Episode Transcript
Speaker 0 00:00:00 The topic tonight is basically the proposals out there. Although I don't want to get too much in the weeds, I I, I'm leveraging off of the idea of these proposals to cancel or sometimes called forgive student debt and related issues, free tuition or, uh, substantially freer tuition and quibbling over, whether that's just community colleges, other colleges, what kind of colleges for-profit colleges, nonprofit, private, public, all that. But philosophically, I want to go at this somewhat philosophically, a little bit of economics, politics as well. And as I normally do, I'm gonna say things for about 15 or 20 minutes, and then I'm curious what you folks think. Um, I first researched this heavily about, uh, I don't know, five years ago and actually had a student session at Duke. Uh, the students are obviously very interested in this, or their parents are. Um, alright, the, the general contours of the, of the issue.
Speaker 0 00:01:05 Uh, there has been a massive increase in student debt in the last, uh, two decades, but mo mostly in the last decade. Uh, if, if you remember, some of you may remember in 2010, part of the Occupy Wall Street was, and that was during the financial crisis where, uh, banks and car companies were getting bailouts. A lot of the students who gathered, uh, down near Wall Street were looking for student loan bailouts. And that's a good thing to remember because their story when something like this, I've just incurred, you know, a hundred thousand dollars in debt and I have a sociology degree in whatever, uh, you know, queer dance studies or something like that. And so the first thing to ask is, wait a minute. Why did you spend all that money on a non remunerative degree? That would be an interesting thing to add. Would that happen out of self interest in a premarket? Probably not. And so, even so, why aren't you embarrassed to be admitting, admitting this publicly rather than just go fix the situation yourself. You know, what's it got to do with us? But it was a clear, just a clear demand for forgiveness and cancellation, because others were getting bailed out as well. So it wa it wasn't really a logical argument, it was more the idea of, Hey, why can't we get bailouts too for doing stupid things?
Speaker 0 00:02:26 Um, but I wanted to also kind of suggest a parallel to give another hook to this, the housing crisis, the mortgage crisis of 10 years ago. Uh, students to this day, when I teach them, they do not know really. Of course, they're getting further away from that now. So they were eight or nine when it happened. They think the financial crisis of oh 8 0 9 was caused by Wall Street greed or deregulation. It was actually caused by a deliberate government program to put people in houses they couldn't
Speaker 1 00:02:58 Afford. They were called subprime loans. Subprime meant below average quality, almost like the equivalent of junk bonds, non-credit worthy people. Now, now think of the argument, um, by the way, this was bipartisan. Clinton did it, and Bush did it to an even greater extent. So this program really began in the late nineties, and it's very similar to what's happened in tuitions and colleges. So, so follow this logic. It goes something like this. Homeowners tend to be more stable family life. They tend to have higher income. I mean, homeowners versus renters. And, you know, homeowners have all these great demographics, uh, health and longevity and marital status, and all those good things. So the argument was, we need to put more people in homes so they will benefit by all these wonderful things. Reversing cause and effect. I mean, effectively, literally reversing cause and effect, not realizing that responsible behavior and savings and having a job and making sure you don't have kids out of wedlock and building a nuclear family would enable you eventually to get a home, get a house.
Speaker 1 00:04:10 Uh, it doesn't mean that everybody else renting, you know, can't afford a house. I mean, some people rent because it's the preferred choice. But that policy was a complete disaster because by trying to boost, which was they were trying to do, they were trying to boost the home ownership rate at the time, it was 65% nationally in the us and they said it, it should be higher than that. It should be 70%, it should be perhaps 75%. So they went on a deliberate program of using the government, uh, sponsored ac Fannie Mae, Freddie Mac to subsidize and secure and, and, uh, guarantee loans of lower quality. And then they passed programs that said, you don't have to put much money down when you buy the house, so you don't have to make much of an investment yourself. Uh, of course this led to, uh, very precarious situation where millions of people bought homes basically borrowing 100% of the money.
Speaker 1 00:05:08 And when the loan value, when the house values declined, they just defaulted. So mass defaults, which proceeded to cascade through the financial system causing mortgage backed securities and banks to fail. So I, I interpret that whole event. Well, it's not really event, it was like a decade long program, and it's collapsed as a massive government failure. Uh, but it has a pattern similar to schools. The school things, the, the higher education issue is, is going on longer. And it's not as a acute maybe, but the principle is the same. The idea was the idea is something like here is a valuable thing, uh, to a, uh, uh, an academic degree, you know, at a major institution. It's a valuable thing. And just like home ownership, it too can be associated with higher income, higher job security, advancement, that kind of thing. Uh, socioeconomic statistics that anyone can pull up.
Speaker 1 00:06:06 And this kind of logic. If so, uh, the market doesn't seem to be providing these or making them affordable to enough people who can't afford it. Let's set aside for a moment the aptitude of people applying to these, uh, institutions. So let's subsidize it. Let's finance it. And just as the artificial subsidization of house homes inflated their price, so the artificial subsidization of tuitions has infl their price. So what begins as a seemingly altruistic call to help those who can't afford this wonderful value, they end up inflating the value anyway and making it unaffordable. Now. Now, sometimes this did not happen with housing. Thankfully, sometimes they meet the artificially inflated prices with price controls. They literally tell, they might tell, home builders don't charge more than acts for your house prices. They would presumably do the same thing to universities. They could say, stop using this extra tuition subsidization for just boosting tuitions.
Speaker 1 00:07:14 We put a cap on that. Now, that would've caused you, if you know your economics, you know, that causes shortages when the price is held below what the market value will be. In this case, we're talking about an official market value, right? Because of all the gov, government subsidization, there would be shortages. Well, that's not what we've seen. And I guess that's the only good part of this story. But we still have this massive inflation and now of the tuition price. And that is really what's related to the debt problem. The debt problem. Uh, the student debt problem is a derivative problem. It's a derivative of the fact that the tuitions are so high and rising and that they had to borrow a lot of money to go to school and they had to borrow a lot of money to go to school cuz the tuitions themselves are inflated and the tuitions themselves are inflated because again, it was decided as this kind of collectivist altruist government policy that, uh, access to higher education should be expanded on the, on the backs of the taxpayer.
Speaker 1 00:08:14 So I just wanted to give you that context. In those two cases, there are many more you can name by the way, where government does this and where the problem is initially caused by government, and then its subsequent follow up. Doesn't make it any better. Now, I think we're dealing with something like the injustice associated with just canceling deaths. And, uh, there are very proposals out there. So, uh, Senator Warren and Sanders, uh, are on record saying they want to cancel $50,000 in student debt, uh, per person. Biden says only 10,000, right? So they really don't differ on the principle of the issue. They're just haggling over numbers. And the other thing they haggle over is whether to just do it by executive decree. Apparently, apparently Biden could do that or whether to do it by legislative enactment. Again, those are just the, to me, minor details of, of the mechanics of it.
Speaker 1 00:09:13 Whereas the principle of it has been conceited. Now, it might interest you that the first thing to think, that you think of when you think of, well, can Biden just eliminate it with the magic wand of an executive pen, or Warren and Sanders and the legislative? Why would government be able to do that? Low and behold, most of the 1.7 trillion in student debt into the government, how the heck that happened? Going back and until World War ii, college financing in the US was totally private, there was almost no government involvement. Whatever. Uh, it's true that a smaller sliver of the population went to college, but it wasn't because only rich people went to college. All sorts of different people went to college. And typically how it was funded for those who couldn't afford the full tuition was endowments, scholarships. I mean, it did have loans, but it would be loans from the college endowment.
Speaker 1 00:10:15 And so it was a kind of self-contained thing with a check on it. And of course, when you think about that kind of lending, you would pay attention to how the student was doing. You would pay attention to what kind of degree the pursuit the, the student was pursuing. And so that there'd be some match and some connection between, um, to make them more responsible. Now, the private market in to some degree now, this will be just bank loans, uh, banks and savings and loans did start provide student loans in the 50, uh, on the heels of the GI bill, which was passed in 1944. I can talk a bit about that in a minute. And, and so again, I, I don't think there's anything in capitalism that forbids private banks or SNLs from assessing loan requests from students after. When you think about it, actually, if a student goes to a bank and says, you know, I am going to get a college degree.
Speaker 1 00:11:10 I have great prospects. I expect to go into this kind of business, I expect to make this kind of money and I'll pay back. That is actually no different than a business entrepreneur story. And I think it actually might be even more of, it might be even a safer loan in the sense that the students is isn't asking, you know, to start a new business or a restaurant or some high failure rate enterprise. Um, the statistics are pretty clear on if you go to Dartmouth, you know, and you want to be a lawyer, <laugh>, what kinda law degree will you get? This, those were not difficult loans to make, but they were still private sector loans. Now, unfortunately, in the US this impetus for government financing schools really took off in World War ii. So the first major intervention was the DI bill, if you've heard of that.
Speaker 1 00:12:04 So this is guys coming home, having been conscripted already sent to World War ii. This is the ones who came back and weren't dead, came back, and a program was passed to give them free tuition. Now, this wasn't mandating that college charge no tuition, which is the current proposal. For some, it was the tuitions are left as they are, but the taxpayer will fund the veteran if they went to college. So it did somewhat artificially boost the number of guys who went to college. On the other hand, it was accepted, and you can see why this might be accepted, not as a gift, but as restitution in some way just took two or three year of your life. Uh, you might even be injured by having been in World War ii. And, um, may it's just part of deficit, uh, excuse me, maybe it's just part of military spending.
Speaker 1 00:13:00 Um, and so it was a plausible program, but just so you know, I mean, that was the beginnings of government financing. And then it did contribute not only to more people going to college than probably would've otherwise, but also to the beginnings of an inflation of tuitions. Now, the net big step was actually motivated by Milton Friedman. This is a, this is a remarkable story because Milton Friedman, the great free market economist, Chicago economist, won the Nobel in 76 in the fifties as a treasury, uh, uh, analyst. He came up with the idea of government funding STEM degrees. Why would there be st? And this was a 1958 program called the National Defense Education Act. My gosh, what was going on in 1958? Sputnik was the year before. So there was a great concern that not enough people were getting STEM degree. STEM is, uh, science technology, you know, engineering and math, the kind of things that would contribute to the space program.
Speaker 1 00:14:03 Ultimately got started finance subsidizing that in something called the National Defense Education Act. And it started making direct loans. Now, some of these weren't gifts as they had been in the, um, GI Bill, but they started guaranteeing loans that was a different, uh, not, not, uh, guaranteeing, excuse me, direct loans. So they were still loans, but they were government being more involved in, in the process. Now, the other big 1, 19 65, this is only seven years later as part of the Great Society Program, right around the same time that Medicare and Medicaid were put in, um, the Higher Education Act and the Federal Family Education Loan Program. Again, more subsidization, more built on the grounds that, wow, college isn't really expensive. Gee, I wonder why college is getting <laugh> so expensive. I mean, some, in some cases the quality of the schools was increasing. Of course, you would expect that, you know, generally, we're not saying that we shouldn't be seeing that in a free society.
Speaker 1 00:15:06 The quality of college education or the, or the facilities which people point to, uh, being upgraded shouldn't cost more. But by this time in the mid sixties and seventies, economists were already starting to see, uh, tuitions books, room and board indices, price indices, galloping way ahead, going up way faster than consumer prices and other things. So there was a, a noticeable disproportionate boom in the prices of these things that didn't seem to be attributable to much other than the increased government subsidization. And of course, that just fed to more people saying, wow, we need more government support cuz it's getting so expensive. Um, anyway, that pretty much brings us up to the present. All that's happened since, um, is the government largely taking over? This is the big story of the last decade. All student loans. So the big change was 2010. You may forget this, but in 2010 when almost no one was looking, and when Fannie Mae and Freddie Mac were failing, so was a thing called Sally Mae.
Speaker 1 00:16:14 And Sally Mae was the student loan guarantor. Whereas Fannie Mae and Freddie Mac guaranteed home mortgages, Sally Mae, were government agency. It's just short for a, a long string acronym student loan something, um, it failed as well. So there were massive student loan defaults. 2010 is pretty much the year that there was Occupy Wall Street. So lo and behold, Congress passes something called the, uh, what's it called? Do I have it here? I don't have the name of it. Student Aid and Fiscal Responsibility Act. And what it do, it basically banished all private bank lending to the students. It basically said no one should be pro off of these students with their loans. So they, they, they bought out the government, federal government bought out all the private loans that could be found and it became the sole lender. So that's a long winding way of saying how could Biden stand up and say, I'm gonna cancel loans cuz he's the lender as president, uh, or the, or these congressmen, the senators, they could sit there and say, we own the loan. We're the lender to these, um, students so we can unilaterally this is how they're thinking. I'm not justifying this. We can get you unilaterally. Forgive loans, extend loans, restructured loans. Some of them are talking about why not just forgive loans to black students? Why to narrow the racial wealth gap? Why? Well, to make up for, I'm giving an argument that
Speaker 2 00:17:48 They give decades of inferior treatment of blacks including, uh, admissions to universities. So you can see all the standard kind of political things, the racial, uh, the political interest groups. Certainly students and professors generally lean toward the more status side of the spectrum. So, uh, any arguments that say the taxpayers shall shoulder the burden of these debts, you know, versus what Tucker Carlson and other conservatives would prefer to do. They have a more populous mess. What is their message? Don't make the universities eat it. Go, go tell Harvard, Dartmouth, Yale, Stanford, tell them to take a hit to their endowments. And, um, of course they don't have the bulk of the loans anymore. Uh, so there's pressure from that side. Uh, but the whole thing is, I think, a complete mess because largely at root, because of this underlying premise that this is a, this is a right, it's no different than saying healthcare is right or, uh, my own a home, even if I can't afford it, right?
Speaker 2 00:19:05 To get a college degree, even if I can't afford it, even if it's, uh, not a worthy degree. It's a big problem. And it's, it's, they all stem, I believe still from the root cause being, uh, altruism that the, the betters must sacrifice for the lessers. Now, there's a little twist here that's odd and pilots, your argument will go something like this. How can they away with doing it? Cause college students generally are seen as privileged, uh, forgetting race from it. They're seen as, uh, you know, the dream of the crop, and they get to go to college. Argument from the populist side would be, wait a minute, how can you cancel, say the fifth thousand in debt from a student who went to Yale? And yet Dow knew there are poor people who are not gonna get a $50,000 check. I mean, when you cancel a liability that increases your net worth just as much as if they gave you a check and you put it in the bank.
Speaker 2 00:20:03 So cancellation of debt increases net worth. The argument is, wait a minute, all these college kids, these privileged kids who went to college, why should, should they get this disproportionate benefit? Now that's not to me a philosophically sound argument because a, anyone can just come in and say, oh, okay, we'll remedy that by writing $50,000 checks to who didn't go to college. So you see where if you're not consistent in this argument, you just get a, like a massive, uh, payout and cancellation of debt at the same time. So, so, uh, it'll be curious to see where this goes. I do think there will be some kind of cancellation, but I think they're also gonna have to, if they're also gonna have to do it soon, because there is the beginnings of pushback the other way. But it's not, it's, I don't know if there's much of a populist argument from the right to be able to say, don't bail out these college kids.
Speaker 2 00:20:56 Um, one last thing that, and I'll leave to you guys in, uh, economics. Um, there is this principle of public goods versus private goods. And this is somewhat of a technical issue, but economists debate, uh, what are considered private goods and public goods, private meaning perfectly, uh, uh, provisioned by the private market, based on the profit motive. And public goods are seen as those that the market tends not to produce or doesn't produce enough of, or it's just difficult to provide. So the standard ones are, and Objectivism talks about this, of course, national defense police courts from a philosoph perspective, if those are things that defend and uphold individual rights, they're justified government functions for that reason. But from an economic standpoint, many economists will also say, well, those things difficult for the markets to provide, why they're what's called free rider problems. If someone doesn't want to pay to contribute to those.
Speaker 2 00:22:01 Nevertheless, you still get national defense. Nevertheless, you still benefit from law and order and the court system and the police and things like that. So the argument is in cases like that, one, it's a legitimate government function. Two, you shouldn't be a free, right? So we get to tax you. Now, if that was all government did, the tax load would be very light. They do way more than that. I mean, the last time I checked the government federal budget, probably 98% of it is on stuff other than those three would be less than that 90%, the federal, national, the, uh, military budget's very big, but probably excessively big. Uh, at any rate, back to education, it is considered in economics. Sad enough, the education is a public good. Um, now the criteria they use is, you know, whether you can charge someone for the good and nobody else, uh, you know, is a free loader.
Speaker 2 00:22:55 That's definitely true. I mean, you can have a, you can definitely provide education and exclude those who don't pay. It's easy enough. You close the door or you check the enrollment records. And if they haven't paid, they don't get the courses, they don't get the, they get the enrollment. But the way economists argue, it is totally social utilitarian grounds. They say something like, an educated citizenry is a better society. Uh, a more educated voter electorate is, uh, gonna be a better, safer society. And, and therefore, senator, here's the, here's the, uh, nonsequitor. Therefore, government should subsidize it. Otherwise markets would leave people, uh, uneducated. Uh, it's a, it's a fallacy, it's a mistake, but it's one of the things out there contributing to this. But of course, that argument's been around for at least a hundred years or so. That's not really in my view what caused this massive increase in government involvement in financing education.
Speaker 2 00:23:55 I'm not really an expert on the international aspects of this, but the few cases I've studied, apparently the US is pretty unique in this regard, which is, uh, which is somewhat surprising to me. If the welfare state began in Europe, which they did, starting basically with Bismarck, I would've guessed that there was way more government funding of, uh, higher education in Europe compared to the us. And the US was only just catching up. But no, apparently the US is way ahead in the bad sense, in the way ahead of financing this, uh, compared. Um, now I haven't said anything about lower education, the public schools, the high schools, the elementary schools and things like that. My own view is that government shouldn't be financing any of this at any level. Uh, but the focus tonight, of course, is mostly on these proposals too. Uh, can lower tuitions have free tuitions and cancel debts?
Speaker 2 00:24:53 One last thing. Um, he who pays the piper names the tune. Okay? So that principle is operative here as well. We forget that the more government finances anything, the more as a say in how the product is and services delivered. And that is a huge problem. It is, if it was just a financial issue of imbalances associated with cost and tuition inflation and debts and things like that, that'd be bad enough. But on top of it, massive increase in government spending on, um, uh, schools all the way up from, from beginning all the way up, uh, contributes to government saying what should be taught and, um, determining what should be taught. And the whole process of immunizing schools from competition is a big problem. So it's, it's even a further problem when it gets to research. So the nsf for example, the National Science Foundation, there are other agencies, they finance professors research, and in all the fields, by the way, not just the heart sciences, they finance them also in poly PolySci and econ, uh, say climate studies.
Speaker 2 00:26:10 Um, and there's a real bias there, uh, against, uh, capitalist, uh, conclusions and a real bias in favor of anti-capitalist conclusions. And, uh, those who, those science writers and others who write about junk science in all its dimensions, whether it's climatology or other things, are really worried about the diminution and quality of research at universities. And I notice this is quite apart from the teaching. It's quite apart from the tuitions. It's just the, the financing of research and that that research is being bastardized, that its being twisted in a way that is in favor of government intervention. Um, so that's an issue to con consider as well. That's someone in the cha and externalities. Yes, regardless, public goods argument, it's argued that education has positive externalities. Externalities meaning things that benefit others who aren't part of the transaction, and those others don't pay for it.
Speaker 2 00:27:14 Those others get this, uh, wonderful indirect benefit of all these colleges coming on campuses and improving the country. And so, so the argument is, uh, the thing has to be subsidized. So there's one subsidize. It's, it's the opposite of the negative externalities argument that economists give for things like pollution. So pollution, they say, well, that's a negative externality. That's a case where you are imposing on others a cost. You're not delivering a benefit, they don't pay for, you're imposing a cost that you don't pay for. So that's usually met with a task, whereas a pod externality is met with a subsidy from government, usually one just financing the other. So, so we're, we're talking about the education side, and yes, on the education side, they'll say, this is a positive externality, therefore government should subsidize it. Now, even if you want to go that route, which I wouldn't, I would just say, okay, don't go the externalities route. That's just an unjustified, uh, argument for expanding the size and scope of government. But sometimes you can go the root of saying, well, hasn't it become a negative externality? <laugh>? In other words, ha hasn't it become the case that this whole system is so corrupted now that hoards of people are coming off campus, uh, polluted with really bad ideas and really bad policy, uh, like canceled tuition that canceled death, that they're a negative externalities, so they shouldn't be subsidized. That's a, that's an argument within an argument. So I, I will leave it.
