Gyroscopic Investing

THE FRENCH PRESS
Is There a Christian Case for Biden’s Debt Relief Plan?
Yes, but it’s not persuasive.

https://frenchpress.thedispatch.com/p/i ... ingIn=true

Why does this matter? In a Q&A in The Atlantic, Jason Furman, a former chairman of President Barack Obama’s council of economic advisers, put it like this:

One group is getting $500 billion. And they’re going to spend more. They’re going to buy more housing. They’re going to be better off. The problem is that the economy is already producing the most it possibly can. If anything, the Fed wants it to produce less, not more. What will happen is that they will spend more and it will drive up the price of houses and everything else. Due to that inflation, every household will end up spending $200 more a year on what they need.

There isn’t free money out there. There are consequences. Once you frame it as 320 million people paying for a benefit for 30 million people, it makes you think a lot harder. You’re giving a benefit to someone making $200,000 a year. How important is it to give them relief?


In addition, the Biden plan might make the problem of college costs worse. Again, here’s Furman:

There’s the expectation that debt relief will happen again. That will lead to shifts in the college-financing system, toward loans and away from grants. It will also raise college tuition, as colleges move to capture some of this spending. Our goal should be getting more people into college. It is not obvious that Biden’s plan helps with that goal. It might even hurt that goal.

Finally, as I discuss all the time, the “how” of a policy can matter just as much as the “what,” and the legality of Biden’s plan is dubious, at best. In July 2021, House Speaker Nancy Pelosi argued that Biden did not have the authority to forgive student debt. Here’s what she said:

Here’s the thing. People think that the president of the United States—is this more on the subject than you ever want to know? Well, you’ll let me know. 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. That has to be an act of Congress.

Putting the whole article here because I assume that most of you will not be able to see it due to needing a subscription? Anyone convinced by his arguments?

Vinny



https://www.theatlantic.com/ideas/archi ... tlanticcom


Actually, Canceling Student Debt Will Cut Inflation
Biden’s targeted loan forgiveness will help, not harm, the economy.
Joseph E. StiglitzAugust 25, 2022
We want to fight inflation and we want to keep the labor market strong. One of the most important ways to achieve both goals is to forgive a portion of student-loan debt. And yesterday, President Joe Biden announced that he was doing just that�canceling up to $10,000 in student debt for those making less than $125,000 and designating an additional $10,000 in loan forgiveness for Pell Grant recipients. Yet critics are attacking the measure, even at its modest level and with its targeted exclusions and benefits, as inflationary and unfair.

Whatever your view of student-debt cancellation, the inflation argument is a red herring and should not influence policy. Taking that logic to the extreme, canceling food stamps would do far more to reduce inflation�but that would be cruel and inhumane, and fortunattely, no one has suggested doing so. A closer look at the student-debt-cancellation program suggests that the new student-loan policy may even reduce inflation; at most, its inflationary impact will be minuscule, and the long-term benefits to the economy are likely to be significant.

The contention that debt cancellation will be inflationary contains a series of flaws. To start with, the value of the reduced debt repayments is so small that the cancellation’s impact will be negligible.

Although the broad estimates of the total amount of canceled debt can be big�some reach hundreds of billions of dollars�—these figures derive only from budgeting practices for how credit programs like student loans are recorded. The government and budget analysts calculate a number that is known as “the present discounted value of foregone payments.” This corresponds to a current estimated value not of the lost payments this year, but of those in all future years. In other words, this calculation treats all of the losses from debt cancellation as though they occurred right now in a single year (adjusted for inflation)�a far cry from the reaality. Such an accounting procedure can be an appropriate practice for thinking about the government’s long-run balance sheet, but it is a very poor guide for understanding what actually happens to people’s spending.

Jerusalem Demsas: Who really benefits from student-loan forgiveness?

The inflation hawks compound this error by assuming that the indebted students will take their forgiven debt and go on a spending spree, a splurge of such magnitude that they would have to somehow find someone in the private sector willing to lend them the same amount at low interest rates to finance their extravagance. Economic theory says that these individuals will, at most, consider this an increase in their net wealth�I say “at most” because in many cases, these loans would never have been repaid at all. And economic theory also says that an increase in wealth is spent gradually over the course of a person’s life, not all in one year.

The actual amount of annual debt payments that would be reduced now, during this present inflationary episode, will probably run to tens of billions of dollars, not hundreds of billions. The lower number is likely because, again, many of those whose debt is being forgiven would not be making the payments anyway; many people with these debts simply don’t have the economic means to repay them.

The costs of cancellation are also far less than the value to be realized when student-debt payments resume after having been halted during the pandemic. Right now, because of the forbearance put into place in 2020, no payments are being made on government-owned student loans. This policy was essential to stabilize the economy during the pandemic. As part of a larger program of cancellation, the Biden administration would end forbearance; the resumption of payments in January is estimated to be worth more than $30 billion annually.

These numbers are modest relative to the size of our economy. Still, their net effect will be to reduce inflation.

Some of the critics demand that payments should simply resume without any cancellation. That would plunge a large number of student debtors back into immediate financial distress and further loan delinquency. According to analysis from the Federal Reserve Bank of New York, just before the pandemic, 11 percent of student debt was either in default or more than 90 days in arrears. Because of pandemic forbearance and other emergency measures, that default rate went to zero for most student debt�thouugh researchers found that student loans excluded from forbearance continued to default, not surprisingly, at a high rate. According to the New York Fed’s survey, once payments resume, we will quickly return to that world: A large segment of people will be unable to service their payments and, in the Fed’s words, “lower-income, less educated, non-white, female and middle-aged borrowers will struggle more in making minimum payments and in remaining current.”

Ben Sasse: How to really fix higher ed

This level of distress is bad for the economy, both in the short run, as we strive for a robust recovery, and in the long run. Having little or no access to credit means that starting a family or a small business, moving, or otherwise building up lives is much harder for so many young people. A growing body of evidence backs up the common-sense conclusion that student-loan debt is linked to people delaying significant life events such as getting married and having children.

This has society-wide consequences. People’s well-being is obviously affected, and so is the economy. The Federal Reserve Bank of Philadelphia found that student debt is associated with weak new-business formation, in particular of new businesses with one to four employees. Given that the rapid increase in the number of small businesses�especially ones founded by Black and brown entrepreneurs�tthat we saw in 2021 may already be slowing down, we should be looking for ways to support that growth, not undercut it.

Studies of those student debtors who have had the good fortune to get their debt canceled by courts have found that the freedom from loan payments allows people to borrow anew and move around the country to take better jobs. Because continuing to build up our labor force and help people find jobs better matched to their skills is so important, a comprehensive student-loan debt-cancellation program will have a valuable economic upside.

Until recently, the U.S. led the world with high-quality and widely accessible college education. American prosperity and freedom have been tied to innovations such as the land-grant university, the GI Bill, and our world-class public universities. But because that education now comes at an ever-increasing price accompanied by an ever-increasing student debt for so many, our students fall behind before they even start their first jobs. The entire system of supporting and financing higher education needs an overhaul, but in the interim, we need to understand and address the immediate problem�and the Biden administration yesterday toook a crucial first step by reducing the debt burden on many struggling American families.

yankees60 wrote: ↑Mon Aug 29, 2022 10:44 am Putting the whole article here because I assume that most of you will not be able to see it due to needing a subscription? Anyone convinced by his arguments?

Vinny

No.

Really very unconvincing. I'm all for a more comprehensive fix but the interim fix he's extolling will make all the problems worse rather than better.

What about this... rather than "forgiving", what if we clawed the money back from the universities involved? That would be non inflationary and also would address the issue of incentives for the schools.

Mountaineer wrote: ↑Mon Aug 29, 2022 3:12 pm

yankees60 wrote: ↑Mon Aug 29, 2022 10:44 am Putting the whole article here because I assume that most of you will not be able to see it due to needing a subscription? Anyone convinced by his arguments?

Vinny

No.

The article didn't even have a single argument why it won't cause at least a little inflation. It just tried to persuade why it is a good thing with emotions.

If student loans are really so burdensome, make them bankruptable instead of the handout.

Mountaineer wrote: ↑Mon Aug 29, 2022 3:12 pm

yankees60 wrote: ↑Mon Aug 29, 2022 10:44 am
Putting the whole article here because I assume that most of you will not be able to see it due to needing a subscription? Anyone convinced by his arguments?

Vinny

No.

I am with you.

Xan wrote: ↑Mon Aug 29, 2022 3:22 pm
Really very unconvincing. I'm all for a more comprehensive fix but the interim fix he's extolling will make all the problems worse rather than better.

What about this... rather than "forgiving", what if we clawed the money back from the universities involved? That would be non inflationary and also would address the issue of incentives for the schools.

Or, going forward make all student loans be from the colleges / universities they attend with those schools then having the full burden of them collecting them. I'll be they drastically reduce admittance of marginal students who going in they know have little chances of graduating.

whatchamacallit wrote: ↑Mon Aug 29, 2022 3:39 pm

Mountaineer wrote: ↑Mon Aug 29, 2022 3:12 pm

yankees60 wrote: ↑Mon Aug 29, 2022 10:44 am
Putting the whole article here because I assume that most of you will not be able to see it due to needing a subscription? Anyone convinced by his arguments?

Vinny

No.

The article didn't even have a single argument why it won't cause at least a little inflation. It just tried to persuade why it is a good thing with emotions.

If student loans are really so burdensome, make them bankruptable instead of the handout.

Of course. Push the burden and loss to those making the loans rather than on the taxpayers. Again, they'd be more careful as to who they make their loans to.

Desert wrote: ↑Mon Aug 29, 2022 3:41 pm

Xan wrote: ↑Mon Aug 29, 2022 3:22 pm Really very unconvincing. I'm all for a more comprehensive fix but the interim fix he's extolling will make all the problems worse rather than better.

What about this... rather than "forgiving", what if we clawed the money back from the universities involved? That would be non inflationary and also would address the issue of incentives for the schools.

I have yet to see the breakdown of tuition increases: Percent due to University cost increases that outstrip inflation, versus reduction in state funding for universities. Below is some info on the second part:

After adjusting for inflation:[3]

Of the 49 states (all except Wisconsin)[4] analyzed over the full 2008-2017 period, 44 spent less per student in the 2017 school year than in 2008.[5] The only states spending more than in 2008 were Indiana, Montana, Nebraska, North Dakota, and Wyoming.
States cut funding deeply after the recession hit. The average state spent $1,448, or 16 percent, less per student in 2017 than in 2008.
Per-student funding in eight states — Alabama, Arizona, Illinois, Louisiana, New Mexico, Oklahoma, Pennsylvania, and South Carolina — fell by more than 30 percent over this period.

https://www.cbpp.org/research/state-bud ... on-funding

A good part of the operating cost increases are discretionary on the part of the colleges, and don't contribute to better outcomes.

Desert wrote: ↑Mon Aug 29, 2022 4:31 pm

I Shrugged wrote: ↑Mon Aug 29, 2022 4:02 pm
A good part of the operating cost increases are discretionary on the part of the colleges, and don't contribute to better outcomes.

I think that's the case also, I'd just like to find some decent data. I'll keep looking.

I imagine sports is one area of huge cost increases. Few sports programs are profitable.

Probably not. Big-time sports programs bring in incredible amounts of money. How else do all these football or basketball coaches become (by far) the highest paid employees in their states.

I think it is more of providing dream-like experiences for students and competing as to who can provide the most to the students.

I was just telling someone yesterday of my freshman dormitory experience in 1969. I think it was a three floor dormitory with 100 (?) of us per floor?

Not one TV in the entire dormitory.

One pay phone per floor.

Could we have had any less amenities??!!!

Compare that to student college life now.

By the way the full cost of a year at this selective private school was $4,000. Equivalent to $32,200 now. I had a $500 scholarship that first year.

The next year the tuition was raised $400 now the full cost was $4,400, an increase of about $3,200 now, bringing it to about $35,400 now. Plus they took away my scholarship saying I no longer needed it! I always thought they gave it to me as part of the inducement to get me there and then once they had me took it away.

Desert wrote: ↑Tue Aug 30, 2022 10:33 am

yankees60 wrote: ↑Mon Aug 29, 2022 6:55 pm

Desert wrote: ↑Mon Aug 29, 2022 4:31 pm
I imagine sports is one area of huge cost increases. Few sports programs are profitable.

Probably not. Big-time sports programs bring in incredible amounts of money. How else do all these football or basketball coaches become (by far) the highest paid employees in their states.

I should have said athletic departments, rather than sports programs. Many pigskin and round ball programs are cash positive, but the majority of athletic departments as a whole are not.

But I agree with your overall point, that the other factors are likely dominant. Lots of staffers and administrators, building renovations and additions, etc.

I'd say the overall point is that when I went it was a fairly spartan existence for students. Now for some (many) of them it may be the best they will live in their entire lives. The work situations they go into may be a major reality check / shock that this is the way the "real world" lives -- not with every conceivable amenity available to them.

So the colleges' spending spree on amenities requires that anybody getting a degree must pay for them.

Basically they're taking out loans to live in luxury. With little choice, even!

Xan wrote: ↑Tue Aug 30, 2022 10:49 am
So the colleges' spending spree on amenities requires that anybody getting a degree must pay for them.

Basically they're taking out loans to live in luxury. With little choice, even!

I think you have it correct.

Unless there sprout up stripped down colleges which are like what I went through and which then have corresponding much lower costs to attend them.

Seems like there could be a demand for such colleges?

They actually exist for the first two years of college - they care called community colleges or junior colleges. About all they offer is an education.

In a book that I read about how to graduate debt free ... part of the author's recommended strategy was to go first two years at a community college, last two at the state school, live at home, work every spare moment. That's not the way 95% of students do it?

Well college is way more than an education. It's a club. A journey of self discovery. And not that ascetic BS. Kids need a lazy river on campus these days.



I suspect what happened is loans cheaper > competition for students > amenity arms race > more overhead dollars spent > more debt....

And I think Online education along with Community College is a way to cut through the rising costs.

joypog wrote: ↑Tue Aug 30, 2022 4:36 pm Well college is way more than an education. It's a club. A journey of self discovery. And not that ascetic BS. Kids need a lazy river on campus these days.



I suspect what happened is loans cheaper > competition for students > amenity arms race > more overhead dollars spent > more debt....

And I think Online education along with Community College is a way to cut through the rising costs.

Agreed; it's the cheap loans that did it. So this forgiveness is more of what made it bad.

yankees60 wrote: ↑Tue Aug 30, 2022 10:45 am

Desert wrote: ↑Tue Aug 30, 2022 10:33 am

yankees60 wrote: ↑Mon Aug 29, 2022 6:55 pm

Desert wrote: ↑Mon Aug 29, 2022 4:31 pm I imagine sports is one area of huge cost increases. Few sports programs are profitable.

Probably not. Big-time sports programs bring in incredible amounts of money. How else do all these football or basketball coaches become (by far) the highest paid employees in their states.

I should have said athletic departments, rather than sports programs. Many pigskin and round ball programs are cash positive, but the majority of athletic departments as a whole are not.

But I agree with your overall point, that the other factors are likely dominant. Lots of staffers and administrators, building renovations and additions, etc.

I'd say the overall point is that when I went it was a fairly spartan existence for students. Now for some (many) of them it may be the best they will live in their entire lives. The work situations they go into may be a major reality check / shock that this is the way the "real world" lives -- not with every conceivable amenity available to them.

You’re exactly right.

joypog wrote: ↑Tue Aug 30, 2022 4:36 pm
Well college is way more than an education. It's a club. A journey of self discovery. And not that ascetic BS. Kids need a lazy river on campus these days.



I suspect what happened is loans cheaper > competition for students > amenity arms race > more overhead dollars spent > more debt....

And I think Online education along with Community College is a way to cut through the rising costs.

My first college I went to for two years. Had the whole "college experience". I dropped out at the age of 20. Said I'd never go back to college. I was going to be the "self-made man".

I was led to go back to college at 24 years old. This time I knew exactly why I was there. I treated it like a business. Strictly to get an education. Was only on campus when necessary to be in classes. Had no need for any other parts of the "college experience". It was just - the professors teach, I perform, I get my two degrees.

We very specifically structured our children's college support to ensure our kids had real financial skin in the game from day 1 after hearing many nightmare stories from friends and work colleagues whose kids thought it was party time at high 5 figure annual cost schools, got the boot and the very expensive "party debt" as a memento of their time at East Coast Party U. We wanted them to be able to get out of college debt free or very close to debt free if they took it serious and graduated. If they didn't, the full financial cost was on their shoulders. It worked great. All my kids worked during school, have phenomenal work ethics and have reaped the rewards of good degrees and minimal/no debt after graduation.

I think one of the big problems with student loans is the several years deferment. I feel they should be like any loan...first payment due the following month.

I think overall it's a good thing to help with getting a higher education, but it's also pretty clear that the system has gone off the rails and in fact is making higher education even more expensive at a rate faster than inflation.

If I were king for a day I would require anyone getting a student loan be sat down in a room and be given a "degree economics 101" class NOT taught by the university. Curriculum roughly like this...

If you get a psychology degree your debt is X and the payback for your degree is negative by Y vs. your friend who went through electrician's school at the local VoTech (or probably even the one who is an assistant manager with no degree at Panda Express).

On the flip side...if your degree is Computer Science etc.

Kbg wrote: ↑Wed Aug 31, 2022 9:51 am
We very specifically structured our children's college support to ensure our kids had real financial skin in the game from day 1 after hearing many nightmare stories from friends and work colleagues whose kids thought it was party time at high 5 figure annual cost schools and got the boot and the very expensive "party debt" as a memento of their time at East Coast Party U.

I think one of the big problems with student loans is the several years deferment. I feel they should be like any loan...first payment due the following month.

I think overall it's a good thing to help with getting a higher education, but it's also pretty clear that the system has gone off the rails and in fact is making higher education even more expensive at a rate faster than inflation.

If I were king for a day I would require anyone getting a student loan be sat down in a room and be given a "degree economics 101" class NOT taught by the university. Curriculum roughly like this...

If you get a psychology degree your debt is X and the payback for your degree is negative by Y vs. your friend who went through electrician's school at the local VoTech (or probably even the one who is an assistant manager with no degree at Panda Express).

On the flip side...if your degree is Computer Science etc.

All good points. My friend put four of his children through college. I think he told me that he told each of them he'd pay for $15,000 a year (???). If any of them wanted to go to a more expensive school then they were going to have to pay for any excess costs over that $15,000.

For us it was 50% of all costs for every semester with a B average and senior year 100% with a B average. The thought being skin in the game early and a reward for hard work and achievement in their last year (and if they went that far they are going to finish).

Kbg wrote: ↑Wed Aug 31, 2022 10:00 am
For us it was 50% of all costs for every semester with a B average and senior year 100% with a B average. The thought being skin in the game early and a reward for hard work and achievement in their last year (and if they went that far they are going to finish).

That all seems great. Plus preparing them for the real world where in the right situations they would get better rewarded for producing results.