiously optimistic" about the economy, and that economy growth was "solid" and moderately strong. Yet, the Fed could not bring itself to allow the target rate to rise above QE-level near-zero rates. Then, It wasn't until 2017 that the rate was allowed to rise about one percent. By then, we were told that the Fed was just about to get aggressive with rates, taking the supposed strength of the economy as an opportunity to allow rates to rise to something resembling the four or five percent rate that might at least be in the same ballpark with what we saw during the past two expansions. That, however, now appears unlikely, even in the medium term. Fed policy has never approached anything we might call hawkish, and now Chairman Powell has already signaled 2.5 percent is quite high enough.

In spite of all the talk about "solid" growth, the Fed still sees the current economy as too fragile to deal with interest rates that would have been quite ordinary during the past 30 years.

The Trump administration, of course, points to the jobs data as "proof" of a strong economy, but outside that one group of data points, we find quite lackluster data otherwise, and the Fed knows it. Hence, it remains unenthusiastic about doing anything that would take it beyond its decade-long stance of embracing stimulus through low rates and a huge balance sheet.

2. Just Stay the Course

The Trump administration, of course, points to the jobs data as "proof" of a strong economy, but outside that one group of data points, we find quite lackluster data otherwise, and the Fed knows it. Hence, it remains unenthusiastic about doing anything that would take it beyond its decade-long stance of embracing stimulus through low rates and a huge balance sheet.

And this is why the Fed appears content to just stand as still as possible in hopes it won't break any of the fragile and easily-broken stuff around it.

This is especially important when we consider the political importance of keeping interest rates low for the sake of keeping government debt payments low. If rates go up, Congress will face ever-harder choices about what spending to cut back in order to keep up with a growing debt-service load. No one in Congress wants to even think about that, and they want the Fed to keep it that way.

By adopting a policy of standing still, though, the Fed is pretty much guaranteeing that it will begin the next recession from a position in which it has already used up many of it's stimulus tools. If interest rates are already low, and the Fed's balance sheet is already nearly at $4 trillion. What tools are left?

3. Get Ready for Radical New Monetary Policy

Since the fed knows it will likely start from a very fragile position in the next recession, it is now "reviewing" its policy options. New York Fed President John Williams says now is the time to "rethink" how it has been doing things. But not in a good way. As Yahoo! Finance reports :

For its part, the Fed has acknowledged the concern and has launched a review of its monetary policy framework and communication practices. In focus: how it publicly explains and achieves its dual mandate of maximum employment and stable prices (through its 2% inflation target).

As part of this revising of policy, many proponents of dovish monetary policy are suggesting that much higher inflation targets should be in order, and that everyone should stop worrying about pushing prices well above the old targets.

This leads to the idea that what the fed needs is a "bazooka," as noted by

Brian Cheung at AOL News:

“The central bank needs a ‘bazooka’ at the zero bound that makes credible its commitment to achieving its policy rule, and raising inflation if required,” Harvard economics professor Kenneth Rogoff said.

Rogoff’s recommendation : negative interest rate policy. The thesis: allowing interest rates to go negative, in which customers would be charged to keep money parked at their bank, would be a quicker way of spurring consumption and recovering jobs in a downturn.

Negative interest rates, of course, are an inflationist's dream. Banks would penalize people for saving money (which is really just the same as investing money) so as to incentivize them to spend their money on consumer goods instead.

The idea, then, is that it would easier to hit high new inflation targets because negative-rate policy would impel people to spend as much money as possible as quickly as possible. Prices would then increase, further encouraging spending.

It's basically just an old-fashioned inflationary spiral, but it's all necessary, we're told, to keep the economy going — at least until individuals want to retire or get into financial trouble. And then, suddenly, having no savings might be a problem.

But the experts at Harvard and the fed never let that sort of street-level household economics both them. What matters is macro policy, and the dream of a perfectly malleable economy that does what we tell it to do. And of course the economy will comply. We'll have a bazooka!

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