“Harmonious Green,” by Alanna S. Graboyes (asgraboyesart.com)
President Biden has used an executive order to transfer an estimated $300+ billion in student loan debts from the original borrowers to those Americans who never went to college or who already paid for their educations. The move cuts $10,000 off of loans for many borrowers and $20,000 for some. This bonanza is available to individuals earning under $125,000 per year or married couples earning under $250,000 per year. This action sends multiple economic messages—almost none of them good. Among those messages:
Students should borrow more, because it’s now likelier that someone else will foot the bill. As the late economist Milton Friedman said, “Nobody spends somebody else’s money as carefully as he spends his own.”
Colleges should spend more and raise their already-exorbitant tuition, because students and prospective students will have less reason to care. If students care less about the cost of higher education, why not go for the gold? Build some more stadiums. Pack in more administrators. Raise salaries. Increase employee perks. Who cares if it improves the education? As the Romans said, “panem et circenses.”
Lower-income Americans without student loans ought to subsidize wealthier Americans who borrowed money—sometimes recklessly. The basics of this executive order are that Americans of lesser means (those without college educations) will pay the debts of wealthier Americans who obtained higher education, financed by debt.
People who attended less expensive colleges and paid in cash were fools. If you opted for the state college rather than the Ivy League, or if you washed dishes to pay your way through college, the joke is on you. Your high school classmate who obtained an unmarketable degree at Yale is the beneficiary, and you will pay the tab.
Those who borrowed money to finance college are in some sense morally superior to those who borrowed money to finance businesses or homes. This executive order only relieves those who borrowed for college. Those who borrowed to start a landscaping business or to finance the family home are still expected to pay those debts on their own. As has been noted, a substantial percentage of White House employees may enjoy this windfall reduction in student loan debt.
When inflation is high, governments should encourage spending and price hikes. This debt transfer has virtually the same effect as mailing a $10,000 or $20,000 check to each eligible beneficiary. Much of that manna from Heaven will fuel increased consumer spending, thereby exacerbating the price inflation rates that America has not seen in nearly half a century.
Schoolhouse Rock had no clue how laws are made. That legendary cartoon explained the arduous process of enacting a law—requiring the consent of both houses of Congress, along with the president’s signature. But this massive expenditure of taxpayer resources obtained no Congressional sanction. It entailed the president’s signature and nothing more. In 2021, Speaker of the House Nancy Pelosi said, “People think that the president of the United States has the power for debt forgiveness … He does not. He can postpone. He can delay. But he does not have that power.” Now, Pelosi says Biden’s order is a “strong step” in the “fight to expand access to higher education and empower every American to reach fulfillment.”
Nick Gillespie of Reason, does a fine job of explaining the executive order and its weaknesses. A number of economists normally allied with President Biden’s policies have weighed in on the student loan action—and not in a positive way. For example, Jason Furman, who was chair of President Barack Obama’s Council of Economic Advisors, said of the student loan action, “Pouring roughly half a trillion dollars on the inflationary fire that is already burning is reckless.” My friend and erstwhile colleague, Veronique de Rugy wrote, “I’ve lived in America now for 23 years, and in that time I don’t recall so many economists who are usually sympathetic to a sitting president’s ideology being so critical of that president’s policies like some prominent left-leaning economists are now being of President Biden’s policies.”
In 1946, economist Henry Hazlitt wrote in his Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics that, "The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups."