Why Industrial Policy Fails

For the same reason we don’t cancel the coming NFL season and rely on experts to declare the Super Bowl champion. 

Letter to The WSJ.

"In his insightful exposé of the ugly realities of the Chips Act (“The Semiconductor Boondoggle,” Inside View, Aug. 15), Andy Kessler quotes National Economic Council director Brian Deese’s assertion: “The question should move from ‘Why should we pursue an industrial strategy?’ to ‘How do we pursue one successfully?’” Mr. Kessler then observes that “this is as wrong as Soviet or Chinese five-year plans.”

True. But more might be said about what is perhaps the most important factor condemning industrial policy to failure, namely, the absence of any genuine market test.

The only way to determine which industries truly contribute to economic growth is through market competition—through the process of each firm, spending only its investors’ own money, going head-to-head with other firms to attract customers. Only in the free market is no one compelled to fund or patronize any firm, and only in the free market is no one prevented from, or penalized for, experimenting with different peaceful ways to attract suppliers and customers. The resulting competition thus reveals which firms contribute most to economic betterment.

Industrial policy short-circuits the market’s discovery process. Such policy is premised on the fantasy that politicians or bureaucrats, spending other people’s money and protected from the competition of politically disfavored rivals, can foresee not only which particular products are best to produce, but also which of the countless alternative means of producing these products are the most efficient (that is, most sustainable).

Just as it would be folly to cancel the coming NFL season and instead rely on experts to declare the next Super Bowl champion, it would be great folly to cancel economic competition and instead rely on experts to declare which firms should and shouldn’t survive.

Prof. Donald J. Boudreaux

Mercatus Center, George Mason U."

Biden’s Half-Trillion-Dollar Student-Loan Forgiveness Coup

His student-loan write-off is an abuse of power that favors college grads at the expense of plumbers and FedEx drivers

WSJ editorial.

"Well, he did it. Waving his baronial wand, President Biden on Wednesday canceled student debt for some 40 million borrowers on no authority but his own. This is easily the worst domestic decision of his Presidency and makes chumps of Congress and every American who repaid loans or didn’t go to college.

The President who never says no to the left did their bidding again with this act of executive law-making, er, breaking. The government will cancel $10,000 for borrowers making less than $125,000 a year and $20,000 for those who received Pell grants. The Administration estimates that about 27 million will be eligible for up to $20,000 in forgiveness, and some 20 million will see their balances erased.

But there’s much more. Mr. Biden is also extending loan forbearance for another four months even as unemployment among college grads is at a near record low 2%. Congress’s Cares Act deferred payments and waived interest through September 2020, but Donald Trump and Joe Biden have extended the pause for what will now be nearly three years.

The Administration is claiming, again, that this will be the last extension and is needed to help borrowers prepare to resume payments. But even if the Administration lets the forbearance end in December, about half of borrowers won’t have to make payments since their debt will be canceled.

Most of the rest will only make de minimis payments because Mr. Biden is also sweetening the income-based repayment plans that Barack Obama expanded by fiat. Borrowers currently pay only up to 10% of discretionary income each month and can discharge their remaining debt after 20 years (10 if they work in “public service”).

Democrats said these plans would reduce defaults. They haven’t. Federal student debt has ballooned because many borrowers don’t make enough to cover interest and principal payments, so their balances expand. Student debt has nearly doubled since 2011 to $1.6 trillion, though the number of borrowers has increased by only 18%.

Now Mr. Biden is cutting undergrad payments to a mere 5% of discretionary income. The government will also cover unpaid monthly interest for borrowers so their balances won’t grow even if they aren’t paying a penny. This will mask the cost to taxpayers of the Administration's rolling loan write-off. Student-loan debt won’t appear to swell even as it does. What a fabulous accounting trick.

The Penn Wharton Budget Model estimates that canceling $10,000 for borrowers earning up to $125,000 will cost about $300 billion. The Pell grant addition could increase this by as much as $270 billion. The four-month freeze on payments will cost $20 billion on top of the roughly $115 billion it already has.

The payment plan revisions could eventually add hundreds of billions of dollars more. An analysis commissioned by the Trump Education Department estimated that taxpayers would lose $435 billion on federal student loans, largely because borrowers in these payment plans on average were expected to repay only half of their balances. Now they will repay even less.

Worse than the cost is the moral hazard and awful precedent this sets. Those who will pay for this write-off are the tens of millions of Americans who didn’t go to college, or repaid their debt, or skimped and saved to pay for college, or chose lower-cost schools to avoid a debt trap. This is a college graduate bailout paid for by plumbers and FedEx drivers.

Colleges will also capitalize by raising tuition to capture the write-off windfall. A White House fact sheet hilariously says that colleges will “have an obligation to keep prices reasonable and ensure borrowers get value for their investments, not debt they cannot afford.” Only a fool could believe colleges will do this.

***

It’s important to appreciate that there has never been an executive action of this costly magnitude in peacetime. Not Mr. Obama’s immigration amnesties, not his Clean Power Plan, not Mr. Trump’s border-wall fund diversion. Nothing comes close to this half-trillion-dollar or more executive coup.

Congress authorized none of Mr. Biden’s loan relief and appropriated no funds for it. Progressives say the Higher Education Act of 1965 lets the Education Secretary “compromise” (i.e., modify) student debt. But the Federal Claims Collection Act of 1966 sets very limited terms and strict procedures for such “compromise.”

Even Mr. Biden said in December 2020 it was “pretty questionable” whether he had authority to cancel debt this way. The Supreme Court recently underscored in West Virginia v. EPAthat Congress must provide clear authorization to agencies taking action on major questions. Canceling so much debt is beyond major to a mega-ultra-super question.

With the cancellation precedent, progressives will return to this vote-buying exercise every election year. The only antidote will be if Democrats conclude this gambit boomeranged politically by mobilizing an opposition coalition of Americans who are tired of being played for saps by progressives. The test arrives in November."

Dr. Fauci and the Covid Rule of Experts

His long service is laudable, but his pandemic legacy includes more public mistrust

WSJ editorial.

"Anthony Fauci announced on Monday that he will step down from his National Institutes of Health leadership posts in December, and the fact that this is a major news story suggests the problem with his tenure. He became the main symbol of the rule by experts who imposed lockdowns on America and brooked no scientific debate on Covid.

Dr. Fauci has led the National Institute of Allergy and Infectious Diseases (NIAID) since 1984, and his personal research contributions are impressive. He first became known to the public during the early years of the AIDS epidemic, and his agency was an early backer of the mRNA technology that became the platforms for two Covid vaccines. 

But the main legacy of his 38-year tenure will be as the public face of government during the Covid pandemic, for better and worse. His reassuring authority won acclaim in the early weeks of the pandemic as Americans struggled to make sense of the threat. “Fifteen days to slow the spread,” he famously said in March 2020, and the Trump Administration and America picked up his refrain.

The two weeks would stretch to two years. The uncertainties of the pandemic’s course weren’t his fault, but the certainty of his policy prescriptions certainly was. 

He and a passel of public-health experts used their authority to lobby for broad economic lockdowns that we now know were far more destructive than they needed to be. He also lobbied for mask and vaccine mandates that were far less protective than his assertions to the public. Dr. Fauci’s influence was all the greater because he had an echo chamber in the press corps and among public elites who disdained and ostracized dissenters.

A flagrant example was Dr. Fauci’s refusal even to consider that the novel coronavirus had originated in a lab at the Wuhan Institute of Virology in China. This may have been because the NIH had provided grant money to the nonprofit EcoHealth Alliance, which helped fund “gain of function” virus research at the Wuhan lab. In a semantic battle with Republicans, Dr. Fauci denied that the NIH funded such research. But his refusal even to consider the possibility that the virus started in a Wuhan lab showed that Dr. Fauci was as much a politician as a scientist.

Worse, Dr. Fauci smeared the few brave scientists who opposed blanket lockdowns and endorsed a strategy of “focused protection” on the elderly and those at high risk. This was the message of the Great Barrington Declaration authors, and emails later surfaced showing that Dr. Fauci worked with others in government to deride that alternative so it never got a truly fair public hearing.

“There needs to be a quick and devastating published take down of its premises,” NIH Director Francis Collins wrote to Dr. Fauci. Their inability to abide criticism and dissent undermined the U.S. pandemic response.

“It’s easy to criticize, but they’re really criticizing science because I represent science. That’s dangerous,” Dr. Fauci said last November, in a comment that summarizes the view of the public-health clerisy. The public is supposed to let a few powerful men and women define science and then impose their preferred policies and mandates on the country.

The costs of that mindset have been severe, and not merely economic. We know now that states that locked down fared no better, and sometimes worse, than those that didn’t. We also know that the vaccines, while invaluable against serious disease, don’t prevent the spread of Covid—even after multiple boosters. More honest candor would have been better for America’s trust in public-health authorities.

“Whether you’ve met him personally or not, he has touched all Americans’ lives with his work,” President Biden said Monday about Dr. Fauci’s resignation. That’s true enough. But his legacy will be that millions of Americans will never trust government health experts in the same way again."

The Fallacy of Disparities Never Quits

Evidence of different outcomes is not evidence of discrimination

Letter to The WSJ.

"In his letter “Making Medicine an ‘Anti-Racist’ Profession” (Aug. 16), Jack Resneck Jr., president of the American Medical Association, claims that “disparities in life expectancy” are evidence of racism. I hope he uses better logic in treating patients. Are all differences in life expectancy attributable to discrimination? In 2020, average life expectancy for U.S. women was more than 5 years greater than the life expectancy for men. Would he interpret this difference as antimale discrimination? Are there no other relevant factors?

Prof. Thomas Grennes

North Carolina State University"

Want to Fight Inflation? Consider a Currency Board

Floating currencies haven’t worked as well

Letter to The WSJ. 

"In his letter (Aug. 15) responding to my op-ed “Floating Currencies Compound Uncertainty” (Aug. 9), Prof. William Miles states that “currency boards would lead to more of the banking crises, debt defaults and high inflation” that policy makers try to minimize. Solid evidence flies in the face of his assertions.

The first currency board was established in Mauritius in 1849. At their peak, there were over 70 currency boards. Since 1849, there have been 711 banking crises scattered throughout the world. Only 16 occurred in countries with currency boards. Of the more than 500 sovereign-debt defaults since 1849, only five occurred in currency-board countries.

What about inflation? It’s always been much higher in countries with central banks than in those with currency boards. In a study of 98 countries from 1950-93, I found that inflation was almost five times higher in countries with central banks than in those with currency boards. If that’s not enough, there have been 61 episodes of hyperinflation in the world since 1849. All were produced by central banks, not currency boards.

Mr. Miles also claims that since the 1980s and 1990s, most emerging market countries have adopted floating exchange-rate regimes, and “have achieved low inflation with floating currencies.” According to the IMF, the number of emerging-market countries that have freely floating exchange rates has plunged by 50% since 1997. And the current average annual inflation for the remaining floaters is 13%, well above their inflation targets.

Prof. Steve H. Hanke

Johns Hopkins University"

This Is Your IRS at Work

Official audits show a record of incompetence. Democrats are still giving the tax agency an $80 billion raise.

WSJ editorial. 

"The new Inflation Reduction Act has many damaging provisions, but for sheer government gall the $80 billion reward to the Internal Revenue Service stands out. The money will go to hire 87,000 new employees, doubling its current payroll. This is also doubling down on incompetence, as anyone can see in the official reports of the Treasury Inspector General for Tax Administration (Tigta).

We’ve read those reports for the last several years so you don’t have to, and the experience is a government version of finding yourself in a blighted neighborhood for the first time. You can’t believe it’s that bad. The trouble goes beyond the oft-cited failures like answering only 10% of taxpayer calls, or a backlog of 17 million unprocessed tax returns. The audits reveal an agency that can’t do its basic job well but will terrorize taxpayers whether deserving or not.

***

Consider the agency’s chronic mishandling of tax credits. By the IRS’s own admission, some $19 billion—or 28%—of earned-income tax credit payments in fiscal 2021 were “improper.” The amount hasn’t improved despite years of IRS promises to do better.

• A January Tigta audit found that an estimated 67,000 claims—totaling $15.6 billion—for the low-income housing tax credit from 2015 to 2019 “lacked or did not match supporting documentation due to potential reporting errors or noncompliance.” 

• A May audit found that 26% ($1.9 billion) of its American opportunity tax credits for education expenses were improper in fiscal 2021, and 27% ($541 million) of its net premium tax credits (ObamaCare) were improper in fiscal 2019 (the most recent year it estimated). The same May audit said the IRS acknowledged that 13% ($5.2 billion) of its enhanced child tax credit payments were improper.

• How did it handle $1,200 stimulus checks, the sick and paid family leave credit, or the employee retention tax credit? Unknown, since the agency didn’t estimate failure rates—for which Tigta rapped its knuckles.

• A September 2021 audit found the IRS in 2020 issued 89,338 notices to taxpayers insisting that “balances were owed even though the taxes were not actually due.” Why? Because the feds had extended the filing deadline amid Covid but the IRS apparently didn’t notice.

• A February audit found the IRS department responsible for ensuring retirement-plan tax compliance suffered a 23% decline in the quality of its examinations from fiscal 2018 to fiscal 2020. In the past seven months, Tigta has issued searing reports on IRS mismanagement of everything from its partial-payment program for delinquent taxpayers, to its auditing of partnerships, to its struggle to handle internal employee misconduct.

• This ineptitude extends to programs Democrats insist will now raise revenue—those targeting higher earners. In 2010 Congress passed the Foreign Account Tax Compliance Act, which was supposed to identify wealthy Americans using undisclosed foreign accounts. Congress’s Joint Committee on Taxation said this would raise some $9 billion in revenue by fiscal 2020. Yet an April Tigta audit noted that while the IRS has spent $574 million to implement the law, the agency has drummed up only $14 million in compliance revenue.

• A July 2021 audit related the failure of the IRS small-business/self-employed division’s strategy, which began in 2010 to examine more returns from “high-income individual taxpayers.” The IRS defines high earners as those with income greater than $200,000. Yet from fiscal 2015 to the end of fiscal 2017 (when the strategy was shut down), 73% of returns targeted by the strategy fell below $200,000.

Democrats say a turbocharged IRS won’t pursue taxpayers earning less than $400,000, but don’t believe it. Middle-income Americans are easier marks, as they are more likely to write a check than engage in years of costly litigation.

***

The Tigta site shows the IRS is good at one thing: punishing those who resist its demands. A March audit chastised the IRS for using lien foreclosure suits to confiscate “principal residences” from delinquent taxpayers, a process that does “not provide [taxpayers] the same legal protections as seizures.”

A March 2017 report related the agency’s crackdown on businesses flagged as potentially evading a law that requires financial institutions to report currency transactions exceeding $10,000. The IRS took to seizing property from its targets before even conducting interviews. Tigta reports that even when interviews were conducted, the IRS failed to advise the accused of their rights or the purpose of the interview, and failed to consider “realistic defenses or explanations.” Tigta found that “most” of those targeted (owners of gas stations, jewelry stores, scrap-metal dealers, restaurants) had not committed crimes, though many were never able to regain their property.

This is the IRS that Democrats are now arming with more money and manpower to unleash on Americans. The $80 billion is a demonstration of their priorities, and further proof of the rule that failure in government is invariably rewarded with a bigger budget."

Education Schools Have Long Been Mediocre. Now They’re Woke Too

University of Wisconsin campuses openly embrace a Marxist program called ‘critical pedagogy.’

By Daniel Buck. Mr. Buck is the editor of Chalkboard Review, a senior visiting fellow at the Fordham Institute, and an eighth-grade English teacher at Hope Christian School in Milwaukee. Excerpts: 

"The Wisconsin Institute for Law and Liberty has reviewed the required coursework for 14 programs for teachers-to-be in the Badger State. These programs produce about 80% of all teaching graduates in the state each year. What they found was shocking. Worldview building and ideological manipulation take precedence over teacher preparation.

On the syllabi, noticeably lacking are academic literature or manuals of classroom instruction. Instead, Hollywood movies like “Freedom Writers,” popular books like Jonathan Kozol’s “Letters to a Young Teacher,” and propaganda like “Anti-Racist Baby” abound. In place of academic essays, graduate students write personal poems or collect photographs. These kitschy activities infantilize what ought to be a rigorous pursuit of professional competency.

The University of Wisconsin-River Falls defines education as a “social justice and change agent.” The University of Wisconsin-Stevens Point commits to “anti-racism.” Each program exhibits a philosophy of education called critical pedagogy, made popular by Brazilian Marxist Paulo Freire, that envisions schools as places not of academic instruction but of societal change.

Freire, one of the authors assigned most often in schools of education, mapped the oppressor-oppressed dichotomy onto the teacher-student relationship and advocated for what he believed was a liberatory education. He cited the Maoist and Leninist Revolutions as ideals of his thought in action. Where Freire shifts from Marxist ramblings to practical advice, he encourages teachers to spur their students toward discontent with the world around them.

If there’s practical training involved, it’s likely to be about how to discuss LGBTQ+ issues with 3-year-olds. The same philosophy encourages “action civics.” Rather than teaching a straightforward history curriculum, educators are expected to encourage their students to advocate social change.

Wisconsin is no outlier. Progressive activism is flooding American classrooms because teacher-prep programs are steeped in it. In 2019 the James G. Martin Center for Academic Renewal reviewed the education-school syllabi at the University of North Carolina at Chapel Hill, the University of Michigan and the University of Wisconsin-Madison. “The results are unequivocal,” wrote Jay Schalin, the study’s author. “The most influential thinkers in our education schools are radicals who adhere to a collectivist, utopian vision.”"

"The National Council on Teacher Quality reviewed how many schools of education taught prospective elementary-school teachers the “science of reading”—decades-old research that confirms the necessity of phonics, spelling and vocabulary instruction. Only 15% of schools emphasized these elements in 2006, which increased to 22% according to a survey from 2019."

"almost 2,000 students graduate yearly from Wisconsin’s teacher-training programs. The Teachers College at Columbia University has more than 90,000 alumni. These institutions are producing a teaching workforce imbued with a radical ideology but lacking instructional skills."

Larry Summers and Jason Furman have criticized the cost of a potential student debt cancellation

See Biden’s Student Loan Forgiveness Plan to Cancel Up to $20,000 in Debt for Millions by Andrew Restuccia and Gabriel T. Rubin of The WSJ. Excerpt:

"Economists say that a tailored debt cancellation plan is unlikely to exacerbate short-term inflationary pressures, but could add to them in the long term, especially if universities continue to raise tuition because students might expect their loans to eventually be canceled.

Even some economists usually aligned with the White House, including former Clinton administration Treasury Secretary Larry Summers and former Obama administration economist Jason Furman, have criticized the cost of a potential student debt cancellation and warn that it could force future spending cuts or tax increases."

See also an article by by Julia Carpenter and Gabriel T. Rubin. Excerpt: 

"In addition to the loan forgiveness, the president will also be extending the pandemic-era student-loan pause on payments and interest through the end of the year. The measure began in March 2020 and has been repeatedly extended since. The Federal Reserve Bank of New York estimates the pause spared borrowers nearly $200 billion in payments during this period."

"Most student-loan borrowers owe less than $25,000 on their loans as of May 2022, according to the Federal Reserve."

So most students don't need any help with such a low total.

Energy Projects Sought in U.S. Face Local Hurdles

Plans must navigate legal and regulatory challenges—concerns a bill negotiated by Sen. Joe Manchin would seek to address

By Benoît Morenne of The WSJ. Excerpts:

"The U.S. needs more power to meet rising energy needs. Building the infrastructure necessary to make that happen has proven difficult.

Utility-scale energy projects such as power transmission lines and offshore wind farms have to win approval from authorities in several jurisdictions, which can take years. Communities near the projects, environmental groups and others frequently oppose the projects and challenge them in court. The result is that projects are often delayed and costs elevated, according to industry experts and executives."

"Some environmental groups have expressed support for the spending package but oppose significant changes to the permitting process, saying robust regulatory reviews are necessary to ensure communities aren’t adversely affected by energy projects.

A March Pew study found that 72% of Americans believe the federal government should encourage the development of wind and solar projects, but the infrastructure needed to support that goal often faces strong opposition at the local level out of concerns they might disfigure landscapes, endanger wildlife or threaten natural resources.

“It is very hard to build infrastructure of any kind in the United States,” said John Holdren, a former director of the White House Office of Science and Technology Policy under President Barack Obama who is now a Harvard University professor. “There are genuine tensions between the desire of one set of people to build stuff and the desire of the public to have a voice.”"

"Building a power line spanning several states can now take about a decade, developers said, up from five to seven years previously.In the Midwest, a roughly 102-mile transmission line from Iowa to Wisconsin has been in the works since 2011; it has yet to start delivering power. A multiyear process to secure permits and now litigation over the project’s environmental impact could push completion to the end of 2023"

"Federal permits require developers to request individual authorizations from several federal agencies"

"It took federal agencies an average of 4.5 years to prepare environmental reviews of new infrastructure between 2010 and 2018"

Inflation Reduction Act’s Real Climate Impact Is a Decade Away

Law could speed emerging technologies such as green hydrogen along the learning curve, accelerating adoption 

By Greg Ip of The WSJ. Excerpts:

"the U.S. was already on track to reduce emissions. The incremental reduction in emissions from the IRA is 6% to 10%, according to the research firm Rhodium Group, or 15%, according to Princeton University’s Zero Lab. This translates to roughly 1% to 3% of expected global emissions in 2030: a start, but not enough to move the needle on temperature."

"Similar, though less dramatic, dynamics have been at work in wind power and battery storage. They all hewed to “Wright’s Law,” named for the 1930s aeronautical engineer Theodore Wright, according to which each doubling of production is accompanied by a roughly constant percentage decline in cost, known as the learning rate. “Over the long term these learning rates appear to be the best way to predict the future cost of technology that we know of,” said Ramez Naam, an author and investor in early-stage green energy companies.

One implication is that as a technology matures, production takes longer to double and so costs fall more slowly. In solar power, for instance, PV module factories are now so large and the manufacturing process so efficient that incremental improvements are much harder to come by. Sure enough, the cost of solar-generated power has fallen an average of 6% annually from 2018 through 2021, compared with 21% in the previous nine years, according to Lazard, an investment bank. Costs are also falling more slowly in wind power."

Cuban Migrants Head to the U.S. in Record Numbers

Economic hardship, political repression drive tens of thousands to leave the Communist-led island

By José de Córdoba of The WSJ. Excerpt:

"Cuban migrants are arriving in the U.S. at the highest rate since Fidel Castro came to power in 1959, fleeing political repression and the island’s worst economic crisis in more than three decades.

More than 175,000 Cuban migrants were apprehended in the U.S. between last October and July, six times as many as in the previous 12-month period, according to U.S. Customs and Border Protection.

Most are young, single adults, according to government statistics. Many are relatively well educated, say people who work with the migrants.

The exodus “reflects the desperation, the lack of hope, and the lack of future people on the island feel,” said Jorge Duany, head of the Cuban Research Institute at Florida International University.

About 250,000 Cubans left the island in the years immediately after Mr. Castro’s takeover of Cuba in 1959, Mr. Duany said. The current wave also eclipses the roughly 125,000 Cubans who reached the U.S. in 1980 when Mr. Castro, facing a political crisis, allowed hundreds of boats, mostly crewed by Cuban-Americans, to pick them up at the port of Mariel.

Another 30,000 Cubans set out for Florida on makeshift rafts in 1994 when Mr. Castro allowed them to migrate after thousands rioted in the capital Havana over the economic hardship brought on by the end of Soviet subsidies to the Caribbean island."

IRS Revenue Boost From Stronger Enforcement Is Scaled Back in CBO Estimate

Income limits on household tax audits, staffing challenges are projected to trim what IRS can collect by $23 billion

By Richard Rubin of The WSJ. Excerpts:

"Income limits on household tax audits and staffing challenges will reduce by $23 billion what the Internal Revenue Service is projected to collect from its expanded enforcement operations, according to the Congressional Budget Office. 

The CBO outlined the revised estimate Thursday in a letter issued by its director, adjusting the projected 10-year revenue generated by the nearly $80 billion in IRS spending included in the law President Biden signed last week. The 10-year funding boost is now estimated to raise $180.4 billion, down from $203.7 billion, according to the CBO. 

Treasury Department officials have long said the real numbers would be far higher; a spokeswoman declined to comment Thursday afternoon."

"Those restrictions will make the IRS less effective at policing the tax system, according to CBO."

"CBO now projects that the IRS will hire more slowly than had been expected."

"Overall, despite Ms. Yellen’s directive, taxpayers making under $400,000 will still pay a “small fraction” of new revenue gleaned from tougher enforcement, according to CBO"

How Colleges Will Cash In on Biden’s Student Loan Forgiveness

Academia will keep raising tuition, and students will have incentive to take out more loans

WSJ editorial. Excerpts:

"President Biden on Wednesday lamented soaring college costs to justify his sweeping student loan cancellation. Students, he feels your pain. Yet he fails to recognize that the root causes of high costs are federal-loan and student-aid subsidies.

Like other Great Society programs, federal student loans and grants were initially aimed at helping low-income Americans. They have since become another all-you-can-eat entitlement. Its costs grow on autopilot as lawmakers boost subsidies in the name of making higher education more affordable, but in reality doing the opposite. 

Undergraduates were allowed to borrow a total of $7,500 in 1973. But Congress over the years has lifted the lifetime federal loan limit, which is now $31,000 for students who are dependents and $57,500 for others. Congress in 1980 established low-interest Plus loans for parents, which were expanded to graduate students in 2006. These have no dollar cap.

Colleges have responded all too rationally by raising prices and using the free-flowing spigot to increase professors’ salaries, hire more administrators and build Club Med amenities. There’s a dean for everything these days. Since 1980 the average annual cost to attend four-year public and nonprofit colleges has increased by nine-fold to $22,690 and $51,690, respectively. 

Tuition growth in recent years has moderated as demographic factors have reduced college enrollment and increased competition. Many small liberal arts schools have closed or merged. But others have adapted by adding expensive graduate programs.

The average debt for a master’s degree recipient is $71,287; for a doctoral grad it’s $159,625. Yet the median salary for a Ph.D. is a mere $55,000 in the humanities and $67,250 in social sciences. Many teach college classes for low pay while highly compensated tenured professors do research, much of which doesn’t add to the sum of human knowledge.

Colleges have no financial incentive to ensure that their programs impart skills demanded by employers or provide a decent living. What does it matter to them if an anthropology graduate winds up working as a barista? Colleges are paid on the front end, and government is now writing off the cost on the back end.

Mr. Biden says his half-a-trillion-dollar loan cancellation is necessary to address unsustainable student debt. But the Obama repayment plans already limit monthly payments to 10% of discretionary income and forgive the remaining balances after 20 years. Borrowers who earn little can pay little or nothing. Mr. Biden’s plan will encourage students to take out more loans and colleges to keep raising tuition."

"Mr. Biden said Wednesday that his Administration is “holding colleges accountable for jacking up costs without delivering value to students.” He isn’t. He’s only targeting for-profit colleges. His proposed gainful-employment rule would cut off federal student aid to some 40% of for-profit programs whose graduates don’t meet certain earnings or debt-to-income measures. But he’s giving a pass to nonprofit and public colleges that are no saints."

If Biden's Trade Policy Was Really Driven by 'Equity,' Trump's Tariffs Would Already Be Gone

Tariffs are a regressive tax that have driven inflation higher and harm poorer families the most

By Eric Boehm of Reason.

"If "equity" is the central principle guiding the Biden administration's trade policies, you wouldn't know it by looking at what has been done—or, rather, hasn't been done—in the past 18 months.

Still, that's what U.S. Trade Representative Katherine Tai claims. In a tweet on Wednesday, Tai wrote that Biden is taking a "whole-of-government approach to advancing equity."

"Equity is also central to our trade and economic strategy to create sustainable growth that is equitably shared," she wrote. "Addressing the challenges to communities of color is vital to that strategy."

If that were merely a big pile of progressive pablum, it would be easy enough to ignore. But it's also objectively inaccurate. If "equity" were the prime concern of the Biden administration, it would have long ago disposed of the tariffs imposed by former President Donald Trump on steel, aluminum, and thousands of other products. Those tariffs are nothing more than taxes—and taxes that fall most painfully on people who can least afford to pay them.

And if the Biden administration truly cared about equity, it wouldn't have stopped there. As research from the Progressive Policy Institute (PPI), a left-leaning think tank, has shown, tariffs of all kinds are regressive taxes that hike costs for consumers and make it particularly difficult for poorer households to afford basic goods.

Eliminating many tariffs that serve little purpose "would ease financial burdens in a small but real way for American low-income and minority workers and their families, helping to raise their living standards without intensifying competitive pressure," Ed Gresser, the PPI's vice president and director for trade and global markets, wrote in a report published in April.

Trump's tariffs have contributed to inflation and helped to artificially inflate the cost of everything from appliances to housing. About two-thirds of all imports from China are now subject to tariffs when they enter the United States, with the average tariff being 19.3 percent. That's six times higher than the average tariff on Chinese-made imports before Trump's haphazard trade war began. That's certainly not helping poorer Americans improve their standard of living.

But, as Gresser points out, other aspects of the U.S. tariff code are also to blame for imposing regressive taxes on poorer Americans. Under the "Most Favored Nation" (MFN) system of tariffs that are applied to imports from countries with which the U.S. does not have a specific trade deal, many common consumer goods are subject to higher tariffs than their luxury alternatives. Stainless steel spoons are tariffed at a much higher rate than far more expensive sterling silver spoons, for example, and cheap sneakers are charged a tariff more than five times higher than leather dress shoes.

Source: Progressive Policy Institute (https://www.progressivepolicy.org/publication/trade-policy-equity-and-the-working-poor/)

"This skew," Gresser writes, means that America's system of tariffs is not only "regressive, but actually discriminatory against the poor."

For months, we've been treated to headlines promising that the Biden administration is considering lifting Trump's tariffs. In June, administration officials told The New York Times that lifting tariffs might reduce inflation by a quarter of a percentage point—even though independent studies suggested the effect could be greater. Yet nothing was done, even after Biden promised that corralling inflation was his "top domestic priority."

When Biden has taken action on tariffs, he's maintained Trump's strategy. Tariffs on solar panels and their component parts that were set to expire this year were extended by an executive order Biden issued in February. That's despite the fact that Biden's solar panel tariffs will make it more difficult for the country to meet Biden's climate goals.

Now, Tai is claiming that equity is central to America's trade policy. Hopefully, that signals a coming tidal wave of trade liberalization and tariff reductions that would make it easier for poorer American households to afford essential products.

With the Biden administration's track record on trade, however, it's more likely this is a bunch of cheap talk that will be followed by a disappointing lack of action."

Biden Student Debt Cancellation Proposal: Even Worse than Expected

By Neal McCluskey of Cato.

"Yesterday, I assembled my top five reasons to oppose mass student debt cancellation in anticipation of the Biden administration announcing a plan today. The plan is somewhat different from what I expected, and worse than I feared.

All but one of my reasons yesterday applies to the proposal the White House put out today. Number two – cancellation would be skewed to higher‐​income borrowers – no longer applies.

As expected, Biden will cancel $10,000 for all federal student debtors up to joint filers earning $250,000. That includes, by the White House’s own admission, basically all but the 5% of top‐​earning households. The big addition is that Pell Grant recipients who also have student loans will get up to $20,000 in debt cancelled. Based on a very rough, preliminary estimate of the share of student debtors who received Pell and their earnings, that changes cancellation from disproportionately helping higher‐​income debtors to lower.

Meanwhile, my rough new estimate is that the cost to taxpayers will be $427 billion. To put that in perspective, it is more than the gross domestic product of Hong Kong and 182 countries. For those who support federal social programs, it is nearly 36‐​times greater than the federal government spent on Head Start in 2022. And if you support defense spending, it is nearly two‐​and‐​a‐​half times larger than the U.S. Army’s 2022 budget. And this, by the way, does not include non‐​cancellation elements of the Biden announcement, including proposals to significantly cut many borrowers’ monthly payments and more generous loan forgiveness in the future.

The other major objections to cancellation still apply.

First, people who go to college, and especially who get degrees, typically garner big earnings increases – $1.2 to $3.1 million over a lifetime – and job security that makes them among the least in need of help. And remember, student loans are a much bigger part of how people pay for graduate school than undergrad.

Second, massive debt cancellation will encourage even greater college price increases as schools and future borrowers will both expect more cancellation in the future. Naturally, the White House cited the incredible rise in college prices to justify mass cancellation without acknowledging the huge role aid has had in it. Never owning the problem you largely created is the federal government way!

Last, but absolutely not least, this is grossly unconstitutional. Congress, not the president, has the spending power, and there is no rational way that declaring a loan a grant is anything but spending. Of course, there is also no constitutional authority for these programs in the first place.

The major reasons to object to mass student debt cancellation might have changed somewhat from yesterday, but that doesn’t make cancellation any better. Indeed, what the Biden administration says it will do is worse than expected 24 hours ago, especially for the Constitution, federal taxpayers, and future students hoping for reasonable college prices.

The Student Loan Giveaway is Much Bigger Than You Think

By Alex Tabarrok.

"Wiping out 10k in student debt is not the most expensive part of the Biden student loan program. Most Federal student loans are now eligible for an income based repayment plan, under these plans you pay a small percentage of your “discretionary” income, say 10%, and then after a fixed number of years the debt is wiped off the student’s books. At first glance these plans don’t seem crazy, but as Matt Bruenig points out they create perverse incentives.

Under the Public Service Loan Forgiveness (PSLF) program, law graduates that go on to work in the public sector, which is a lot of them as the public sector employs many lawyers, only have to pay 10 percent of their discretionary income for 10 years in order to have their debt forgiven.

Law schools figured out many years ago that, for a student who is planning to enroll in PSLF upon graduation, prices and debt loads don’t matter. Ten percent of your discretionary income is ten percent of your discretionary income regardless of what the law school charges you and how much debt you nominally have to take on.

Law schools also realized that they could make the deal even sweeter by setting up LRAPs [repayment programs, AT] that give graduates money to cover the the modest repayments required by the PSLF.

The LRAP schemes work as follows:

• The school increases their tuition.
• The student takes out federal loans to cover the tuition increase.
• The school squirrels away the debt-financed tuition increase into an LRAP fund.
• The school disburses money from the LRAP fund to cover PSLF repayments.

Did you get that? Here’s a stylized example. Suppose a student will make 150k per year for 10 years working in the public sector. If they have 200k in debt they pay 15k every year to the government for 10 years and then 50k is “forgiven.” But now the law school comes to the student and says ‘heh, I have a deal which will make both of us better off. We are going to raise the price of law school to 400k but don’t worry not only won’t that cost you a penny more than the 15k a year you are already obligated to pay it will actually cost you much less because we will pay your payments of 15k per year!’ This indeed is a great deal for the student who pays nothing and it’s a great deal for the law school which gets 200k more revenue immediately in return for 150k of payments paid out over the following 10 years. Win-win! Except for the taxpayer of course.

But wait there’s more. Student loans can be used not only to pay tuition and fees but also to pay “living expenses.” Thus, under these plans, students have an incentive to take out as big a loan as allowed in excess of tuition and fees because no matter how large the loan the student’s costs are zero! Lyman Stone has a good tweet thread giving many examples of how to game the system such as “Every student should borrow their maximum loan eligibility and then find some way to invest it illegally. My strategy would be: rent a wildly oversized apartment and sublet.” And here is a tweet thread from Michael Feinberg showing how even wealthy parents may be able to game the system.

Furthermore, the new Biden plan makes the income driven repayment schemes even more generous!

The IDR changes are four-fold:

• Increase the amount of income not subject to IDR from 150 percent of the federal poverty line to 225 percent of the federal poverty line.
• Reduce the interest rate on IDR-enrolled loans to 0 percent.
• For undergraduate debt, reduce the IDR rate from 10 percent of income beyond the threshold in (1) to 5 percent of income beyond the threshold in (1).
• For IDR-enrolled debts with original loan balances below $12,000, reduce the repayment period from 20 years to 10 years.

Essentially what this means is that every school will now have the possibility of using a law school like program to shift costs onto taxpayers. Thus Bruenig concludes:

…going forward, these new rules could quite radically alter the incentives of colleges and students when it comes to college prices, institutional financial aid, how much debt to take on, and how to approach repayment.

Indeed, these programs are likely to be very expensive and the resulting increase in the price of tuition will lead to calls either to end the program or for price controls on education."

Blind Faith Baloney

By Veronique de Rugy.

"American Compass’s Oren Cass recently had a piece – co-authored with his colleague Chris Griswold – in the New York Times that I just got around to reading. In it, they advise Republicans on what policies to push if the GOP wins big in November. But it’s the following passage that especially caught my eye:

Our organization, American Compass, has been developing a conservative agenda that supplants blind faith in free markets with policies focused on workers and their families. 

Accusing proponents of free markets of being motivated by “blind faith” is a good soundbite. But with all due respect, it’s also a load of baloney.

Those of us who support free markets are not remotely under the spell of blind faith. We have a well-worked out theory, with lots of history and empirical research to back it up- of how innovation is spurred, and resources are allocated efficiently by market prices. (Among the many works that give intellectual credence to support for competitive market processes are Hayek’s “Use of Knowledge in Society” paper, the economics of Armen Alchian, and the historical and theoretical works of Deirdre McCloskey. The empirical literature that shows that economic freedom is key to promoting all the major aspects of life we want like growth, better education, a lift out of poverty, a decline in crime, and more.) As long as consumers spend, and investors invest, their own money and are allowed to keep the bulk of the gains of good decisions while suffering the losses of poor decisions, resources tend be released from less productive uses in order to be reallocated to more productive uses.

At the very least, the competitive market process allocates resources better than does a system in which politicians and bureaucrats – spending other people’s money – override the market’s allocation with various forms of subsidies, restrictive licensing, and protective tariffs. National-security concerns might justify narrowly targeted restraints on competitive markets, but Cass and Griswold were writing here about how to improve the economy, not about how to strengthen national defense.

No offense, but those who truly rely upon blind faith are industrial-policy supporters such as Cass and Griswold who continue to assert that, in the face of lots of evidence to the contrary, government officials can allocate resources better than can the price system. At the very least, unless and until they explain just how politicians and bureaucrats will get and use the knowledge that markets get and use with remarkable success each moment of each day, and how to prevent the fiascos and cronyism produced by past attempts at industrial policy, Cass and Griswold shouldn’t accuse people other than their fellow supporters of industrial policy of being guided by blind faith."

Millions in covid aid went to retrain veterans. Only 397 landed jobs.

See Government Inefficiency, Captured in a Headline by Dan Mitchell. Excerpt:

"Today, we’re going to look at an example of how government spending is the wrong answer.

Here are some excerpts from a story in the Washington Post, but the headline tells you everything you need to know.

"The offer to military veterans left unemployed by the coronavirus pandemic was tantalizing: A year of online courses courtesy of the federal government. Graduates would be set up for good jobs in high-demand fields… Schedules were disorganized and courses did not follow a set syllabus. School-provided laptops couldn’t run critical software. And during long stretches of scheduled class time, students were left without instruction… The disarray…is the most painful example of broader problems with the $386 million Veteran Rapid Retraining Assistance Program, or VRRAP. …nearly 90 schools have had their approvals yanked, according to VA officials, including several that were actively serving about 100 veterans. …only about 6,800 veterans had enrolled in the program, far fewer than the 17,250 Congress created it to serve, the agency said; just 397 had landed new jobs." 

Some of you may be tempted to conclude that the program was a success since it did result in 397 jobs.

Others will conclude it was a failure since the budget was $386 million, implying each job cost taxpayers nearly $1 million.

I sympathize with the second conclusion, of course, but here are two questions that need to be answered.

1. How many of those 6,800 veterans would have landed new jobs if they didn’t participate in the program?
2. How much economic activity would have been generated if the $386 million was left in the private sector?

Suffice to say, the answers to those questions would show more jobs and more prosperity if the program was never created.

Incidentally, the story, authored by Lisa Rein and Yeganeh Torbati, includes this depressing bit of information.

The troubles with VRRAP were achingly predictable: A similar program rolled out in 2012 — the Veterans Retraining Assistance Program, or VRAP — also failed to attract students and was widely regarded as a flop.

In other words, it was already known that this specific type of program would be a flop.

Heck, there are decades of evidence that all types of government job-training programs are a failure.

So why did Congress approve this scheme?

Unfortunately, the story only tells us that this program was part of Biden’s failed $1.9 trillion stimulus boondoggle, but it does not tell us which politicians on Capitol Hill pushed the plan.

I’m sure we would find those politicians got a lot of campaign contributions from that the interest groups that financially benefited the boondoggle.

All part of Washington’s corrupt version of recycling."

New England Governors Seek Jones Act Relief as Spike in Winter Heating Bills Looms

By Colin Grabow of Cato.

"Concerned by high and volatile global energy prices, New England’s six governors dispatched a letter to Secretary of Energy Jennifer Granholm last month asking for assistance. At the top of their wish list: exploring the conditions under which the Jones Act might be suspended to allow the region expanded access to U.S. natural gas. It’s an eminently reasonable request that Congress and the White House should embrace.

Although geographically part of the U.S. mainland, in terms of energy New England is almost an island. Lacking pipeline connections to refining centers outside the region, it also has insufficient pipeline capacity to transport natural gas—New England’s dominant fuel for electricity production—from other parts of the United States during wintertime spikes in demand. Instead, the region must turn to marine deliveries of liquefied natural gas (LNG) to meet its needs. That means imports. While U.S. natural gas is both plentiful and substantially less expensive than elsewhere, there are no ships to transport it to New England.

More accurately, there are no ships to transport it that comply with the Jones Act.

Of the world’s nearly 600 LNG tankers, none are U.S.-flagged, U.S.-built and mostly U.S.-crewed and owned as required by the 1920 law to transport goods within the United States. And such a vessel isn’t likely to appear anytime soon, if ever. With U.S.-built LNG tankers estimated to cost over $500 million more than those from foreign shipyards—although no one knows for sure, since no such vessel has been constructed in this country since before 1980—the economic case for building and operating one is non‐​existent.

The result is that the Jones Act has effectively placed U.S. LNG off‐​limits to New England (and Puerto Rico). While bulk quantities of U.S. LNG have been exported to 37 countries since 2016, they cannot be sent by ship to other parts of the United States.

Hence the New England governors’ letter.

While the inability to access domestic LNG has been an irritant to the region for years resulting in some absurd outcomes, addressing it has now taken on a new sense of urgency amidst turmoil in global energy markets. As the governors’ letter pointed out, global LNG prices—the prices New England must contend with given their limited access to domestic natural gas—have increased by almost 300 percent over the last year. Contracts for gas this winter in the region are already hitting record highs.

At a time when New England needs maximum flexibility to reliably meet its energy needs at the lowest possible cost the Jones Act effectively ties one hand behind its back.

Unfortunately, prospects for a waiver or suspension of the Jones Act appear remote. Congress has shown no appetite for such a move, with a Senate amendment proposed earlier this year to permit the domestic transport of LNG on foreign vessels defeated on a 26–2 committee vote. Secretary Granholm, meanwhile, made no apparent mention of the Jones Act suspension request in a letter to New England governors last week urging them to stock up on oil ahead of the coming winter and hurricane seasons.

In other words, Washington appears more interested in maintaining protectionism for a non‐​existent service—the domestic waterborne transport of LNG—than in providing relief to its citizens’ energy bills. New Englanders better hope for a mild winter."

Many social policy interventions, including some of the most touted, don’t help boys and men

By Tyler Cowen.

"…I was shocked to discover that many social policy interventions, including some of the most touted, don’t help boys and men.  The one that first caught my eye was a free college program in Kalamazoo, Michigan.  According to its evaluation team, “women experienced large gains,” in terms of college completion (increasing by 50%), “while men seem to experience zero benefit.”  This is an astonishing finding.  Making college free had no impact on men…So not only are many boys and men struggling, they are less likely to be helped by policy interventions.

And:

In the U.S. for example, the 2020 decline in college enrollment was seven times greater for male than for female students.

And:

The bottom line is that Finland’s internationally acclaimed educational performance is entirely explained by the stunning performance of Finnish girls.

That is from the forthcoming Richard V. Reeves book, one of the most important of this year, perhaps the most important."

The book is Of Boys and Men: Why the Modern Male Is Struggling, Why It Matters, and What to Do about It.

Socialists' Claims About Socialism 3

By Richard Fulmer for EconLog.

"Communism is an idea. Ideas do not kill people; people kill people.

Stalin, Hitler, and Mao killed millions in the name of, and to further, their respective utopian ideas.  Such ideas are inherently deadly.  They instill a religious fervor in their followers because they are attempting to create their notion of “heaven on earth.”  Anyone who gets in the way of “heaven” is denying future generations inestimable good and is therefore evil and can be slaughtered with no qualms. As German philosopher Friedrich Hölderlin observed, “What has always made the state a hell on earth has been precisely that man has tried to make it heaven.”

 

Socialism prevents corporate monopolies from forming.

Why is it that monopoly by corporations – which must satisfy their customers to survive – is bad, while monopoly by government – which can use deadly force to survive – is good?

Without government intervention, a company can maintain a dominant market position only by satisfying its customers well enough to discourage competitors.

 

Goods are distributed fairly under Socialism.

Probably not. The issue is one of incentives. What incentives do the following economic actors have?

1. Producers of goods being confiscated for redistribution
2. Government personnel doing the confiscation
3. Government personnel doing the redistribution
4. People receiving redistributed goods

Producers want to minimize their losses, so their incentives are to:

1. Hide some or all of what they’ve produced.
2. Produce less.
3. Bribe the people trying to confiscate the fruits of their labor.

The people doing the confiscation are just as “human” as anyone else and just as subject to temptation. They want to increase their own material well-being and that of their families and loved ones. So, their incentives are to:

1. Confiscate more than is required so they can “skim off the top”.
2. Accept bribes from people trying to keep their goods.

The people redistributing the goods also want to improve their well-being, so their incentives are to:

1. Skim off the top.
2. Accept bribes from people who wish to receive confiscated goods.
3. Always have goods available for important people (i.e., people who can affect their well-being), so they tend to…
4. Skimp on the goods given to “non-important” people.

The people receiving goods have incentives to:

1. Exaggerate their needs.
2. Bribe the people who are redistributing the goods.
3. Obtain whatever goods they can; even things that they don’t need can be sold or exchanged on the black market.

 

Real socialism has never been tried.

True, if by “real socialism” you mean “perfect socialism.”  By the same token, “perfect capitalism” has never been tried either. Because people are imperfect, perfect societies aren’t an option. What we’ve found through experience, though, is that imperfect capitalism works quite well – well enough to pull billions of people out of poverty.  By contrast, imperfect socialism always fails miserably and, often, fatally.

The claim that real socialism has never been tried depends largely on the definition of socialism. Certainly, many forms of socialism have been tried in the last two centuries – both on large and small scales.

Although Senator Bernie Sanders enthusiastically supported Venezuelan socialism until the country’s economy collapsed, he claims that what he’s wanted all along is the kind of “socialism” practiced in the Scandinavian countries. But none of the Scandinavian countries are socialist.  All are capitalist welfare states that, in many respects, regulate business more lightly than does the United States.

Congresswoman Alexandria Ocasio-Cortez is a member of the Democratic Socialists of America, which claims to be the “largest socialist organization in the United States” and which supports the Maduro dictatorship.  Article II of the DSA’s constitution reads in part:

We are socialists because we share a vision of a humane social order based on popular control of resources and production, economic planning, equitable distribution, feminism, racial equality, and non-oppressive relationships. [emphasis added]

The highlighted text is far more in line with the Venezuelan, Soviet, Cuban, and North Korean regimes’ brand of economics than with that of any of the Scandinavian countries."

Biden’s student loan ‘fix’ will likely make the problem worse

By Megan McArdle. Excerpts: 

"his administration just announced a jaw-droppingly expensive plan for student loan forgiveness that is actually going to make the problem of college costs worse, while increasing the political pressure for the government to shovel in even more subsidies.

On Wednesday, the Biden administration announced that it would forgive up to $10,000 in student loan debt (up to $20,000 for Pell Grant recipients), using a little-known provision in the post-9/11 Heroes Act, which allows the Education Department to waive or modify student loan payments in times of national emergency. Any debtor making less than $125,000 a year, or $250,000 for a family, will be eligible. The income-based repayment program will also become far more generous; required monthly payments will be capped at 5 percent of debtors’ discretionary income, and smaller loans can be forgiven after 10 years instead of 20.

How many ways can a single policy be bad? This one could cost the federal government somewhere between $400 billion and $600 billion, completely unpaid for. Its legality is at best an abuse of the law to address the “national emergency” of upcoming midterm elections. It will pour “roughly half [a] trillion dollars of gasoline on the inflationary fire that is already burning,” says Jason Furman, formerly the top economic adviser to President Barack Obama. And with the income caps set so high, it remains an extremely regressive policy, heaping benefits on the most affluent demographics, while leaving everyone else to pay the cost through some combination of higher taxes, lower benefits, or higher inflation and interest rates.

Worst of all: What do Democrats do for an encore?

Students who start college next year will get the benefit of the more generous income-based repayment program. But they will look longingly at recent graduates who got better repayment terms and $10,000 knocked off their debt. They will correctly point out that this is unfair — after all, tuition is still rising, so they’re even worse off than their predecessors! They will badger Democratic politicians to help them out, too.

Democrats are putting themselves in the same position as those who kept passing “doc fixes”: This first action will beget demands for a second and a third. Because this isn’t going to cure the underlying drivers of excessive tuition growth, any more than the “doc fixes” fixed the problem of soaring health-care costs.

The student loan program itself represents an attempt to solve the problem of rising college costs, and the theory seems sound enough. After all, kids who went to college would eventually earn a lot more money than they would have otherwise, and loans let them monetize some of that future income to pay their tuition.

But, of course, tuition prices were already partially based on the expectation of higher future incomes, and all that future income shifted backward in time meant colleges could charge even more. One study suggests that when Congress raised the caps on subsidized federal loans, as much as 60 cents of every extra dollar lent got eaten up by tuition increases. Which in turn ballooned loan balances, and in turn created political pressure to make student loan programs more generous to borrowers — as the government has over the years, undoubtedly putting further upward pressure on tuition.

Trying to fix these problems by making it even more attractive to borrow money is like trying to quit smoking by switching to unfiltered cigarettes. When you’re doing something destructive, your best bet is to stop. But if you can’t manage that, you should at least refrain from making the problem worse."

Top Five Reasons Federal Student Debt Cancellation Is a Bad Idea

By Neal McCluskey of Cato. 

"The Biden administration is nearing its deadline to announce what it will do about federal student debt. In part this is because the latest freeze on student debt repayment ends on August 31. Also, at least in part, this is because progressives are demanding cancellation. But pushy progressives and a freeze that should have ended long‐​ago do not make a policy wise. Indeed, there are at least five major reasons mass cancellation is a terrible idea.

1. Helping the Winners

People who have attended, and especially graduated from, college are typically set for a huge increase in their lifetime earnings. As seen below, the average person with a bachelor’s degree will earn an estimated $1.2 million more over their lifetime than someone topping out at a high school diploma. For someone with a graduate degree – and student debt is disproportionately taken on for graduate study – that earnings premium rises to between $1.6 and $3.1 million.

In addition to huge earnings increases, people who attended college have much greater job security than those who did not, and this benefit was especially stark during COVID-19 lockdowns. In April 2020, the unemployment rate only hit 8.4 percent for college graduates, versus 17.6 percent for Americans topping out at a high school diploma and 21.1 percent for workers with less than that.

There is no reason that people in such a good financial position should not repay taxpayers, roughly two‐​thirds of whom do not have bachelor’s degrees.

2. Regressive

We have seen various cancellation proposals floated by different people, but one of the most recent was reported from the Biden White House: $10,000 cancellation with an income cap of $150,000 individually and $300,000 for joint filers. The table below is an estimate for the cancellation amounts and distribution of that plan by income quintile (and decile for top earners).

As highlighted in the graph below, much more of that aid would go to the highest quintile of earners than the lowest — $54.3 billion versus $33.8 billion. That’s because higher‐​income people are more likely to borrow, and borrow more, for college than lower‐​income.

3. Huge Cost to Taxpayers

The $10,000 plan discussed in reason number two would cost taxpayers – the people who funded all these student loans whether they liked it or not – an estimated $260 billion. $50,000 per borrower with no cap would cost taxpayers around $1 trillion. And forgiving the whole amount would cost taxpayers more than $1.6 trillion.

4. Even Worse Price Inflation

The biggest problem in higher education is its incredibly expanding price. As seen below, inflation‐​adjusted tuition, fees, room and board at four‐​year, nonprofit private colleges ballooned from $27,720 in the 1990–91 school year to $$51,690 in the 2021–22 school year, an 86 percent increase. At public four‐​year institutions it rose from $10,430 to $22,690, a 118 percent ballooning. It was accompanied by a huge increase in aid per student.

Much research has shown that aid fuels college price inflation, including a Federal Reserve Bank of New York finding that for every 1 dollar increase in “subsidized” student loans, colleges raise their prices 60 cents. Mass cancellation would incentivize much greater inflation as neither colleges nor prospective students would believe future loans would have to be repaid, blowing the lid off of prices.

5. Unconstitutional

The Constitution gives Congress, not the president, the power of the purse. A president unilaterally cancelling up to $1.6 trillion would be a rank violation of that power. Of course, the federal student loan programs are themselves unconstitutional. The federal government only has the specific, enumerated powers given to it by the Constitution, and the authority to fund education, either directly or through loans, is nowhere among them. Cancellation would thus be a double violation of the Constitution.

Some cancellation advocates argue that Congress gave the president the power to cancel all loans in the Higher Education Act. But not only is the constitutional ability for Congress to give away its power highly dubious, the Higher Education Act does not authorize blanket cancellation, only forgiveness under specific loan repayment programs.

Conclusion

Mass cancellation would be a blatantly unconstitutional giveaway of taxpayer money to the people who arguably need it the least, and it would exacerbate the biggest problem in higher education."