Make the poor, poorer.
Meanwhile, protect the wealthy.
There is a double standard on "moral hazard."
Yes, young people were improvident: They foolishly believed adults--the politicians, colleges, and labor economists. Conservatives make their values clear: It would be moral hazard to bail them out. It would be unfair to the people who did not go into debt. Besides, it would be inflationary, since the money going into interest payments would be directed back into the economy to buy things. But bailing out venture capitalists and giving tax breaks to the wealthiest--well that just makes good sense to conservative pundits and politicians.
Recessions end inflation. Business slows down. People get laid off, especially marginal workers at the bottom of the income pyramid. The Fed sees low unemployment figures and is continuing to raise interest rates. Unemployment is the lowest it has been in 55 years. Minimum wage jobs aren't getting filled until employers pay $15, $16, maybe $18 an hour. I see help-wanted signs everywhere.
It is never a good time to be a low-skill, low-experience employee, but this is as good a time as it's been since 1969. Back then, in my youth, the economy was supercharged by the government's Vietnam war spending. That combined with 500,000 young men being out of the job market because they were deployed in Vietnam. Millions more were out of the full-time workforce because they were sheltering in college to avoid the draft.
A recession this year will reduce the marginal demand for labor. The income those people don't make will reduce overall demand. That will send price signals through the economy. Banks will be more wary to lend, and that will further reduce the money supply. The poor get poorer so everyone else is better off.
There are other ways to pull demand from the economy. One is to raise taxes on the people who pay most of the taxes, i.e. the wealthy. This is in the control of Congress. The effect is direct, almost immediate, and targeted. Money that might be spent is used to reduce the deficit--a widely acknowledged public good. But that targets people with political power. That won't happen.
Americans are seeing a drama play out. The wealthy stay rich. The poor get poorer, and lectured. It preserves the current balance of winners and losers.
The Fed and FDIC just bailed out the large, uninsured depositors of two failed banks. Avoiding a banking crisis is a public good. But the depositor bailout raises the issue of "moral hazard." Some business depositors wisely (in hindsight) chose to bank with large, acknowledged too-big-to-fail banks like JP Morgan, which operate under tighter regulation, instead of smaller regional banks. They missed out on the corporate validation of banking with a specialized technology-startup bank. But now, all bank depositors, including JP Morgan customers, will be paying higher FDIC insurance costs. It is unfair. The improvident SVB depositors got something extra and undeserved.
I liken this to the student loan-forgiveness issue. There would be a generalized benefit by reducing the debt burden on millions of young adults. For a generation high school students heard the message that the way to secure their future was to get a college degree. Colleges sold the idea. Politicians agreed. Lose your manufacturing job, but don't worry. Just retrain. Go to college. Easy credit allowed colleges to raise rates. Congress made college debt non-dischargeable in bankruptcy. The trap formed.
Fifty years ago a young man could work his way through the most expensive college in America with summer jobs and part-time employment during the school term. I grew melons and fought forest fires in the summer and worked in libraries during the school year. Wages were good in relation to college costs. Not now. The least expensive regional colleges are less affordable now than were the most expensive private schools in 1969.
The double standard is real. It is the way of the world. That is why people call it systemic.
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12 comments:
Might it also be a moral hazard to allow wealthy individuals and corporations to make unlimited political contributions that allow them to so control the levers of political power that they become immune to the consequences of their economic mistakes?
As eloquent a column as you've written, Peter. I especially liked, "The poor get poorer and lectured."
Sound, well reasoned ideas wrapped in good writing.
Thanks.
I think that when a young college graduate cannot make enough money to live on and pay off their student debt, the debt obligation should go back to the college that sold that young person an economically worthless degree.
College kids often have very little judgment; college officials who get them to sign up for mass quantities of debt are exploiting their naivety.
The concept of free public education, once unthinkable, in sabotaged by a corrupt college loan system, facilitated by collusion between banks, schools and a well meaning, but misguided government. A college education does more than train someone in a profession, it also develops citizenship and a worldly awareness. It's one reason college educated voters lean Democrat, and also why Republicans are waging war against it. It's called "higher learning" for a reason, and it should be free for those who are able.
It's it's pretty rich to call righting a wrong "moral hazard", while rewarding irresponsible risk taking by banks.
The U.S., which bills itself as the wealthiest nation in the world, has one of the highest poverty rates and weakest safety nets of the world’s wealthy countries. That’s actually pretty piss poor. It also has the highest incarceration rate, the most people with no health coverage and the most gun violence. Republicans proudly refer to it as "American Exceptionalism.”
Spot on, Peter! In the late 60s we needed no stinkin college loans. I supported both myself and my wife working part time at Safeway, for $1.65 per hour. Brand new apartment with pool, cost $100/month. Tuition was $50/semester at Texas Tech, no help from government needed nor wanted.
Life was good. Something went very, very wrong in the last 50-60 years.
“ I think that when a young college graduate cannot make enough money to live on and pay off their student debt, the debt obligation should go back to the college that sold that young person an economically worthless degree.”
That idea has some merit. It might bankrupt the college system,but offhandedly I like it.
When the discrepancy between rich and poor becomes too pronounced revolution occurs. The rich might want to rethink this pattern.
You nailed exactly why I left the Democrat party about 10 years ago, Peter. They both provide just about the same at the top. Both sides will equally and readily tell you the other side is all that stands in the way of utopia. Both sides will push for single party dominance by painting the other as deleterious and apocalyptic.
At the bottom the Republicans admit the government does not work for the people like it should, that the working class is fucked and that the poor need to stop waiting for a miracle. It sucks but it is honest.
Democrats won't admit any of that. In fact, even calling attention to it is evil. Just one more vote, one more election, one less opposing party member and the fantasy world comes true. Any Democrat here who disagrees with me can probably afford to. I refer all to this link for more information.
I lived that lie. I grew up poor in a black ghetto in Seattle, being taught in the 1980s that Democrats will save the day from those evil Republicans.
They are all the same, except one wasn't lying to me about it.
I'm honing the tines on my pitchfork, and refreshing the fuel on the torch, just in case.
Brian1, are you seriously suggesting the war in Iraq wasn't based on a lie, the Birther Movement wasn't a lie, or that Trump wasn't lying to you every day?
Mike if you do the math (the whole subtract 10 part) I was a Democrat during the war in Iraq and during Obama's first election. I voted for the guy once.
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